The level of finance you need is very dependent on the scale of the proposed community energy project and the resources your community may already have.

Most projects are financed using a mixture of grants, equity (from owners of the development or through share issues) and bank debt (often upwards of 70% of the overall cost of the project). Bank loans often require collateral to guarantee the loan, which can present problems for communities who either do not have assets in the first place or are unwilling to risk them.

It is not until the final stages of the project i.e. after planning has been granted and a grid connection finalised that commercial finance from banks and other potential funders is likely. It is often the case that funders wish to prove the financial viability of the project to assess the level of risk it presents. Your community must be able to provide a professional business plan, projected costing, profits and losses, the resource assessment, technology supplier contracts and land rights documentation (see below for detailed guidance on how to do this).

It is extremely important to take legal advice at each stage of your project, particularly in the finance phase. Take a look at the Environmental Law Foundation, Community Central and Carbon Leapfrog. It is also important to ensure that any funding you receive does not impact your ability to claim Feed-in Tariff payments as this can significantly affect the viability of the project.

Models of Finance

Leasing Model
Under this model, the developer would lease the land space/roof area from the community, but retains ownership of the technology and therefore receives the relevant FIT payment. This method has become more common recently with many ‘free PV’ companies offering installation of solar PV panels at minimal capital cost. The community owners of the property will be able to use the energy produced and also receive payment from any excess energy that is exported to the grid via a power purchase agreement with an energy supplier such as Good Energy.

Loan Model
The developer would loan the community capital to install the chosen technology meaning that the community would have ownership of the installation. The loan would be paid back using the FIT payments (effectively a 0% interest loan). However, it is very important that the contract is drawn up carefully to account for such instances as the building being transferred to different ownership.

Gift Funding
Here money is ‘gifted’ to the community from an organisation or a private individual. To attract organisational funding it is crucial to be able to correctly submit a bid letter detailing why you require the capital. It is often best to approach someone with experience to do this as it is often a complicated process. Having a small amount of existing funding to act as an ‘anchor fund’ will also heighten your chances of attracting investment as it demonstrates likely credibility.

Equity Investment
This ‘cooperative’ model involves investment from members of the community themselves is also a popular option with the use of ‘community share’ schemes. Energy4all and h2ope both support community owned projects (wind and hydro respectively).