Financing Green Energy in the Midlands

What would ‘commercial’ delivery look like in terms of a successful, investable, local low carbon energy project?

Earlier this year, Leicester City Council declared a Climate Emergency in February and is determined to move toward their zero-carbon target through initiatives such as the promotion of external wall insulation, integrated low carbon heating systems, in-house energy cost reduction and a £15m public-private partnership for developing district heating systems.

However; like many local authorities, they face challenges in developing projects. Ambitious as these local initiatives may seem in concept, many of these projects aren’t large enough on their own to move toward net zero and 96% of all such projects are still only at the conceptual or feasibility stage.

That’s why UK100, a network established to support UK local authorities (urban, suburban and rural) committed to shift to 100% clean energy by 2050, chose Leicester to hold the second in a nationwide series of workshops aimed at facilitating good debate and exchange of views in open and closed forums.

The Leicester event, supported by Siemens, was held earlier this month. Shoosmiths was delighted to sponsor the event, chair the first panel session and host one of the tables in the afternoon surgery session.

James Wood- Robertson and Nick Iliff, joint sector heads infrastructure & energy sector, attended the event, with James chairing the first of the morning panel sessions titled ‘Developing Investable Projects’. Nick participated in a surgery session on ‘Developing a ‘Bankable’ Project’ which explored the legal issues to be addressed when structuring the finance for larger-scale commercial delivery of local energy, including the aggregation of individual projects to create larger programme funding opportunities.

James says his chairmanship allowed an interesting overview of some of the key issues discussed, pertinent not only to local authorities in the Midlands, but also other city centres across the UK:

“It’s clear that there are a multitude of funding options available to local authorities looking to develop schemes and while some had not yet dipped their toes in the water, there was a strong appetite from local authorities to invest, directly or indirectly, in clean energy projects.

Some local authority attendees were already purchasing energy directly from renewable energy generators. Indeed, some were developing and operating their own renewable energy projects.

Equally, some of the leading funders in this space, including Octopus, Amber, Leap Frog, Abundance who were all in attendance, were clearly also keen to invest in local government-backed projects, but those projects need to be of a size and scale to attract investment funds and local government projects often fall below that level.”

Nick notes that there was a recognition amongst the attendees that, to meet the Government’s 2050 net zero targets, immediate action was required, and that local authorities and regions need to formulate ambitious long-term strategies that take a holistic view of the entire energy system:

“My impression was that, whilst there is an understanding of the scale of the challenge and an ambition to achieve it, the means of delivering it is far less clear. Delivery of individual projects are all well and good, but a wider system view needs to be taken.”

Nick also maintains that there could be no doubting the enthusiasm and commitment of leading energy systems and smart technology suppliers in attendance (Siemens and SSE Enterprise) to invest in and deliver green energy projects and systems in partnership with the public sector. However, some issues raised in the surgery session - such as how to structure a deal, the comparative advantages of public and private finance and what funders need to see to make this scale of investment attractive – also highlighted their reservations over the challenges that must still be overcome:

“The concerns of private sector providers in particular expressed in the surgery appeared to be based around the constraints and restrictions that public procurement rules may place on delivery, as well as procurement rules where scoping work undertaken for a local authority could then be used as the basis of a procurement and private sector contractors may see their ideas opened up to the market.”

The concept of long-term JV delivery models between public and private sector were also part of several discussions James and Nick had with public and private sector attendees on the day. Highly relevant given the very recent announcement that Bristol Council is going out to market to procure a JV partner to deliver the City Leap Energy Partnership to attract, facilitate and deliver at least £1bn of low carbon and smart energy infrastructure investment in Bristol’s energy system.

Such an investment would not only help achieve low carbon targets, but also have significant additional benefits including a reduction in fuel poverty (an estimated 60,000 Bristolians are living in fuel poverty) and improvements in residents’ physical health.

James concludes:

“The consensus view was that, while local ambition and goal setting is essential, central government support is also vital to help develop projects through the provision of development capital and support in developing a business case. Many potential investors also indicated that a single gateway through which to communicate with various stakeholders would be very helpful, and UK100 is to be congratulated for trying to facilitate such an approach via Clean Energy Action Partnerships, which bring together multiple finance streams, teams of experts and local authorities to drive projects forward.”