Finance that Empowers

By Dan Hird, Head of Corporate Finance at Triodos Bank UK

The continued success and growth of community energy is a shared goal for many stakeholders in Wales. Triodos has been supporting community energy groups across the UK for decades and we believe that helping communities come together to own and operate such important assets plays an important part in building community cohesion and raising awareness of and tackling the climate emergency. However, we appreciate that developing a successful project is not without its challenges.

Successful community renewable projects require access to finance and this is typically a combination of bank debt secured against the project asset, and risk capital raised through a community share or bond issue. Being able to raise this capital at the right price and on the right terms is essential to ensuring the long-term financial stability of community projects and generation of community benefit. Many groups have found it tough to raise enough risk capital at the right price and that’s why Triodos have launched a new community financing underwriting fund known at TCRUF (described below).

In our experience there are some important actions that successful groups take to make sure they are best placed to make sound financial decisions, secure the right funding and deliver long-term success for their communities – please see below.

1. Recruit a finance lead for the board - ideally someone with financial knowledge and expertise. Having a board representative who is comfortable with financial terminology and processes helps to ensure the group has a strong understanding of the group’s financial options available and can help to judge which are best.
2. Seek external advice early on – there are a range of investment funding options available to community groups. Organisations like Triodos offer support to groups on a case-by-case basis to help with financial modelling and identifying the right sources capital from investors. This can save time, money and ensure the group achieves its goals and maximises its impact as soon as possible.
3. Consider impact investment crowdfunding – there are an increasing number of environmentally minded and impact focused investors in the UK. Recent developments in the investment crowdfunding space have enabled individuals, including those in the local community, to support community energy projects. Through crowdfunding, community groups can access to thousands of engaged investors who in turn can directly invest in projects and take advantage of tax advantages available such as the innovative finance ISA (IFISA).
4. Ensure your finance is sustainable – although bank debt can be relatively low cost, short term bridging finance can be very expensive and onerous. This can result in community groups being left with a refinancing problem and difficulty in generating any retained profit for community benefit – which is the whole reason for a community project. That’s why it’s so important to consider the financing options and structure at the outset and prioritise long term solutions which potentially avoiding additional refinancing transaction costs. The Triodos Community Renewables Underwriting Fund (TCRUF) was created to provide community groups a with a long term cost effective community bond financing solution. TCRUF is available on a match funding basis to support community groups with the construction, acquisition or refinancing of renewable assets in wind, solar and hydro where Triodos Bank is the senior bank lender.