Community Energy Company investment policy

Investment policy

The Highlands and Islands Community Energy Company’s investment policy is to assist communities in the Highlands and Islands to benefit from involvement in and ownership of renewable energy projects. Through its investments it seeks to equip communities with the means of securing revenue streams over the long term to support their own development.

Powers

The company has wide ranging powers to assist in the development of community renewable energy projects, including powers to provide financial assistance in the form of grants, loans and through the acquisition of shares of any other company.

Funds

The company currently manages several funds designed to enable it to assist community projects.

These are:

• The Revolving Investment Fund: Currently holding a capital sum of £700,000, established through grant assistance from Highlands and Islands Enterprise;
• The European Regional Development Fund (ERDF) and a credit facility from Social Investment Scotland. This fund will be used to make capital investments in community-owned renewable energy generating projects. Investments will be redeemed at the earliest possible date, to allow the fund to be replenished, so that further projects can be assisted via the fund;
• The CEC Technical Assistance Fund: This has been established with assistance from HIE and ERDF to assist with the pre-planning consent (high risk) costs of project development and capacity building in community groups undertaking project development. A sum of £250,000 a year for three years has been allocated to this fund. Assistance will be in the form of grant or loan, depending on the circumstances of the project.
• The CEC will also manage the Scottish Community and Householder Renewables Initiative grant fund. This will be managed separately to the above funds and is not covered by the terms of this investment poli

The market

The Highlands and Islands has a well-developed community-organisation infrastructure, comprising community associations, enterprises, development trusts and groups - and a wide range of voluntary groups. Around 150 groups have already benefited from assistance under the SCHRI for small-scale renewable projects, reflecting significant enthusiasm for renewable energy at community level. A number of these groups have gone onto develop larger projects.

Currently, 11 community organisations are actively developing projects and it is reasonable to expect at least a further 10 will wish to do so, perhaps more, over the next three years.

In general, the company’s focus will be on projects of less than 5MW of installed capacity. Most community groups are unlikely to wish to take a larger project forward owing to the risks and costs involved. The company will therefore be operating well below typical commercial scale developments.

Investment objectives

1. The company will primarily invest in renewable energy projects controlled by non-profit distributing community-owned organisations. The primary purpose of such projects will be to secure long term revenue to fund community development measures.
2. The company itself does not aim to hold long-term investments in individual companies. Rather, its mode of operation will be to invest for only as long as is necessary to ensure a secure and viable financial structure, taking into account the level of equity and debt, for each project. The investment period will typically be between 5-10 years.
3. During this period the company will aim to secure a return on its investment, allowing it to cover its costs of operation and any other related costs. This is likely to be in the 4 per cent above base range and may take the form of capital growth and / or annual dividend.
4. An important objective for the company will be to provide a continuity of advice and support necessary to engender the confidence, skills and professionalism in community companies managing a project. For this reason, the company will normally seek to acquire voting shares in the managing company. The company will invest through acquisition of non-voting shares where it considers this necessary to assist a company’s financial structuring. The minimum value of an equity (voting) holding shall be £25,000 and it will not have more than 30 per cent of the voting shares issued by a company. The total value of the company’s shareholding is unlikely to exceed £200,000 during the first 12 months of its operation (up to April 2006).
5. The company’s shareholding will normally be acquired by the relevant community organisation according to the terms of a redemption schedule agreed prior to the company’s investment.
6. Where it considers it appropriate to do so to secure a viable financial structure for a company, the company shall provide loan assistance, either on its own or in conjunction with the acquisition of shares.
7. For the company to invest in a project, it must be controlled by a non-profit distributing community-based organisation through a majority voting shareholding or other appropriate mechanism.
8. The company will seek to agree in advance that in the event of a project being wound up, its assets will pass to an appropriate community-based non-profit distributing organisation.
9. The company aims to ensure, through operation of its grant fund, that community projects are not prevented from being developed owing to the difficulty of securing financial assistance prior to securing planning consent. The company will assist with initial feasibility costs, where necessary, and pre-planning consent costs normally up to a total cost of £50,000 or 80 per cent, whichever is the lesser.

Process of assistance

All projects will have distinct stages allowing a measured approach to assistance by the company. The following  table indicates these stages, the nature of assistance available from the company along with the conditions it is likely to apply to this assistance. This table is for guidance only – each project will be assessed by the company according to its particular circumstances.

Stage	Purpose of assistance	Amount	Pre-commitment conditions	Pre-payment conditions
Start-up	Assist with the costs of setting-up a community organisation to develop a community-owned project to disseminate information and create awareness.	Up to £2,000 grant, payable in advance where judged appropriate by the CEC case officer	Letter from community council chair and/or development trust chair endorsing proposal to establish group. Minute of general public meeting to elect members of an ad hoc steering group to develop idea.	Description of project proposal, outputs and materials to be produced.
Feasibility	Assist with costs of exploring technical, financial and social feasibility of project. Assistance for grid connection survey.	Up to £15,000 (or 100%) - whichever is the lower. Funding can be phased where appropriate for cash-flow reasons.	Written confirmation that rights to develop a site are likely to be secured. Written support from chair of community council and development trust. Written support from property owner where project is linked to a building. Confirmation that grid connection cost is financially viable given project scale.	Indicative community investment plan for revenues generated by the project. Phased project development plan. Completed community consultation process. Copy of completed feasibility report. Copy of constitution of community group.
Pre-planning consent	Assist with meeting planning, regulatory and project development costs. Assist with connection costs (grant convertible to loan or shares for connection deposit).	Up to £50,000 / (80%) grant or loan, convertible to shares where appropriate.	Local community support - in community where project is sited (70% support of attendees at public meeting). Feasibility report indicates economic viability.	Completed community investment plan - endorsed by community. Planning and regulatory requirements met. All necessary legal agreements completed (development rights, access, connection agreement etc.). Construction and cash flow plan completed.
Post-planning / construction	Assist with construction and installation costs of the physical project.	Up to £200,000.	Planning consent secured where necessary. Power purchase agreement secured.	Phased payment plan agreed. Agreed stages completed. Operation and maintenance plan agreed.