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THE “POWER” OF COMMUNITY RENEWABLE ENERGY ENTERPRISES: THE CASE OF SUSTAINABLE HOCKERTON LTD.

THE “POWER” OF COMMUNITY RENEWABLE ENERGY ENTERPRISES: THE CASE OF SUSTAINABLE HOCKERTON LTD. By Dr Geeta Lakshmi (University of Lincoln ) glakshmi@lincoln.ac.uk and Mr. Simon Tilley (HHP). Aim.

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THE “POWER” OF COMMUNITY RENEWABLE ENERGY ENTERPRISES: THE CASE OF SUSTAINABLE HOCKERTON LTD.

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  1. THE “POWER” OF COMMUNITY RENEWABLE ENERGY ENTERPRISES: THE CASE OF SUSTAINABLE HOCKERTON LTD. By Dr Geeta Lakshmi (University of Lincoln) glakshmi@lincoln.ac.uk and Mr. Simon Tilley (HHP)

  2. Aim • We introduce a framework for recognizing and thus measuring, improving the contributions made by stakeholders. Built upon the idea that Community Energy Renewable Companies are focused on balancing three objectives related to the community, investment and environment • We illustrate this concept by using a case study of Sustainable Hockerton Ltd. (SHOCK), a small community organization in Nottinghamshire, U.K. • Our model acts both as a signpost to see where we are and as a signal where we are going.

  3. Our proposal: RoSC & CoSC Two new measures, termed the Return on Stakeholder Capital and Cost of stakeholders’ capital. We argue that the stakeholders of the firm viz. the investors, the community and the environment also should be compensated for the use of borrowed capital, be it financial, environmental or community volunteering. The firm should compare the return on all new projects (Internal rate of return) to the cost of stakeholders’ capital.

  4. Three Stakeholders in Community Renewables (Raworth, 2018) • Investors (fiduciary duty) • Environment (Meadows et al. (1972, 2004) Starik, 1995 • Community (Schoor & Scholtens, 2015, Willis et al.,2016)

  5. Sustainable Hockerton Ltd. • Community wind turbine project jointly owned by locals and promoted by locals using a Vespa29 turbine which the villagers had jointly purchased in 2009. • Discussion started July 2006. A village postal survey, February 2007, with a 25% completion rate -29 households supported the project and four were against. Desire for making village carbon neutral. • Meetings regularly took place to decide form, legal structure and practicalities. • Form of an Industrial and Provident Society. • The application for a small 225kW wind turbine was submitted to the local authority on October 29th 2007, installation took place in Autumn 2009 and production started in 2010 (Sustainable Hockerton Ltd. 2016).

  6. RoScand CoSc • The cost of capital is calculated through the following equation: • (1) • Where D: debt investment, E: equity, i=interest rate, d=dividend rate • If there are three stakeholders, the cost of stakeholders’ capital becomes: • (2) • Where W=Environment capital i.e. Monetary value of investment by environment • F=Financial capital invested • S= Community/Social Capital i.e. Monetary value of volunteers invested • e =Percent Return on environment • k=Percent Return on financial capital • c=Percent Return on society

  7. This combined figure (eq 2) is Return on Stakeholders’ capital’ (RoSC). • Measurement when using the model requires knowledge of capital and of returns to the three stakeholders. • There are several ways to impute this. One variant is using figures from SHOCK as an example. 

  8. The Drivers • Calculations for F and k • These are the most straightforward of all. SHOCK invited capital from local villagers in the form of members’ holdings worth £500 each. In total £235,250 was raised for the purchase and installation of the wind turbine. The village decided that the range of financial return should vary between 5% and 8%. This was done with the consensus of the group after one of the residents recommended the rate based on the Bank of England rate. Thus F is £235,250 and k is computed from the monthly and annual accounts of the company made every financial year.

  9. The Drivers: W and e • Figures collected include carbon emissions saved in tonnes per month.Thisallows us to calculate the monetary value of carbon emissions saved for the time in operation. If we trend this for the remaining life of the project, for say 15 years, we can obtain the estimated monetary value of returns in the form of savings in carbon emissions. Totalling these will allow us to calculate the cumulative monetary returns. • A technical estimate for the efficiency of use of energy is EROI i.e. the ratio of energy delivered to energy cost. Kubisewki, Clevland and Andres (2012) for wind turbinesbetween19.8 - 25.2.

  10. …contd. • W the environmental capital cost of the project and not easily available. It refers to the monetary value of environmental resources taken to construct, commission and decommission the wind turbine. The figure for e refers to the imputed returns for the environment’s role as a reward in exchange for the environmental capital. • If we take the EROI figure (say 19.8) to be correct and we use our estimated cumulative monetary value of carbon emissions saved, we can work out the figure for W i.e. environment cost. Using annual figures for monetary value of carbon emissions saved and dividing by W allows us to estimate the various annual values for e.

  11. The Drivers -S and c • The community capital, S is the imputed capital invested by members of the community. It encompasses all the monetary value of meetings during 2006-2009, the survey taken, the appeal by the Parish and the legal, technical and consensual framework adopted by the community and its various actors. The total man-hours estimated by converting to a monetary value by multiplying with the UK median wage rate. The value for c was obtained from the figures for village sustainability pot allocated each year in the accounts. Dividing these figures by S, allows us to estimate annual levels for c. Approachfollowed by volunteering websites (Haldane, 2014; Volunteer Centre, Bath and North East Somerset, 2016).

  12. Table 1 Estimated Capital and Returns for SHOCK

  13. For renewable community projects, CoSC &RoSC • Normally the return to stakeholders=cost of capital of company • However, as the return to the environment “e” is also the return to the business which is local, CoSc becomes smaller rather than larger due to the use of environment capital. • (3)

  14. If community is identical to investors • if an argument was made that x% of the village fund went back to all investors (a road was established with the proceeds used by all investors), then only (1-x%) of the share of the return to community capital would be added. If x=0.5, the resultant figure for CoSC (1) would be 4.583% for 2010, if x=100%, the CoSC (2) is 4.516% for the same year. • Thus we see that RoSC is an accounting measure but CoSc is an economic measure.

  15. Importance • The RoSC and CoSc can be calculated for any project and allows comparisons independent of scale and type of project. • Policy Implications: cheaper access to capital for firms with large RoSC. • Climate change policy • Other social policy

  16. Types of Firms: A Classification based on RoSc and CoSC RoSc II Conventional Companies HIGH I Renewables/ CREES/Social Enterprises III Keep Watch IV Polluters, Socially Undesirable firms CoSc HIGH

  17. Community

  18. Investors

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