Mendip Renewables CIC crowdfunded a recent development using the Triodos Community Underwriting Facility. Image: Triodos.
Around the UK, community energy projects are popping up as groups look to decarbonise and lock in economic benefits. This includes projects like Ray Valley Solar park, the UK’s largest community-owned solar park, which confirmed in May that it's fully funded, thanks in part to a loan from Triodos Bank UK.
Solar Power Portal caught up with Chris Cullen, relationship manager at the bank, to discuss community solar, crowdfunding and the post-subsidy market.
When did Triodos become involved in the solar sector?
In the UK, Triodos’s first involvement in the solar sector was through our lending to Michael Eavis of Worthy Farm, best known as founder of Glastonbury Festival. A solar installation on the cow barn roof was financed in 2010 and was Britain’s biggest privately-owned solar farm at the time.
Our most recent lending in the UK has been to both ground-mounted and roof-mounted installations. Many of these are community-owned – for example, Heart of England Community Energy solar farm near Stratford-upon-Avon and Ray Valley Solar in Oxfordshire. Other projects have come from organisations looking to decarbonise their energy sources, such as the RSPB, which we supported with finance towards the installation of over 700 solar panels at seven nature reserves.
Globally, by the end of 2020, Triodos and our climate and energy investment funds financed 561 projects in the energy sector. This includes 252 solar power-generating projects.
What about the solar sector attracted you to the market?
We specialise in providing a range of finance and tailored support to progressive companies, social enterprises and charities making a positive impact, both from an environmental and social perspective. Therefore, funding renewable energy fits very well into these values, as the bank acts to decarbonise the energy sector and reduce the impacts of climate change.
From the start, energy generation has been an important theme for Triodos. In fact, the Chernobyl disaster in 1986 was a moment that opened many eyes to looking for safer and cleaner energy sources, and was a key reason the bank started to finance projects in the then-burgeoning renewable energy sector. Triodos was the first bank in the Netherlands to finance wind turbines and since then the bank has built an extensive network and expertise across all renewables, including solar.
Solar has been a focus for us specifically as the sector uses proven technologies for renewable energy generation. Community-owned solar in particular offers multiple positive impacts- these projects not only help accelerate the clean energy transition, but their profits also benefit local people.
How challenging is it for solar farms to find funding?
It was not hard for solar parks to find funding in the mid-2010s, however with the phasing out of the feed-in tariff and renewable obligation schemes, this time is over. We have seen the development of new solar farms fall off a cliff with the end of these subsidy schemes, as it’s a much more challenging operational environment.
In the subsidy-free world more novel thinking is needed and solar operators are having to adapt their business models. For example, we’re seeing projects that are refinancing existing operational assets to help fund the development of new generation. There are also opportunities to bring together public and private sector bodies to increase the value of power purchase agreements and help to provide more certainty around long-term revenue streams.
Are the challenges the same for community solar?
Yes, generally speaking, community solar projects face similar challenges to private operators, for example negotiating land rights, accessing affordable grid connections offers, etc.
On the crowdfunding side of things, we created the innovative Triodos Community Underwriting Facility (TCRUF), which has been available on a match-funding basis to support community groups with the construction, acquisition or refinancing of subsidised renewable projects, including solar, where Triodos Bank is the senior bank lender.
Recent clients Mendip Renewables CIC and Burnham & Weston Community Solar both benefitted from TCRUF, which gave certainty to the community groups that they would raise the required funding. It remains to be seen whether a similar product could be offered to subsidy-free projects.
Could you tell me a little about your crowdfunding platform? And how the fund raising for Ferry Farm went?
The crowdfunding platform was launched in 2018 and offers a range of crowdfunding opportunities enabling people to invest directly in equity or bonds issued by organisations delivering positive social and environmental impacts.
We’ve raised finance through our crowdfunding platform for three community-owned solar schemes – Mendip Renewables, Burnham & Weston Energy CIC and Ferry Farm Community Solar. Our corporate finance team has been blown away by the level of interest and support from retail investors for these. Most recently, the refinancing of the operational Ferry Farm Community Solar CBS included an £850,000 crowdfunded bond that was fully funded in just five days. The TCRUF product was in place for this bond offer as well, but in the end was not needed as demand far outstripped supply.
Our crowdfunding investors really understand the purpose behind renewables and are also savvy enough to understand that the economics of these projects has become more challenging since the withdrawal of tax reliefs which has reduced the financial returns and the need to invest for the long term (15 years +).
Has the post-subsidy environment changed Triodos’ approach to solar at all?
Yes, as with many banks, we are having to adapt our lending criteria, and how we view the approach to the long-term financing of solar projects. In particular, the long-term electricity off-take strategy is a key part of this puzzle.
The bank’s approach to lending to subsidy-free is to focus on projects that are power purchase agreement-enabled, as this means that there is certainty over a significant portion of the project’s revenue. We’ve also had conversations with some developers that are looking to include co-located energy storage, for example with the lending that we undertook in 2019 to Heart of England Community Energy.
What’s next for Triodos in the solar sector?
The solar sector will continue to be a focus area, given the clear opportunities for solar PV. It has a crucial role to play in the distributed power sector, especially in towns and cities to align with the electrification of transport, and the combination with smart grid and storage. We’re focusing on continuing to develop our financing in these areas.