Nov 30 2011

The Catch-22 of Community AD

In early 2008 I came up with what I thought was a  fantastically unique idea to develop a community-owned anaerobic digester in  North Herefordshire.  I thought the idea was so good that I wrote an application to NESTA’s Big Green Challenge for some funding and duly found out that a nice chap down the road called Jay had written an almost identical business plan.  And so as Jay and I were introduced, Project LeAD (Leominster’s Anaerobic Digester) was born.

Three years, and much hard work later, we still do not have our community-owned AD plant built, but we have learned a great deal along the way. Thanks to the time given by both our businesses, Low and Behold and Biologic Design, and the financial and business support provided by Sharenergy and ReAlliance, we have been able to delve deep into the world of community ownership and AD.

When we started our project, the impetus was to support the local economy.  The plan has always been to develop an asset that could deal with the waste from local farms and food producers, create renewable energy and a financial return that could be used locally, and a product that would help our farmers become less reliant on chemical fertilisers.  The closed loop nature of the project made it an ideal candidate for community ownership.  At our first public meeting, two years after the idea was born, over eighty people turned up and without a doubter, all offered their support and most offered to invest their money.

The project identified a site, conveniently located on the outskirts of town and secured a potential heat client in the form of the local swimming pool, which was willing to discuss a long-term contract.  The legislative environment was good, with the introduction of feed-in-tariffs being imminent and the Renewable Heat Incentive in the pipeline.  However the plant is not yet built and the experience highlights some of the issues for the development of community-owned assets and of AD.

The first unexpected and interesting issue raised by this project was around what constitutes a community.  For Project LeAD the idea of a community was geographic: the project would operate for the benefit of a market town and its surrounding area and in an ideal world, the investors would mainly come from the county.  We gained support from the Co-operative Enterprise Hub to investigate how to develop a co-operative model that would reflect this; support that was based on our definition of community.

However the question was often asked whether it would be possible to raise the finance in such a limited area.  For the 20,000 tonne per annum plant modelled it was estimated that 50% of the equity, approximately £1million, would be raised through a community share offer.  If the money could not be raised within a geographic area, but had to found further afield, would this still be a ‘community’ owned project?  If the definition of community were widened to mean a community of interest, for example, and investors came from all over the country, would that still be community-ownership?  Or does that take a project too far from its original purpose?

We were confident that with a return to investors of 6-8% and the tax benefits from the EIS, that the fin ance could be raised locally.  In fact, many of the stages of development that we thought initially would be problematic turned out to be straightforward.  A number of suitable sites were identified; a local business partnership was established to spread digestate and relationships built with farmers who would take the material; food producers and farmers with slurry who were keen to work with us were introduced and the technological options for our feedstock mix were appropriate and cost-effective.

The Catch-22 situation arose when it came to getting commitments in writing.  We needed to have feedstock contracts in place for 75% of the total volume in order to access the finance.  But when it came to sitting down with identified feedstock suppliers to agree the Heads of Terms, we were unable to reach agreement.  What was the main reason for the unwillingness of companies to sign a contract? Because we had not yet built the plant.  Yet the plant could not be built without the finance which could not be accessed without the feedstock contracts.  And so we went round in circles; the classic Catch-22.

Project LeAD expanded and incorporated, becoming Marches AD CIC.  The expansion brought with it the Cwm Harry Land Trust who had an existing IVC and food waste collection service.  Partner farmers guaranteed a slurry baseload, but still we could not reach the magical 75% target.

The problem with an unwillingness to sign contracts came ironically, with the increased awareness and confidence in the AD market.  In 2008 when we spoke to potential partners, any hesitancy was around the capability of the technology.  By 2010/11 this had changed and an unwillingness to sign a feedstock contract was based on the perception that the market was changing rapidly and that a better deal could be reached if the feedstock provider waited.  We were told that because it would take 18 months to build and commission a plant, anyone signing a contract now could lose out from potential falls in the gate fee that could happen during that time as more facilities came on-stream.  Feedstock providers increasingly asked why they should commit to anyone when the market was on the cusp of being ‘flooded’ with facilities.  So we found ourselves in the peculiar situation of being stymied by the increased awareness and promotion of AD as a solution to an organic waste problem.

For communities thinking of owning and developing their own renewable energy infrastructure, there is a valuable lesson to be learnt from this experience: feedstock contracts are key.  While skills, expertise, site and technology all have an important part to play and will be critical in the operation of a plant, the project will not be able to overcome the Catch-22 of financing without the feedstock contracts.  As the organics processing market develops and more facilities are built, the problem is likely to become greater.

The gate fee for food wastes is indeed falling.  We shall have to wait and see whether this knocks some of the fledgling players out of the market as in the short-term there are likely to be significant pressures on gate fees.  However the reality is that policy has been the key driver of AD, as a response to both the Landfill Directive and the need for increased renewable energy.  The solar industry has already suffered from unexpected changes to the FIT regime and the uncertainty over the stability of future funding makes it even harder to raise finance for infrastructure projects.  Politics has, on the one-hand, blown hot air into the AD industry and given the perception that the market is about to explode, which in our case made it difficult to get those critical feedstock contracts.  While on the other hand, policy, from FITs to the Waste Review, is making the investment environment less certain.  All of this does not mean a bleak future for AD or community ownership, but it does make it harder for new entrants to the market.

Project LeAD is on hold, but not dead.  We have become more inventive in our approach and are now looking at potential joint-ventures.  The community is still enthusiastic about owning an asset and 18th October sees the launch of Leominster Community Solar, a 50kw PV array on the local sports centre, again developed by Sharenergy.  While the AD may not be built, the opportunities for other communities to learn from this experience are great and it is hoped that with our support, a community-owned AD will be built in the Marches.

Philippa Roberts MCIWM is the Managing Director of Low and Behold.

Project LeAD and Marches AD CIC were supported by WRAP as part of the ReAlliance, The Third Sector Capacity Building Programme.  Two reports were commissioned, and three-months of staff time were supported, by Sharenergy as part of a project funded by AWM.   Legal support was provided by Community First, through the Co-operative Enterprise Hub, an initiative of the Co-operative Group.  More information about the learning from this project can be found on www.lowandbehold.co.uk.

This article first appeared in the CIWM Journal, November 2011

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