The Community Owned Renewable Energy (CORE) fund has blazed a trail in putting renewable energy projects in the hands of local communities, and ensuring they deliver real local impact. Rich Speak, managing director of Finance Earth and Peter Jenkins, chair of the CORE Fund explain how it works.

Environmental Finance: What was the thinking behind CORE?

Rich Speak: In 2015, the UK government introduced attractive guaranteed tariffs for community-owned renewable energy projects. About 65 of these projects ended up being built, but only around 15 were actually owned by or truly benefiting communities, with the rest in the hands of large institutional or overseas investors. We wanted to intervene to bring some of these assets back into true community ownership.

Peter Jenkins: Meanwhile, charitable trust Power to Change was interested in creating viable community businesses which can plough their profits back into their local areas through traditional grant programmes. We saw an opportunity to use £10 million ($12.8 million) of our endowment, alongside our grant programmes, in an aligned way to get the fund off the ground, in partnership with Big Society Capital.

RS: We launched the fund in 2017. We had three hypotheses: one, that we could create an impact fund that could offer investors equivalent returns to pure-play listed renewable energy funds; two, that bringing together these small, community solar farms into a portfolio would create synergistic value and could attract institutional-grade capital; and three, that if we created these community energy businesses, and provided them with an anchor asset, they could go on to create larger community energy businesses that could grow and expand the services they deliver for their local communities.

EF: How was the fund operationalised?

RS: We took the £20 million of equity from the partners, plus £30 million in debt from Big Society Capital, and went out into the market to build a portfolio. Finance Earth then went into the market, focused on those assets that were designated for the community but hadn't ended up there and managed to secure an initial seven solar assets as well as building out two more (including the UK's first unsubsidised community-owned solar farm), with a total capacity of 40MW.

We then optimised the portfolio, using our scale to negotiate better operations and maintenance, insurance and power purchase contracts. Crucially, we were able to optimise the debt, refinancing our Big Society Capital debt with £27.5 million in institutional capital from Abrdn in late 2021, securing long-term financing at a very favourable rate. Previously, the assets were generating profits of £8.5 million – now the figure is well above £20 million, which will be used by the community owners to tackle entrenched local social and environmental issues over the next 15 to 20 years.

EF: By what process are you transferring them into community ownership?

RS: We are working with five local community groups. In July, they will be undertaking community share fundraisings to raise the £2.5 million from local community investors to buy out CORE's equity position in the assets. Given the refinancing work undertaken by Finance Earth, we are able to transfer the portfolio to the communities for a much smaller amount of investment than would otherwise have been the case, making local community ownership of these assets a reality.

EF: These community groups have an important role in managing the associated Community Benefit Funds (CBFs). How do these work, and what are they funding?

RS: All operating profits the projects generate above those due to repay lenders are channelled into these CBFs. So far, they've provided more than £400,000 to local community groups – including a big release we did at the start of the Covid pandemic to help with the effects of the restrictions being imposed. We wanted local people to be able to direct that money at a local level to the issues that they really cared about. These often focus on fuel poverty and the cost-of-living crisis. A lot of it is focused on education around renewable energy, recycling and sustainable consumption and production. There's a project being supported in Wales, for example, call Build Me Up, which is about how communities can look at sustainable construction, and which includes a training programme for the long-term unemployed.

EF: How challenging was it to interest an institutional investor like Abrdn in refinancing the portfolio?

RS: I'd like to give them a lot of credit. While it's a reasonably sized portfolio, most institutional investors wouldn't look at anything less than £50 million. But they were committed to working through it with us. From their point of view, I think they saw the impact CORE was creating, in terms of tangible community benefits and local environmental restoration, like biodiversity programmes, in addition to the usual carbon savings associated with renewable energy.

EF: What about next steps for CORE and for Finance Earth?

RS: Once those assets are transferred, that will result in the closure of the CORE Fund. It's done its job: it's bought the assets, optimised them and will have transferred them to community ownership, creating over £20 million of future funding for those communities. It's created those community businesses, and it's more than proven all of its hypotheses – including meeting the return expectations of its investors.

PJ: When its assets are transferred, it will have increased the amount of community-owned renewable energy in England and Wales by 20%. That's a big deal and we know all the major political parties are again looking at community energy as an important model in the UK's energy supply mix.

RS: Whilst we aren't currently planning another CORE in the UK, from a financing perspective, this model of community ownership of important real assets is applicable much more broadly. Finance Earth is active in over 30 countries, and we're looking at the CORE model to help deploy community-owned renewable energy at a scale that could benefit small island nations, for example. We're also looking at linking renewable energy to electric fishing boats to reduce pollution, and sustainable ice production for fishermen in North and East Africa, to reduce over-fishing, because much of their catch is spoilt before it gets to market. We're looking at how we can create the infrastructure and use the CORE model as a way to embed this sort of approach and ultimately ownership into local communities rather than simply extracting value from them.

For more information, see: www.corepartners.org.uk