Please send me SCA's fortnightly briefing:

January 29, 2014

Share in a new market

If a community has a project that needs funding, traditionally there are two routes for them to explore. Either apply for a grant from whichever source is available, or seek some kind of commercial finance from one of many the social investors in the market. Recently, a third option opened up for communities – to sell shares in their project. The Lottery is about to announce a major initiative aimed at ramping up the number of projects that go down this path. Lesley Riddoch reflects on why this funding model has been a slow-burner. 


Lesley Riddoch, Scotsman

I BOUGHT shares in a company last week – for the first time in my life. As a young leftie my formative years at university were spent opposing the gigantic sale of family silver by Margaret Thatcher.

That experience in the early 1980s left me with a lifelong suspicion of the stock market and an aversion to the vulture-like speculation apparently embedded in the investment process.

Of course as a self-employed person I have a pension but I wasn’t moved by the recent Post Office sale nor have I bought a single lottery ticket or scratch card.

So what broke the habit of a lifetime?

Not the blandishments of an FTSE 100 firm nor the recommendation of a financial adviser.

No – the appeal of Garmony Community Hydro is modesty, practicality and a powerful potential to improve local lives faster than shareholder bank balances. So this Mull-based community-owned energy company is unlikely to enter the portfolios of those with “serious money” – at least not yet. Even though it’s an excellent way to earn cash and support community development, green energy and the eradication of fuel poverty.

Garmony was dreamt up by Sustainable Mull and Iona – a small group of local people who met in a Craignure pub in 2008 and started devising energy-saving insulation projects.

In 2010 the UK government announced Feed-In-Tariffs, which made small-scale community-owned energy schemes more viable. Rumours abounded that Mull was being sized up for a large-scale wind farm, but a community-commissioned feasibility study showed hydro was a far better fit for the land, islanders and local economics.

It took three years of volunteer time, the success of previous island community projects and a new “community-focus” at the Forestry Commission to get the necessary permissions in place. Now – without a single sod cut – Garmony is already a valuable community asset with a lease of land from Forestry Commission Scotland, planning permission from Argyll and Bute Council, a water extraction licence from Sepa and a 400kW export licence from SSE.

Financially, it’s a slam dunk. Garmony should gross about £200,000 per year (much more with current levels of rainfall) before repaying loans, shareholder interest and operating costs. If enough start-up capital is raised through shares the project can return £100,000 a year to the community – with borrowing, returns will reduce to £30,000.

But even that could transform island lives. Net profits will be gift aided to an island charity – the Waterfall Fund. It will consider funding applications from island community groups, clubs and social enterprises. Proposals already include community mini buses for more remote settlements, apprenticeships, social enterprises and the supply of cut-price energy to islanders living in fuel poverty. What’s not to like?

All the project must do now is raise £330,000 by the end of February to convince commercial lenders the project is financially viable. But so far only half of that sum has been raised. Even at a time of recession many Scots have savings and could opt to make better use of it. So why don’t we?

A recent report by ResPublica, The Community Renewables Economy: Starting up, scaling up and spinning out, suggests 5.2GW of community renewable electricity is achievable by 2020 – enough to power three and a half million homes with a potential value of £6 billion to the energy economy. That’s an investment opportunity and a chance to help communities build resilience, connection and common cause. According to green campaigner Jonathan Porritt the combination is resonating with consumers south of the Border so that share offers in community-owned schemes like Garmony are regularly exceeding their target before the closing date. “People like the idea they can take energy matters into their own hands” – especially after endless price-hikes and mis-selling scandals amongst the Big Six energy companies.

So why is Garmony Hydro not inundated with would-be investors, why aren’t similar shareholder schemes blossoming across the hydro heaven of Highland Scotland and will the forthcoming Community Empowerment and Renewal Bill (whose consultation closes this week) do anything to help?

Basically, money has traditionally chased higher rates of return while community schemes have traditionally chased limited grant funding – and ne’er the twain have met. As a result, Scotland’s experience of community-led social enterprises has been weak.

Unlike Ireland we have failed to embrace credit unions. Unlike the Nordics and Spaniards we have failed to establish co-operatives. Unlike almost everyone we have failed to maintain a community-sized delivery tier of local government. And unlike any nation intent on dismantling oversized, disempowering bureaucracies we have failed to protect Scotland’s only real “self-help” success – the community-controlled housing movement in Glasgow. But times are changing.

Internet crowd-funding has introduced ordinary people with cash to ordinary people with marketable ideas. The result has been successful crowd-funded films, books and housing projects. Some people still believe it’s up to the financier, council leader, lottery official or government funder to kick-start change. Others have waited too long for these authorities to deliver and are taking matters into their own hands.

Communities in Scotland now own and run islands, bridges, pubs, wind-farms, libraries and boats. The forthcoming Community Empowerment Bill will go further and let communities take over underused public sector assets. But councils and quangos will still be able to drag their heels, confound volunteers and charge full market rates for sales and leases. Garmony Hydro will pay £6,500 a year to lease a narrow strip of Forestry Commission land. Why?

Indeed, why are such remote communities surrounded by state-owned forests with wind-blown trees and offcuts they cannot touch? The Forestry Commission does offer individual “scavenger licences” but generally only the able-bodied benefit. Why not offer community foraging and coppicing in every state-owned forest and fit wood burning stoves as standard in all rural social housing?

Such common sense operates in supposedly “backward” countries like Poland and Estonia. Here in Scotland, one young family has just quit their rural housing association home because the electric heating bill is unaffordable. My guess is they are not alone.

It may not be fair to expect community projects like Garmony Hydro to sort out such waste and unfairness when the authorities miss the mark. But they will. And so will other shareholder-funded community schemes all over Scotland.

I’ve just bet on it. So could you.