Setting up a local sustainable energy investment fund: Empowerment and a ‘can-do’ approach go a long way
Supported by Intelligent Energy Europe, the project
Mobilising Local Energy Investment (MLEI) Cambridgeshire
(L-CIF), which has been running since late 2012, aimed at testing the business case for a local Low Carbon Investment Fund by using public money and public
sector projects to leverage private investment and develop a bankable pipeline of projects.
L-CIF has now ended – but local sustainable energy project promoters will get value from the lessons learned.
The project successes are considerable. A Local Authority Fund has been operational since March 2014
and a Fund Development Strategy agreed. The Fund has contracted a total of €18.05 million of energy projects including a 12 MW Solar Park plus energy
performance contracting for five secondary academy schools totalling, nine maintained schools and seven public buildings.
Political support for the project has resulted in further finance committed into the Investment Fund of €7 million for projects during 2016. A portion of
the Fund profits have been earmarked by Cambridgeshire County Council for the purposes of funding an Energy Investment Unit to continue the work on energy
performance contracting for schools and public buildings, bring forward larger scale projects for investment and to scope the set-up of a Cambridgeshire
Energy Company as part of the Fund’s forward strategy.
A multidisciplinary team with the skills, knowledge and capacity is now in place to support project development and investment into energy projects across
Cambridgeshire comprising technical (engineering skills primarily), financial, legal, procurement and project management skills and knowledge.
The lessons learnt on the project include:
Having a strong Vision for Energy is sometimes not enough to engage stakeholders and get buy-in to take the vision forward.
A more successful approach for Cambridgeshire has been to connect the energy agenda into housing, transport and digital infrastructure visions plus
local asset management strategies. This provides a much broader influence and buy-in across a range of governance structures to bring forward projects.
Investible projects are the most important part of any Fund Investment Strategy.
There is a big difference between potential projects ( for example: 240 schools in the building portfolio) to an investible project which has a strong
business case and asset managers/decision makers committed to making it happen.
Project development costs are an investment risk.
There is a high drop-out risk for projects. This means you need a reasonable pipeline of projects if you want to reach investment targets and scale. A
large pipeline also spreads development cost risk. For the Cambridgeshire MLEI Project, the Intelligent Energy Europe grant mitigated some of this risk
but if this is not available it is important to plan carefully around projects.
Project drop outs occur most often due to lack of institutional capacity and knowledge and overall commitment of decision makers rather than
sub-optimal business cases.
For example, Local Authorities are risk averse and so any risk, even if its small can stop projects. If the public sector wants to make or save money
from energy assets it must accept and understand financial, legal and technical risk much better.
Setting up a Fund need not be complex.
Don’t over engineer the Fund at the beginning or it won’t be fit for purpose. Get something up and running which can be refined and developed
iteratively when the projects and market dictate. Starting small, learning and adapting the model/mechanisms to deliver the bigger long term picture
over time can be a more successful route than going big quickly.
Open to change and adapting your project is essential for success
. A lot of change can happen in three years between project idea and implementation. Political, financial and policy change can make a project unviable
unless a project adapts to these changed circumstances - don’t take the easy option and give up on a project because it feels too difficult, adapt it
so it works again.
You don’t know what you don’t know!
Senior Managers and politicians want answers and delivery route maps before you know them yourself. This can feel uncomfortable. It is important for
the project lead to know where they need to get too but the route map needs to unfold and adapt over time as more knowledge, experience and
understanding develops. To get the best route map it’s important to get a variety of professional inputs and viewpoints to shape the way forward. The
best example of this is writing tender specifications at the start of a project when you only have a high level of understanding of what is needed.
Empowerment and a ‘can-do’ approach go a long way
. Local Authority officers have significant transferable skills in finance, legal, infrastructure delivery, asset and project management. Applying
these skills to energy projects is not difficult if staff are empowered to have a go and there is a ‘can-do attitude’. However, the current financial
challenge in Local Government means that due to financial constraint , there is limited time and flexibility for staff is limited to learn and develop
new areas of work especially where there is complexity.
Accessing finance is not the biggest constraint to delivery.
At the start of the Cambridgeshire MLEI Project, investment into projects was seen as the biggest constraint to delivery. This perception changed
during the project – the challenge is securing quality projects at sufficient scale that brings investment at the right price and acceptable risk is
Investment decisions are not only made on a business case
. Public sector investors don’t necessarily make decisions solely on return on investment meeting a minimum hurdle rate. Even with a robust business
case, national policy uncertainty and the risk associated with it can influence public sector decision making as much as the commercial sector. Local
authorities may choose not to invest in projects if there is a perception that (i) there may be a better deal around the corner (ii) that technology
costs will drop further (iii) if there are more profitable ways with which to invest capital e.g. housing (iv) or if the public are not supportive and
understanding of the energy agenda.
Watch project director Sheryl French explaining how L-CIF works at a ManagEnergy workshop