Our business

Low Carbon Gordano Limited

Five Year Business Plan

2018 – 2023

Prepared by Brian Titley & Paul Thurston

Approved by the LCG Board on 14.06.18.

Low Carbon Gordano Limited is a Community Benefit Society

Registered in England and Wales on 28th April 2011

Registration number: 31251 R

Registered Office: The Coach House, 2 Upper York Street, Bristol, BS2 8QN

www.lowcarbongordano.co.uk

1: Introduction – The purpose of this document is to explain the business strategy of Low Carbon Gordano Limited.

1:1-Our Vision

A low carbon future for the Gordano community, North Somerset and the wider world using a co-operative model to ensure community participation and ownership”.

1:2-Our Mission Statement

To help create a low carbon future through renewable energy generation, energy storage, renewable energy supply and other carbon reduction measures”.

1:3-Our Aims

  1. Achieving carbon reduction through developing renewable energy generation and storage schemes, renewable energy supply and supporting energy reduction programmes
  2. Generating a financial surplus for reinvestment in carbon reduction projects in our community
  3. Maximising local business and employment opportunities to help develop a sustainable local economy
  4. Encouraging all sectors of the community to adopt a low carbon lifestyle
  5. Collaborating with energy deprived communities in other parts of the world to achieve fairer, sustainable, low carbon lifestyles.

2: Our Community

When Low Carbon Gordano was established in 2011 we defined our community as the towns of Portishead and Pill and the adjoining villages. After 3 years experience developing projects, we realised that this area was too small to sustain a long-term sustainable energy business. As well as size, there are significant constraints which were not foreseen at the outset; these include the Green Belt designation which covers all of the original area and the presence of Bristol airport which has so far ruled out any wind projects.

At the start of 2014 we entered discussions with neighbouring community energy groups. We agreed to extend our community to include other parts of North Somerset and neighbouring areas. We also strengthened our board to include representatives from these areas.

Our area now contains the North Somerset towns of Portishead, Pill, Clevedon, Nailsea, Backwell, and Long Ashton and where opportunities arise can extend into neighbouring areas of North Somerset, Bristol, and South Gloucestershire.

3: The Need for Change

There are three main factors that drive the need for us to consider implementing sustainable, locally-owned energy solutions:

3:1-Security of supply

The UK is importing an increasing percentage of its energy.

This demonstrates how vulnerable the UK will be to future security of supply and also to potential price rises.

3:2-Environmental impacts

Our present energy supply is mainly from fossil fuels (coal, oil and gas) which, when burned, emit greenhouse gases that contribute to climate change.

3:3-Community understanding and engagement

One of the main drivers of change in any public system is the extent to which the wider population understands what is at stake and also the implications of different approaches to the challenges. We therefore regard engagement with our community and a wish to be actively involved as key to the longer-term implementation of our ambitions.

4: The Scope for Change in our Community

Low Carbon Gordano is adopting a three pronged strategy in order to reduce the local carbon footprint:

  • renewable energy generation including storage.
  • supply of energy to the public from renewable sources.
  • reduction of energy use and increased energy efficiency.

5: Our Products

5:1-Renewable energy generation

Solar PV: Currently we have installed two ground-mounted solar farms (total generation capacity 2.74 MWp) and three roof-mounted systems which are on community buildings (0.07 MWp), at a cost of £3.1million.

Despite current Government policy which has removed most of the financial incentives for solar schemes, we still see a potential for more roof-mounted systems both on commercial buildings and community facilities especially schools. Appropriate sites will all have the characteristic of a high-day time energy usage. LCG is actively seeking suitable sites. One example of such a project due for completion in 2018 is the installation of a solar PV system on the Churchill Academy.

LCG is also seeking to purchase existing solar PV systems. One example of this is the Kennels array near Backwell currently owned by Solarsense.

We are also actively exploring the new technologies around energy storage to maximise revenue and provide continuity of supply

Wind Turbines: Due to current Government policy, there is little prospect of developing onshore wind turbines. That said, we would be keen to invest in off shore wind farms if a suitable investment opportunity arose. This would require us to extend outside our stated geographical area.

Hydro, biomass, solar thermal and anaerobic digestion: We would be interested in any of these technologies but we have not been able to identify any opportunities.

5:2-Supply of energy from renewable sources

The hope of Low Carbon Gordano entering into a retail supply business via Mongoose Energy Ltd has not materialised. Instead, we will explore the potential of local smart grid and direct supply technologies.

Sale of generated electricity directly to domestic and business customers is an essential part of the future viability of projects in the context of a subsidy-free market. Two current examples are Northleaze School and the proposed arrays at Churchill Academy.

LCG has invested £2k seed-corn finance for a feasibility study about developing a local supply infrastructure.

5:3-Reduction of energy use and increased energy efficiency

We estimated in our community energy plan that energy demand could be reduced by about 20% if all potential measures such as loft and wall insulation were taken.

LCG have used grant funds to train a small group of volunteers to become basic home energy advisors and also in purchasing the supporting information and equipment.

LCG has established an energy advice service known as EASY – Energy Advice Service for You – and we have carried out a number of energy assessments for local community buildings and private households. This service is operated in winter months when the weather conditions are suitable for use of the thermal imaging camera.

We do not charge a fee for this service but accept donations to the Community Benefit Fund.

In addition to the surveys, LCG has invested in energy reduction and efficiency projects for community groups via the annual Community Benefit Fund grants (eg. installation of LED lighting).

6: Strategic Review

Low Carbon Gordano carries out a strategic review of its business each year. From the latest review conducted in March 2018, we have revised our five-year plan as follows:

Year 1 (4/18-3/19)

Years 2&3 (4/19-3/21)

Years 4&5 (4/21-3/23)

Grow the business Grow the business Grow the business
Remain financially viable Remain financially viable Remain financially viable
Meet all legal obligations Meet all legal obligations Meet all legal obligations
Fulfil our vision, mission and aims Fulfil our vision, mission and aims Fulfil our vision, mission and aims
Work more collaboratively Review O&M contract (Mongoose better value for money?) Professionalisation achieved through growth and/or merger OR default option – accept status quo
Explore smart energy, storage & direct supply Review relationship with Mongoose
Complete Kennels & Churchill projects & promote success Review new relationship with Quartet
Respond to opportunities that come our way Increased professionalisation through growth
Enhance the Boards resilience
Low key EASY
Develop new partnership with Quartet
Recruit a new chair
Agree new asset management contract with Mongoose
Agree land management contracts (Moorhouse & Ham Lane sites)
Consider tendering for supply/build any new projects
Introduce an open share offer

7: Strategic Partnerships

We have three key strategic partnerships:

  • Mongoose Energy Limited
  • Solarsense UK Limited
  • Co-operative Assistance Network Limited (CAN)

7:1-Mongoose Energy

Mongoose Energy evolved from Bath & West Community Energy Limited, with whom we already had a partnership. Mongoose Energy is majority-owned by community energy organisations and currently has ten affiliated groups which are incorporated as Mongoose Community Energy Members Limited. Mongoose Energy provide the following two services:

  • Asset management
  • Refinance debt / fundraising.

7:2-Solarsense

Solarsense is our preferred supplier of solar installations because it has an established track-record and is also a local firm which is consistent with our aim of developing a sustainable local economy. Solarsense provide the following five services:

  • Identification of potential new sites
  • Feasibility studies of potential sites
  • Development of sites ready for construction
  • Installation on approved schemes
  • Maintenance of installed schemes

7:3-CAN

CAN provides an overall Treasurer and Society Secretary function for Low Carbon Gordano. It provides the following four services:

  • Bookkeeping, financial control and reporting
  • Project budgets
  • Long-term forecasting
  • Regulatory compliance.

7:4-Other Links and Networks

LCG benefits from the following links:

  • CDA (BRAVE Ltd)
  • Co-ops UK
  • Co-ops SW
  • Centre for Sustainable Energy Bristol
  • RegenSW
  • Bristol Energy Network
  • Portishead Chamber of Commerce
  • Quartet

  • Zero West

8: Our Business Model

8:1-Legal Status

Low Carbon Gordano Limited is registered as a community benefit society under the Co-operative & Community Benefit Societies Act 2014 – Registration number 31251R.

8:2-Membership

The founder members of Low Carbon Gordano limited have all put their time and energy into developing Low Carbon Gordano in an entirely voluntary capacity.

Membership is open to any person, corporate body or nominee of any unincorporated organisation that supports the objects of the Society and who has paid or agreed to pay the minimum shareholding of currently £500. The Board may refuse any application for membership at its absolute discretion.

The Society operates in line with the co-operative principle of one-member-one-vote, regardless of how much share capital a member holds. This contrasts with companies which operate to the principle of one-share-one-vote.

Members of the Society have the collective right to appoint and dismiss directors, accept or reject directors’ recommendations and to determine the affairs and rules of the Society.

A copy of the rules, financial statements and other documents for members can be accessed via the website.

8:3-Board of Directors

The Board of Directors is made of up to twelve members, of whom eight are elected at the AGM and 4 are co-opted by the board. All of the elected board members are unpaid.

The Board provides a range of expertise and capacity which is harnessed to support the business. Longer-term we aim to have sufficient income from projects to pay for staff and contractors to reduce the time demands on future Board members.

For fuller details of the current Board members, refer to the website.

8:4-Personnel

Currently, LCG does not directly employ any staff. Our current development strategy however anticipates a growth path which would generate sufficient funds for us to realise this possibility.

LCG does pay professional fees reviewed on an annual basis for services received. The main suppliers of these services are outlined above in “Strategic Partnerships”.

We also have a co-opted director who is responsible for project development, data protection and some administrative functions and who is contracted on a self-employed hourly rate basis.

In addition, we have a small team of trained volunteers who provide the EASY service.

8:5-Premises

LCG does not have any premises. We rent room space as and when necessary and work from home.

8:6-Asset Lock

The assets of the Society are protected by a Statutory Asset Lock which means that in the event of dissolution the assets must be transferred to a similarly constituted body.

8:7-Liability

As an incorporated entity, each members liability is limited to the amount of their shareholding.

8:8-Community Benefit

We are a community benefit society and therefore use some of our net profit to support community and charitable projects. We have adopted a policy to allocate 10% of the available monies to carbon saving projects in the developing world. The remaining 90% is assigned to a local which provides grants to local carbon-saving projects. The current administrating charity is Transition Portishead. However, subject to members’ approval at the September 2018 AGM, the funds will be administered by Quartet Foundation.

The Community Benefit Fund Policy is available on our website.

In addition to this fund, there are other incidental financial benefits to the community as follows:

  • Giving business to local companies
  • Enabling local community organisations to save money directly through energy generation
  • Encouraging people to reduce their energy use and thereby have more disposable income to spend in the local economy.

9: Finance

There are seven potential sources of funding:

  • Community share issues

  • Loans

  • Bonds and Loan Stock

  • Grants

  • Donations

  • Revenue generated from projects

9:1-Community Share issues

Low Carbon Gordano raised monies via a Pioneer Share Issue to cover start-up costs. Since then, we have conducted two public share issues. The first raised £2.2 million to meet the capital cost of Moorhouse solar park. The second secured a further £975k to fund the Ham Lane solar park. There were sufficient monies left to fund three community solar roof schemes.

The share offers were well received. Not only were people investing through a concern about climate change and the ‘green’ agenda, but also because we aim to pay interest at a rate of 4% above RPI.

Given the response to date and the current state of the financial markets, we believe that further share issues will be a key source of finance for future projects.

LCG can issue two types of shares:

  • Withdrawable shares

  • Transferable shares.

Withdrawable shares – To date we have only raised finance using the withdrawable share which means that the shares are not traded and the value can only be realised by the Board of LCG agreeing to buy back shares from a member.

We are expecting a significant number of requests for shares to be withdrawn in September 2017 and June 2018, when the EIS three-year moratorium expires on the Moorhouse and Ham Lane share offers respectively.

That said, if shares are not withdrawn, the effect will be to stretch the total interest that is available to pay members across a larger number of shares, thus reducing the rate of interest affordable – this is commonly known as share-dilution.

The financial forecasting assumes that shares will be withdrawn at a rate such that LCG operates with a £30k buffer in the bank in order to maximise the number of shares that can be withdrawn and thereby minimise our on-going interest payment cost. In order to manage this, the LCG Board has adopted a Share Withdrawal Policy which is available on the website. The forecasting is also based on the assumption that the share capital will be repaid within the lifetime of the current projects.

In the Summer of 2018, the LCG Board will consider an Open Share Offer approach whereby members and prospective members can apply to purchase withdrawable shares at any time rather than wait for a Time-Bound share offer. The same restrictions on total shareholding applies (£500 to £100k). The potential advantage of this is that LCG can:

  • raise further finance for small schemes.

  • repay additional share withdrawal requests.

  • increase its membership.

Transferable shares – These shares, traded at par, can be sold by the member to a third party but only with the consent of the LCG Board. The advantage of using transferable shares would be that members can invest over the £100k cap that applies to withdrawable shares.

9:2-Loans

To date, LCG has not taken on any loans. Moving forward, it is unlikely that we will use this option due to the fixed cost of bank loans against the unpredictable and subsidy-free energy market:

There is clearly scope to use the share base we currently have to raise further capital through debt finance. For example, the £3m share capital could be used to lever in up to £7m of loans, thus enabling LCG to do more new projects without the need for a further community share offer.

Note that, in the event of insolvency, loans have priority over member share capital.

9:3-Bonds and Loan Stock

These are two further potential fund-raising options.

At the start of 2018, LCG launched a 5-year bond issue with an ISA-wrapper, through the Mongoose Crowd platform. It successfully raised the target £447k required to fund three new projects and to replace withdrawn shares.

The bond issue represents just 13% of the current financing of LCG. As with loans, the bonds have a fixed rate of interest and duration and therefore represent a more rigid cost than shares. In order to maximise its sustainability, LCG needs to maintain a low gearing ratio and so does not intend to increase this percentage.

9:4-Grants

In the early days of LCG, we were successful in getting a central Government grant of £100k to help with start-up costs and to conduct a community energy audit.

We do not see grants as part of our mainstream fund-raising strategy. However, as a community benefit society, one of our key priorities is to provide grants though our Community Benefit Fund scheme (see above).

9:5-Donations

All donations received are assigned to our Community Benefit Fund to enhance the annual distribution from profits as approved by members at the AGM. Some of these come via the home energy surveys conducted through our EASY programme. The other main source will be members requesting that all or some of their interest payments are reallocated to the Fund. Individuals can also make voluntary contributions.

9:6-Revenue Generated from Projects

For our current portfolio of solar schemes, there are three sources of income:

  • FiT generation tariff

  • Export of electricity

  • Sale of electricity locally.

FiT generation tariff – Once a project has been successfully registered, a payment per kWh is fixed for a period of twenty years and linked to RPI. Payments are made quarterly on the basis of meter readings.

Export of electricity – As a result of being registered for generation, a proportion of the generated electricity is sold for export to the Grid. LCG has to agree a Power Purchase Agreement (PPA) with an electricity supply company which has been negotiated by Mongoose Energy under its asset management contract. All these agreements have to be reviewed at set intervals.

Sale of electricity locally – Currently, LCG has only one such agreement. Northleaze Primary School pay us a rate per kWh that is less than the commercial rate that they would otherwise pay, saving money for them and also making the scheme financially viable for LCG. The same approach will apply to the Churchill Academy project once it is completed later this year. The other smaller roof schemes receive their electricity free of charge. The charge rate for each scheme is based on the specific business case.

Income derived from sales of electricity will become even more critical with the advent of the subsidy-free market from April 2019.

Financial forecast example

  • The table below illustrates in summary, the projections for the current five generation projects and the proposed three new projects. It highlights that shares will all have been repaid by the end of the 25-year lease period and will have left a cumulative profit of £214k. Note that all numbers in the table are cumulative totals.

  • All of the solar projects have a profile which demonstrates that in the early years, due to high level shares leading to high interest payments, losses are made which are offset by share capital. However, towards the end of the 25 years, with share capital reduced and thus interest payments falling, the schemes move into profit.

  • The financial projections are regularly amended to reflect the latest information from internal monitoring and external sources.

On …

31/03/2022

31/03/2027

31/03/2032

31/03/2037

31/03/2042

(£ ,000s)

Cumulative profit

(820)

(1,179)

(1,248)

(689)

214

Cumulative interest paid (from 1/4/2017)

841

1,533

2,086

2,467

2,584

Cumulative CBF payments (from 1/4/2017)

85

160

235

310

385

Shares held

2,818

2,324

1,695

770

0

11: Marketing

PRODUCTS

CUSTOMER

PEOPLE

PRICE

PROMOTION

POINT OF SALE

Reduction

Easy

N. Somerset homeowners

Community organisations

EASY Co-ordinator

Trained volunteers

Free but donations to Community Benefit Fund

LCG

Newsletters

LCG website

All referrals go to the EASY Co-ordinator who contacts applicants to arrange survey

Reduction Community Benefit Grants

Local community organisations.

Community Benefit Fund Committee. (accountable to Transition Portishead). Note that from Sept 2018 should transfer to Quartet Foundation.

Project at £15k pa. (10% for overseas projects).

Quartet cost is 10% of total annual allocation for local projects.

WOM / local networks.

Publicity through events and local press free ads.

Quartet will use their own mail lists.

Application form download from website.

Generation

Roof Solar

Inc. storage

Community organisations e.g. schools

commercial buildings which have high electricity usage, clear title to roof, longevity

Board members with appropriate experience

Project admin

Solarsense (partner)

Solarsense installation costs

IRR 8-10%

Solarsense referred

LCG members

Board members

Project admin

Negotiation to sign roof lease inc. sale price of electricity

Generation

Ground Solar Inc. storage

Farmers and other landowners with high electricity usage

Existing solar farm owners

Board members with appropriate experience

Project admin

Solarsense (partner)

Development costs

Fundraise costs

Installation costs

IRR (8-10%)

Solarsense

Project admin

Existing sites

Negotiation to sign land lease

Generation Onshore Wind

Farmers and other landowners with a suitable site

Existing wind turbine owner

Board members with appropriate experience

Project admin

Development costs

Fundraise costs

Installation costs

IRR (8-10%)

Local networks

Negotiation to sign land lease

Generation Offshore Wind

Existing offshore wind farm owner

Board members with appropriate experience

Project admin

Legal and Fundraise costs

IRR (8-10%)

Negotiation to sign contract

Raising Community Share Capital

Current members

New members

Board expertise

CAN (registry)

Mongoose

Target price 4% above the RPI

Newsletters

Social media

SOD

LCG website

Public events

Mongoose networks

Ethex or similar

Online or paper application based on a specific share offer

Production

+sale of electricity

Electricity supply company(PPA)

Government (FIT)

Sleeving

Microgrid

Mongoose

Solarsense

Board expertise

Project admin

Bristol direct supply feasibility project

FIT fixed

PPA contract (reviewed)

Landlord buy back contract to achieve IRR of 8-10%

Mongoose(PPA)

LCG Board

Bristol direct supply feasibility project

Contracts

Leases

12: Business Risk Analysis

This document is a ‘live’ document to be read alongside this business plan. It is regularly reviewed and updated by the Board and appropriate action taken.