Community Energy in Ireland (Part 2)

Aug 09, 2014 No Comments by

The community energy policy position paper (CEPPP) is written by 18 Irish organizations [1], including Feasta. It gives a great and much needed overview of the barriers and potential for sustainability existing in the Irish energy system. While I do share most opinions expressed in this paper and strongly encourage the collaborative effort I feel that some segments would benefit from a more nuanced discussion. In three parts I will discuss some of the societal, technological and financial aspects proposed in the Community Energy Policy Position Paper with the aim to contribute to the discussion on the future of the Irish energy system. Part one with the societal aspects can be found here and part three with the techncial aspects here.

Part 2. The financial aspects

One of the key recommendations is the feed in tariff which is probably inspired by the successful German implementation of solar energy. The idea is to guarantee a fixed minimum price for electricity for a long period of time to incentivise investors and communities by reducing the uncertainty and enabling a more reliable risk assessment. While it seems desirable to copy this policy it is important to keep the differences between Germany and Ireland in mind. First of all, the German economy is Europe’s strongest and can easily subsidize their “energiewende”. Secondly the promise to pay is only as strong as the reputation of the government making that promise. Spain tried to follow in the footsteps of Germany with a very ambitious renewable energy policy but had to drastically cut its spending which resulted in undelivered promises and a distrust from investors [2]. Ireland might have exited from the troika but it has still a long way to go before we can genuinely call Ireland’s economy “recovered” [3].

A guaranteed minimum price on energy is not the only factor in achieving the goal of “fair and secure payments for all renewable energy generated” as stated in the CEPPP. There are mechanisms that can contribute to this goal:

Crowdfunding can be a great complementary method where a large group of people bring in small portions of the required capital. In recent years the concept of crowdfunding proliferated through platforms such as kickstarter and indiegogo. Crowdfunding is not mentioned in the CEPPP but has a great potential for community energy [4]. The big advantage is the low threshold for interested parties as it is possible to become a part of a project with only a small investment. From a community building point of view it is a very attractive model as all layers of society can be involved. It is very important to make clear what is offered as the people most likely aren’t experienced investors. Do you sell a membership, a portion of the generating capacity, a portion of the profit? Do the people get a fixed or variable return? Whereas in most other models these terms are negotiable with the investor, for crowdfunding there has to be a clear, well defined, product. Another risk you should be aware of is setting the crowd funding goal too high or low. When it is too high and the goal will not be reached in time, there will be not enough money available to pay for your planned expenses. The crowdfunding will feel like a failed project with (too) little public support. On the other hand, if the goal is set too low only a few people will have gotten the chance to become a part of your project and people will feel left out which negatively impacts the community acceptance. Enabling or organizing crowdfunding renewable energy projects in Ireland is worth exploring and I feel that excluding crowdfunding from the CEPPP is a missed chance.

For economic growth to happen the availability of cheap fossil fuels is key. For this reason fossil fuels are currently heavily subsidized which results in a lower price for dirty energy. The subsidy on fossil fuels is far bigger than the subsidy on renewable energy [5]. The renewable energy sector would have been far more economically viable if there was a more levelled playing field. Exposing the amount of money given to oil companies is a difficult task as most of it occurs through lower tax rates, exemption rules and more importantly, a rigged emission trading scheme [6]. As economic growth is unsustainable in the long run we should aim for a development strategy based on gradually redirecting the fossil energy subsidies into a renewable energy based, steady state or controlled degrowth, economy.

The third idea, brought to my attention by Emer O’Siochru, is to found a special purpose bank to fund renewable energy projects and energy efficiency measures. The power of banking lies in the ability, or more specifically: the privilege, to create money [7]. This power can be used to generate the capital needed with a sufficiently low interest rate for the realisation of renewable energy projects. A government owned special purpose bank would be able to generate the money needed to build these projects, regardless of how the other parts of the banking system and economy function. There would be no added inflation as the issued money would be turned into valuable assets without the risk of creating a bubble. A recommended read on the potential role of public banking is “The Public Bank Solution: From Austerity to Prosperity” by Ellen Hodgson Brown and Hazel Henderson. This can be taken even one step further: the coupling of energy to money. This can either be executed as a complementary currency or a replacement in case of an Irish exit from the euro as Cormac Lucey describes in “’Plan B: How Leaving the Euro Can Save Ireland” [8].

All major currencies today are so called “fiat currencies” which means that they are not backed by anything with intrinsic value. The widespread acceptability and the obligation to pay tax in a specific currency are the factors determining how we value this money. As stated in the introduction, there is a close link between the amount of energy and the amount of money in the economy. When there is more energy available, more wealth can be created through increased production/complexity which in turn allows for more money to be spent on the extraction of more energy. There are multiple Feasta publications [9] dedicated to this important link between energy and money which is often neglected in conventional economics. A direct coupling of money with energy would change the monetary system in various ways. For example: one of the key functions of money, the store of value, would be much more stable if denominated in energy as energy doesn’t inflate and deflate. 1 kW/h now allows the same amount of work as 1 kW/h in the future. The value of this currency is directly related to how much you value 1 kW/h of energy. Secondly, the economy tends to optimize its costs through free-market dynamics. The lowest priced product will be the product that has the lowest energy cost which favours more local products and services with a lower environmental impact. Thirdly: banks lose their monopoly on money creation as every person or organization with a wind turbine or solar panel owns a money generating device. Richard Douthwaite’s “The role of money in an energy scarce world” describes this radical proposal in more detail, and so does “energising money” by the New Economics Foundation [10]. Drastic change is needed to avert a nexus of climate and energy crises and this might be the idea that can change the course of the Irish economy.

This mechanism of coupling energy to money also allows the community to already pay for their energy for a future point in time, just as it is possible to use pre-paid minutes for mobile phone usage. The direct profit for the buyer of the pre-paid bonds occurs when energy prices rise in the future. The money gained by selling these “rights to future energy” is used to fund a generator or an energy saving project which enables the payback of the bonds. When the bond is redeemed the bond-holder either gets his return in money (the energy price of that moment) or the actual owed energy (technically challenging, charging an electric car or a specific amount of biofuels can become potential delivery mechanisms). As the concept of pre-paid energy is quite hard to grasp it is important to clearly define what is being sold. The best way is to create a voucher with an energy value printed on it (e.g. This voucher allows the holder of this bond the money’s worth of 100 kW/h). It might also be necessary to feature an expiration date or a specific time-window to mitigate risk and avoid a “bank run”. A promising additional benefit of the pre-paid bonds is the potential of an aftermarket. The bonds have a potential to function as an energy-backed currency, enhancing the local economy. Feasta is interested in exploring and implementing this innovative finance method and is willing to cooperate with a renewable energy project to make this concept a reality [11]. This concept soon be cheaper than fossil fuels [13], even when the externalities aren’t reflected in the price. Companies like Facebook and Google [14] know this and power their own servers with renewable energy but banks still seem hesitant to invest in real economy assets such as renewables. The community aspect increases the local multiplier effect [15] and thus increases the positive impact of renewable energy on the economy even more. I do understand that subsidies are a necessary part of the current system and without them a lot of amazing projects would have failed at one stage or another. That being said: the incentives and potential of renewable energy in Ireland, especially wind, are high enough to be viable without any need of involvement of taxpayer money. The alleviation of barriers and implementation of all measures in the CEPPP could nullify the current need for subsidies altogether. The ideas of facilitated public participation, intermediary bodies and local energy action plans as described in the CEPPP are far more important than the “who’s going to pay for that” question that inevitably comes to mind after reading the “funding and finance supports” chapter. I hope that the discussion on energy can move on from the money issue to the more fundamental questions such as the one proposed in the CEPP: How do we achieve security of supply, reduce fuel poverty and decarbonise our energy system in a way that is mindful of communities and the environment?

Endnotes

1. The organizations involved: ACE Co op, Atlantic Coast Energy Co operative Limited, Comharchumann Fuinneamh Oileáin Arainn (Aran Islands Energy Co Op), Cork Environmental Forum, Ecologics Solar Makes Sense , Energy Co operatives Ireland, Energy Wise Consultants, Feasta, The Foundation for the Economics of Sustainability, Friends of the Earth, Good Energies Alliance of Ireland , LEAF, Collaborating for a Sustainable Future in Laois, MEGA, Micro Electricity Generation Association, MozArt Ltd Architecture Landscape Urban Design, Peoples Energy Charter, Syspro Systems for Progress Ltd, Tipperary Energy Agency, Waterford Energy Bureau, XD Consulting.
2. Spain kills Feed-in Tariff for renewable energy (2013) http://www.csp-world.com/news/20130713/001121/spain-kills-feed-tariff-renewable-energy
3. Press release: Feasta describes Troika exit as “a piece of theatre obscuring our real challenge” (2013) http://www.feasta.org/2013/12/16/press-release-feasta-describes-troika-exit-as-a-piece-of-theatre-obscuring-our-real-challenges/
4. For an overview of the renewable energy projects in Europe see “Crowdfunding renewables: game-changer for the energy sector?” http://www.energypost.eu/crowdfunding-renewables-game-changer-energy-sector/
5. For more information: Richard Douthwaite and David Healy (2003) Subsidies and Emissions of Greenhouse Gases from Fossil Fuels http://www.feasta.org/documents/energy/fossilfuels.pdf
6. Howard, W. Cap and share: A fair way to cut greenhouse emissions. Technical report, feasta: Foundation for the Economics of Sustainability. (2008) http://www.feasta.org/documents/energy/Cap-and-Share-May08-summary.htm
7. For more information on money creation I recommend The Ecology of Money: http://www.feasta.org/documents/moneyecology/
8. http://www.gillmacmillanbooks.ie/current-affairs/current-affairs/plan-b
10. Energising Money: An introduction to energy currencies and accounting. http://b.3cdn.net/nefoundation/d5efb739f3fb9a137c_q2m6y7916.pdf
11. http://fleeingvesuvius.org/2011/09/23/liquidity-networks-local-trading-systems-using-a-debt-free-electronic-currency/
12. A presentation explaining his idea in detail: http://www.slideshare.net/ChrisJCook/transition-through-gas-oil-gas-transportation
13. http://reneweconomy.com.au/2014/rooftop-solar-pv-will-soon-be-cheaper-than-coal-63562
14. “Google, Facebook Up the Renewable Energy Ante” http://www.renewableenergyworld.com/rea/news/article/2013/11/google-facebook-up-the-renewable-energy-ante
15. More on the local multiplier effect by The New Economics Foundation: http://www.neweconomics.org/publications/entry/the-money-trail

Disclaimer: Feasta is a forum for exchanging ideas. By posting on its site Feasta agrees that the ideas expressed by authors are worthy of consideration. However, there is no one 'Feasta line'. The views of the article do not necessarily represent the views of all Feasta members.

Commentary, News

About the author

Erik is a Msc. student Urban Environmental Management at the Wageningen University. He has a Bsc. in Landscape Architecture and is interested in resilience, heterodox economics and sustainable design. He researched the barriers and possibilities of the Irish energy sector during the second half of 2013 as his internship at Feasta. Currently he is researching the possibilities of frontrunner companies to embrace a post-growth stance as a part of their CSR framework.

Feasta is an open, membership-based organisation. If you're interested in supporting our work please consider joining Feasta or making a donation.