How Robin Hood brings community energy to the 7 Shires

In one of the most pristine parts of Australia, where the coastal surf culture flows into the Hippie tide washing down from the hinterlands, a small revolution is taking part. The famous little surfer town Byron Bay became home for the Robin Hood of the future, Australia’s first community-owned energy retailer.
Enova Energy has set itself the mission to be of benefit to the environment and to the community by focussing on the Long Tail of renewable energy. It will share profits with local communities, give small renewable energy generators a voice and provide a market for this locally sourced energy.
While being steps away from one of the most beautiful beaches in the region, I took the time to listen to a story about community, transparency, renewables, and peer-to-peer transactions. I met the CEO, Steve Harris, and chair, Allison Crook, from Enova Community Energy – it’s YOUR Energy Company.

The Rise of Community Energy

In the early 2010’s, there was a growing trend of mining companies investigating coal seam gas mining in the Northern Rivers region. Reason for this to happen was the NSW governme that questioned the existing gas resources of NSW. Anyhow….
This type of mining involves the extraction of natural gas that is found in coal seams deep under the ground. A commonly used technique is hydraulic fracturing. This technique applies a process, where fluid is pumped under pressure into the coal seams to open up fractures that release the gas.
As you can imagine, the main concern with this form of coal seam gas mining is pollution of waterbeds, creeks and ground water. In order to protect the region from such pollution and to preserve the beauty of the region, characterized by a great variety of ecosystems and biodiversity, a fierce opposition movement stood up and started protesting. Where protest action by activists sometimes seems impossible and useless, this time there was hope. A small group of people inspired by the environment stood up and decided to prove the government wrong.

“It was a case of being able to demonstrate to the media and politicians that there were other options. We had to demonstrate that there was a viable renewable energy industry. After a community energy conference in Canberra I found out that there were exciting things happening in other place and we could achieve something unique together.” – Alison Crook

Over the years, more and more, people had joined the forces of the renewable advocates in the region. They thought that there should be invested in a larger amount of community energy generation projects. Apparently, there was many willing to invest in generation, but there was no way of selling the energy produced.

The big three in Australia, better known as Origin, Energy Australia and AGL, aren’t interested in buying the electricity from these small scale renewable energy generators. It’s not because these companies are the bad guys… It’s just because this typical form of generator is too small.
The sustainability officers of the shires in the Northern River region, working with the Office of Environment and Heritage and the Total Environment Centre decided to come together and seek for a viable solution. Soon they realized that the only way of achieving a healthy renewable energy industry was by listening to those who wanted to build community scale generators, bundling their power and providing them with a voice. The solution was a community-scale energy retailer.
A team of 4 stood up, a feasibility study followed and the business model became reality. But…. where do we get the money from?

A Community-Financed IPO

A retail license in Australia is hard to get, it’s a nerve wrecking process and costs lots of money. The moment I’ll tell you that this retailer is fully owned by the community and raised 4 million dollars in capital, you’ll probably think, “how the hell did they do that”? At least that’s what I did…
In about 4 months they raised 4 million dollars in capital for 50% of the shares of the company. The issued shares are held in the Enova Community Energy – the holding company.
Through lots of community presentations, market stalls and local publicity, they managed to quickly spread the word, create a community and build a group of like-minded shareholders investing in the greater good.
The shares were 1000 dollars each and, today, roughly 1.100 people own Enova Community Energy Ltd. Roughly 75% of them come from the local region and the other quarter comes from supporting shareholders spread out all over Australia. Think of local households, businesses, community groups and charities. Everyone had the chance to become part of this unique opportunity.

“It felt like an IPO and, actually, it was. The only difference is that this company is not listed, although it is a public company. It was extraordinary how much effort we had to put into developing the prospectus, lodging it with ASIC and obtaining approval. Can you imagine: now, half a year later everything is set up and ready for launch!” – Alison Crook

Retail for the Greater Good

The Enova Energy holding company at present consists of two separate arms: the energy trading arm and a not-for-profit arm. The company is structured such that if the energy-trading arm is in profit, then profits flow back to the holding company and 50% of the profits will flow through to the not-for-profit arm. This basically means that for every kWh of electricity you buy from them, you’re investing in the local community. That’s pretty cool!

“This not-for-profit aims to educate the community on energy and energy-efficiency, but also social benefit projects. One big project that we’re currently developing aims to put solar on the roofs of social housing. Some of the people in social housing can barely afford to pay their rent let alone the energy bill or a sophisticated solar system. We’ll help make solar happen on their roofs! – Alison Crook

The energy-trading arm is the part where all the retail activities take place, but also additional energy services like solar installation and advice. In the near future there will be a finance arm.

“We’ve set ourselves up with the twin goals to reduce carbon emissions in the region while benefiting the community at the same time!” – Alison Crook

The benefit of having this type of structure is that it provides a means of facilitating community financing. Crowdfunding investment as we know it in Holland isn’t yet possible. For a small-scale renewable energy project if you want to establish a company for investment, you’re limited to 50 investors before you have to turn it into a public company and go through lodging a prospectus and formal capital raising requirements.
Being limited to 50 people means that you can’t provide micro-investment, are obligated to ignore the power of the crowd and neglect principles of “The Long Tail”. Three important features that constitute the benefit of crowdfunding!
If you’d like to exceed the number of 20 investors, you’ll need to lodge a prospectus with the Australian Securities and Investment Commission. This is much more effort and involves greater legal and administration cost than it should be.

“We see lots of opportunity in using a financing arm. We can be the ones who help communities put the financing together. Because we’re already a company, we can provide a facility for people to invest, which in turn invests in community-scale projects. – Alison Crook 

Local, Green and Transparent

As mentioned in previous articles, Australia has the Renewable Energy Target installed. The RET includes a market mechanism to determine the price of the renewable energy certificates. These certificates are being produced by eligible renewable energy generators. Their price, set by supply and demand, compensates for the actual wholesale price, which is generally too low for a renewable energy project to financially stack up.
Because of political uncertainty associated with the long term future of RET, the price of these certificates has recently gone through the ceiling. Today demand is too high compared to supply. There simply aren’t enough new projects being developed. This increase in price unfortunately reflects a high price of green power, which in turn has negative effects on its success.

“The only way to get this price down is to create more certainty for developers of renewable projects giving them confidence that their projects have a long term future.” – Alison Crook

In the meantime, Enova Energy has set about unblocking the development of renewable energy projects by stimulating the deployment of local of renewable energy projects and, most importantly, creating an alternative market mechanism for making these renewable energy projects financially viable. Essentially, it comes down to the principle of creating a marketplace that matches supply and demand more effectively and efficiently than the RET-market mechanism does.

This then provides 2 markets for renewable energy. One being government accredited green power, which has become quite expensive, the other a more affordable locally sourced renewable electricity, which has a better chance to succeed.
Today, there is no incentive for local farmers that generally have plenty of free roof-space to deploy a large amount of solar panels to generate more than they consume. At the moment, all their excess generated solar is getting exported back to the grid. They’re being paid around 6cts for this exported electricity. Enova wants to stimulate these generators to produce more by providing them a premium on top of the market rate.
Instead of having people paying a premium for Green Power through you retailer, Enova Energy believes that paying a premium for locally sourced renewable electricity has a better chance to succeed. I agree!

“We’re a community retailer. The advantage of being a community is that everything becomes more tangible. Locally sourced electricity from projects in your own region, it potentially could be just around the corner. We’re essentially making electricity more tangible by making it transparent. People are more willing to pay a premium if they know exactly where it comes from. Our community is about real people, real projects and people that recognise each other.” – Steve Harris

Essentially, it’s peer-to-peer energy trading. The only thing is that they still have to settle on the at the wholesale market. They provide a marketplace for this locally sourced electricity.
The average electricity price in NSW, Australia is around 24 – 25cts per kWh. This price is made up for 50% of network charges, let’s say 12cts. The energy component reflects an average wholesale price of 5cts. In Australia, the wholesale price is set by the marginal cost of coal, which is extremely low, because most of the fossil fuel generation capacity was paid off years ago. The retail margin could be another 5cts. Then, there is the regulatory charge that stacks up to 3cts.
The mechanism according to Steve:

“Our peer-to-peer transactions work through Power Purchase Agreements on the wholesale market. As a retailer you pay whatever that half hourly wholesale price is. We get charged for a certain amount, we settle, we pay the wholesale and then the wholesale pays the generators.
Let’s say that we’ve paid the wholesaler $200 per MWh. They pay the generator $200 per MWh. But we’ve made an agreement with the local generators that we will pay an average price of $40. So what happens is that the generator then pays us $160  back. They’re happy to get $40. They’ve actually got $200, they give us a $160 back. We settle with the generator, that’s where we fix the price and not on the wholesale market.”

Unfortunately, he can’t produce the green electricity for $20 dollars per MWh. Therefore Enova Energy pays the generator an additional $40 per MWh.

“The wholesale price is all that the energy worth is, even though it is renewable it is not worth more unless someone is prepared to pay a premium.” – Steve Harris

And that’s exactly the way Enova Energy works. They pay the generator an the additional premium. A renewable energy generator isn’t yet able to produce the electricity cheaper than fossil fuels. In order to get the renewable energy plant up, you still need more than the wholesale price for energy.

The main benefit of paying this premium through Enova Energy is you’re guaranteed from having bought renewable electricity and you can choose yourselves to whom you’re paying the premium. And above all, costs of operating the retailer, and profits through dividends are retained in the community, while 50% of the profits flow back through the not-for-profit arm.
Big GenTailers won’t look at the small-scale generators. Simply, because they’re too small for their portfolio. Their reasoning makes that they miss out on this huge opportunity. This principle, better known as “the Long Tail” makes up for the success of companies like Ebay and Amazon. Combine a highly distributed amount of small-scale generation and you’ll and up with the same amount of MW as a centralised power plant.

The Long Tail questions the conventional wisdom that says success is about generating ‘blockbusters’ and ‘superstars’. For decades, energy incumbents have mainly focussed large centralised fossil fuel generation capacity to match demand. They assume that large centralised capacity has the biggest potential to succeed because of economies of scale and consumers that don’t care about the origin of their electricity.
Those rare few products and services distributed along “the long tail’ seem to make up for a bigger market than the “hits” in different industries (books, music, movies). The same is about to happen to the energy industry. You can find all kinds of different distributed small-scale renewable energy generators on the long tail.
Think of farmers, commercial  and residential rooftop solar and bio-energy installations. Technology permits us to efficiently match supply and demand and create virtual power plants. Soon these new energy sources could become the new runaway bestsellers. Selling less of more is the secret to succeed with a model built around a highly distributed amount of locally sourced renewable energy.

Price bundling or unbundling?

Lately, there’s a growing trend visible in the electricity. Retailers start unbundling their profit margin form the kWh price of electricity. I used to be a big proponent for this type of subscription model. Customers pay a fixed amount per month to the retailer to get access to wholesale prices or a platform for peer-to-peer transactions.
However, it does make sense from an electricity consumption point of view to separate the profit margin from the kWh price. The argument “you can’t stimulate a customer to use less if you’re business model is dependent on the amount of electricity sold” is valid!
However, from a customer point of view I’m starting to doubt the benefit. Compare it for example with all you can eat sushi. If you’re paying a fixed fee and you only eat 10 sushi’s, because you weren’t that hungry, you know that you paid too much. However, if you would have eaten 40 sushi’s you’ll know that it was worth every dollar of the fee. A fixed fee, dependent on the cost structure, only makes sense for a certain energy user.
Enova Energy agrees and thinks that in order to be transparent and equal to everyone, you should charge everyone the same. When talking about transparency, you should be transparent in you pricing and cost structures too. On top of this, with a model such as Enova Energy it doesn’t matter if you consume too much. The more you consume, the more you benefit the local community!
Awesome concept!
This article was originally posted on Australian Clean Energy Transition. Re-produced with permission.