The Three Forms of Community Energy Groups

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Community Energy projects can come in all shapes and sizes: from solar arrays to wind farms, biofuel generators and hydro-powered turbines; they can range from small installations producing power outputs in the kilowatts to large ones producing multiple megawatts of power. However, aside from the practical aspects of how a project is constructed, there is another very important issue that community energy groups must consider: how to structure themselves organizationally and what legal form to adopt so as to best serve the needs of stakeholders and execute their projects effectively.

There are currently three main models that most community energy groups adopt: Co-operative Societies (Co-ops), Community Benefit Societies (BenComs) and Community Interest Companies (CICs). Each is distinct from the others and serves different needs and objectives.

In this article we will provide a brief outline of these three types of community energy groups and highlight what differentiates them.

Three types of community energy groups: Co-operative Societies (Co-ops), Community Benefit Societies (BenComs) and Community Interest Companies (CICs)

Co-operative Societies

The main feature of Co-operative Societies, or Co-ops, is that they are set up primarily to benefit the members of the group itself. They are community oriented in the fact that they enable groups of individuals to collaborate and work together under the umbrella of a legally registered organization to fulfil specific goals; however their scope is smaller than BenComs and CICs.

It is generally understood that Co-ops are not-for-profit organizations. Under the Co-operative and Community Benefit Societies Act of 2014, Co-ops are designed and designated as organizations whose main raison d’être is not the generation of profits for members but rather to provide other types of benefits that stem from belonging to the organization itself. In other words, profits can be by-product of a Co-operative Society’s activity but never the main feature. However, this doesn’t preclude them from carrying out business activities that can generate economic returns. Each Co-op can set out the rules of how these are to be handled and distributed, generally following egalitarian and proportional principles.

As to management, Co-ops usually function under the principle of one person, one vote, independently of to what extent each member has contributed resources to the organization. The leaders, or officers, are elected by the members democratically, and their positions can be rescinded in the same way.

An example of a Co-operative Society in the renewable energy sector could be the tenants of an apartment complex coming together to install rooftop solar panels on their building. Such an organization would be open to all the tenants interested in participating, and the primary benefit for members would be reduced electrical bills: the energy produced by the installation would be sold back to the grid, and the revenue it generated would be divided up equally among all members and deducted from their utility expenses.

Community Benefit Societies

The main difference between a Community Benefit Society, or BenCom, and a Co-operative is its direction. While Co-ops are created mainly for the benefit of their members, and it could therefore be said that they are inwardly focused, BenComs are created for the good of the community at large and thus they are outwardly focused. One of the requirements to create a BenCom is that the organization must have a community-oriented purpose that goes beyond its members.

While the Co-operative and Community Benefit Societies Act of 2014 gives Co-ops some flexibility in how profits can be disbursed, with BenComs the rules are more rigid. BenComs can pay interest to their members on their share capital, sufficient to retain that capital, but they are forbidden from distributing dividends. Most of the profits generated by these bodies should be reinvested in the organization itself, so as to sustain its activities and improve its services, or they should be used to further previously agreed-upon causes and projects that benefit the larger community.

For example, a wind farm operated by a BenCom would use most of the revenue it generated to sustain and improve itself and also to offer other benefits to its host community, such as the installation of an open Wi-Fi network in public spaces in the town or the improvement of public services by supplementing local government spending.

Another feature of BenComs, one they share with Co-ops but not with CICs, is that they enable democratic governance. In fact, an important requirement to create a BenCom is that there must be a special reason for the organization to constitute itself as a society and not as a company, and being democratically governed is one of the most common. Similarly to Co-ops, most BenComs function on a one member, one vote principle and not according to share capital.

Community Interest Companies

Of the three types of community energy groups, CICs are perhaps the most distinct from the others. CICs are a form of limited company specially designed to develop projects for the benefit of the communities they serve – prioritising this ahead of benefiting their shareholders. One of the features that separates CICs from traditional companies is that to obtain regulatory approval to register as such, they must pass a community interest test. This test analyses the mission and the objectives of the organization and judges whether these meet the desired standard to warrant the Community Interest designation. Throughout the company’s lifetime it will continue to have to meet these standards, submitting annual reports on its activities and on the participation and involvement of stakeholders in its mission.

Like traditional companies, CICs are able to distribute profits and dividends, but there are restrictions on the amounts. Furthermore, all CICs must submit to an asset lock, which ensures that the company’s assets cannot be sold or misused for private gain and that they are put to use to further its mission and benefit the community it serves.

Another important difference between CICs, Co-ops and BenComs is that the former share the same organizational structure as traditional companies, with a board and a series of directors or executives in charge of decision-making. Much like traditional companies, CICs are not democratic, as voting power correlates with share ownership. Management is responsible for determining the most adequate strategy and tactics to achieve the organization’s goals, and also for implementing them.

Furthermore, and despite their social focus, CICs are businesses. This means that they enjoy the same privileges afforded to other companies: limited liability for shareholders, the ability to interact with banks and other relevant actors in the same fashion, and the ability to draft contracts and hire employees.

Quick view

 

Co-operative Societies Community Benefit Societies Community Interest Companies
Can distribute dividends Yes No Yes
Can distribute interest Yes Yes Yes
Governance Democratic Democratic Corporate style, executives and a board
Beneficiaries Members The host community The host community
Tax relief and other incentives for shareholders No Yes Yes