Appendix 1

Briefing Note re. North East Community Energy Accountable Body

Subject / North East Community Energy (NECE) - Opportunity to take on the role of lead applicant andaccountable body for external funding (initially ERDF)
Date / 27-11-2015
  1. Purpose

The purpose of this briefing note is to assist organisations interested in becoming the lead applicant and accountable body for the management of ERDF funding to deliver theNorth East Community Energy project; to consider the potential role, responsibilities, risks and benefits.

  1. Background

The North East Community Energy (NECE) has been developed as a proposed project by three core partners Northern Powergrid, VONNE and Community Energy England supported by a Project Development Steering Group. The project’s vision is to establish the North East as the UK’s lead region for community energy. It will work towards this aim initially by delivering the NE Community Energy Pilot project, working to support groups and organisations in the region to develop, fund and deliver community energy projects.

NECE’s mission is:

‘To promote, enable and support a substantial scaling up of community energy activity across the North East of England. It will engage communities and the wider public in the reduction of energy use, in the production and in the management of energy. The work of NECE will reduce CO2 emissions and produce a range of positive benefits for local communities including sustainable income streams, skills and employment opportunities, energy security, reduced energy bills and increased community involvement. The work will complement services and support offered by other national, regional and local bodies and we aim to disseminate our findings and approaches and encourage other regions to replicate what works.’

NECE has an ambitious plan which involves spending circa £20m between 2015 and 2020 on community energy initiatives. It is envisaged that around half of this funding will be secured from the ESIF 2014-2020 programme (mainly through the ERDF Low Carbon thematic priority), with the remaining funds sourced from local groups (potentially supported with income generation through renewable projects), national government programmes (e.g. DECC, Defra), and other sources. Delivery is anticipated in two-phases, with £8m spending up to 2018, and £12m between 2018 and 2020. The business model is that NECE will act as a central point to secure and manage funding at the regional level which it will then invest, in turn, in a range of local community energy projects and programmes.

An essential first step in securing the funds needed by the NECE project to invest in community energy projects is to secure multi-million pound ERDF grants from the new European Structural and Investment Funds (ESIF) in the North East LEP area. Assuming a phase 1 total cost of £8m and a maximum ERDF grant rate of 50%, this suggests an ERDF bid/s up to the value of £4m. This would equate to a minimum of circa £1.3m ERDF pa (£4m over the 3 years 2016, 2017 and 2018).

Open calls for ERDF bids under the Low Carbon thematic priority were launched in summer 2015 under IP 4b and 4d, with calls for IP 4a and 4c to be launched in late 2015/ early 2016. However, the NE LEP and their partners have indicated flexibility in the call timescale to reflect the readiness of projects to apply. It is likely that calls will be issued quarterly throughout the year.

In preparation, the three NECE partnershave been developing a business plan and draft content to support an ERDF bid.An overview of the potential areas of work/ strands of activity can be viewed here:

  1. What is the opportunity?

As part of the development work for the ERDF bid and business plan, the important issue has been raised of which organisation will be best placed to be the applicant and accountable body for any ERDF grant secured for the delivery of the NECE project. Previously considered options of NECE as a new organisation being its own accountable body or another organisation acting as lead applicant/ accountable body on behalf of NECE as a new organisation, have now been dismissed as unrealistic. The NECE partners and steering group are now pursuing the following options:

  1. Public sector organisation as accountable body e.g. local authority or university
  2. Voluntary sector or private sector organisation as accountable body
  3. Public/ voluntary/ private sector organisation as accountable body leading a partnership bid with other organisations.

The NECE partners and steering group are seeking an established organisation with the financial capacity, and track record of ERDF delivery, to take on the role of applicant and accountable body to help secure and manage the ERDF grant and then deliver the NECE project.

The proposal is to ‘hand over’ the NECE ERDF project proposal and all the development work carried out thus far + small amount of remaining consultants’ time (Helen Joicey New Skills Consulting 3.8 days) to a partner organisation to then take forward and apply to ERDF Low Carbon funding programme and seek the required matched funding. We would hope that the resulting accountable body for the NECE project would continue to engage the NECE steering group in the development and delivery of the project.

This briefing note sets out, initially at a high level, the key issues to be considered in deciding whether to take on this role.

  1. What are the funders looking for from an ERDF applicant and accountable body?

The applicant /accountable body is the organisation that would apply for the ERDF funding to deliver the NECE project, and enter into a legally binding agreement withthe Department for Communities and Local Government (the managing authority for ERDF) if the grant was approved.

In the delivery model as currently envisaged, the NECE project will employ a team of staff and/or contract delivery partners with day-to-day responsibility for working with each of the project partners to support delivery of the individual community energy projects that will receive ERDF grant, so the impact on the applicant organisations’ existingstaff capacity should be limited.

However, the applicant and accountable body for the ERDF grant, would be legally and financially accountable to DCLG for the effective management of the ERDF grant, and will be required to submit ERDF claims, and pay out grant funding to delivery and project partners. It is important to bear in mind that the proposed NECE ERDF project is large-scale and could be complex, depending on the number of delivery partners, and community energy projects involved in the programme of activity.

As the ESIF programme (2014-2020) is new and evolving, the published guidance on the exact expectations of ERDF applicants is limited and brief at this time. However, based on a review of the published national eligibility rules, application form, guidance and selection & assessment criteria, alongside knowledge of DCLG’s requirements from the previous ERDF programme which ended in 2013, it is possible to summarise the requirements that a successful ERDF applicant must demonstrate, as follows:

  • Expertise, capacity and capability - The applicant must be able to demonstrate it has the necessary staff and organisational expertise and capacity to deliver a project of this type and scale. This includes previous experience / track record of delivering projects on a similar scale, as well as the skills, and expertise within the NECE project delivery team (staff and partners) who will be involved on a day-to-day basis in delivering the programme of activity.
  • Management capacity, systems and processes - Management capacity to operate a large-scale project must be in place, along with the systems needed to comply with technical ERDF financial and monitoring requirements.
  • Financial capacity and liabilities - The required financial capacity of an ERDF applicant organisation is not quantified specifically. However,the lead applicant will need to demonstrate that it:
  • Has in place sufficient financial capacity (turnover / income) to manage a project of the value requested. There are no hard and fast turnover limits. However, applications will be assessed individually to determine whether the applicant’s income is sufficient and proportionate to the amount of grant requested.
  • Has robust financial systems that can comply with ERDF requirements.
  • Can manage the cash flow requirements of an ERDF project, which means spending money in advance and receiving grant payments retrospectively. In general ERDF grant is claimed quarterly in arrears, and payment can take up to 3 months following the submission of a grant claim. However, there is potential for applicant organisations to make monthly claims to help manage project cash flow if required.
  • Procurement - The applicant must have in place procurement systems for the appointment of sub-contractors, partners and suppliers that comply with new EU procurement regulations.
  • State Aid - The applicant needs to demonstrate an understanding of state aid regulations, as they will be responsible for ensuring that any funding paid to third party organisations / sub-contractors / delivery partners is state aid compliant. Responsibility for ensuring state aid compliance can be included in any sub-contract / partnership agreements to ensure the risk is shared between the applicant and the delivery partners.
  • Other issues specific to the NECE project - As the NECE project involves the applicant receiving ERDF grant from DCLG that will be paid out to third party community energy projects, DCLG maywant the applicant to provide financial guarantees that there is sufficient match funding in place to deliver the overall programme if individual projects are unable to provide the match funding they promise. The applicant is also liable ultimately for any funds spent by third party projects that do not comply with ERDF rules. If funds are misspent, they may be clawed back from the applicant by DCLG. However, the applicant can protect itself by passing these obligations on to the third party projects via sub-contract / partnership agreements.
  • Confidence and risk mitigation-In summary, in assessing ERDF applicants, DCLG wants a high level of confidence that the lead applicant and accountable body is a robust, low risk vehicle for the delivery of the ERDF funding. DCLG is naturally a risk averse organisation and is likely to be more so in the case of projects supported through the Low Carbon Thematic Priority, because this is a new area of activity in the ESIF programme, in which DCLG has limited experience. It will therefore want a high degree of confidence in the capacity and capability of applicants under this theme.

The ideal lead applicant would be able to fulfil all of the requirements outlined in this note and, crucially, be able to gain the confidence of DCLG such that an ERDF grant for delivery of the NECE project could be approved.

  1. What are the potential benefits and risks?

The key benefits and risks of taking on the role of lead applicant, accountable body and project management for the NECE projectare likely to be as follows:

  • Benefits
  • Opportunity to contribute to the delivery of an important agenda (community energy) in the North East.
  • Opportunity to deliver the NE England Community Energy National Pilot, alongside Community Energy England, VONNE, and Northern Powergrid (the three founding partners of the NECE project).
  • Helping to establish the North East as the UK’s lead region for community energy.
  • Opportunity to earn income, through fees / funding claimed from ERDF to reimburse the lead applicant for its role in managing the NECE ERDF project.
  • Opportunity to support local communities to access ERDF funding to deliver community energy projects. For many communities, this will result in the creation of sustainable income streams which can be invested in community activities / schemes; skills development, employment opportunities or the establishment of new social enterprises i.e. in the management and operation of community energy schemes.
  • Risks
  • Cash flow - As many of the community energy projects are likely to be led by small organisations, they may not have the cash flow to wait a few months potentially to receive ERDF funding after the submission of grant claims. For the NECE programme to work effectively, the applicant organisation may therefore need to consider how to manage project cash flow, and whether there is any potential to pay funds in advance / prior to receiving grant payment, to the individual projects.
  • Managing third party projects–The lead applicant would need to enter into partnership / sub-contract agreements with NECE project delivery partners, and potentially the individual organisations delivering community energy projects. This could involve the following key risks:
  • Claw back - If a third party project spent ERDF funds in a way that did not comply with the rules, and this came to light through an ERDF audit, in the worst case scenario, DCLG may seek to claw back any overpaid funding from the lead applicant. There is a solution to this risk, whereby the applicant would specify in its sub-contract / partnership agreement with the third party organisation that the third party would be responsible for repaying any ineligible funding. The applicant would effectively pass on the risk to the third party. However, this approach would not be risk free, especially if the third party organisation does not have the funds to repay the applicant for any funds clawed back.
  • Procurement and State Aid –The applicant would be responsible for ensuring that all third party projects were delivered in a way that complies fully with EU procurement and State Aid rules. This requires technical expertise and any third party projects failing to comply may be subject to grant claw back. To mitigate this risk, the lead applicant could run a compulsory compliance workshop for all delivery partners to inform them about procurement and state aid requirements.
  1. Other issues
  • It is important to note that potential accountable body organisations may wish to limit their involvement to certain geographical areas/ strands of delivery of the proposed NECE project. We are open to receiving proposals of this nature and an indication from all potential accountable bodies as to their willingness to consider working in partnership/ collaborating with other organisations to enable the full ambition of the proposed NECE project to be realised.

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