Menu
A consumer stock ownership plan (CSOP) is a financing technique that employs an intermediary corporate vehicle and facilitates the involvement of individual investors through a trusteeship. It is a type of investment transaction that may use external financing, thereby achieving the benefit of financial leverage.
Applied to the energy context as CSOP can buy into an existing or invest in a new renewable energy (RE) plant. Designed to facilitate scalable investments in utilities, it is open to co-investments by municipalities, plant engineers, energy suppliers or other strategic partners. Moreover, as a low-threshold financing method, it enables individuals to invest in RE projects. The renewable energy consumer stock ownership plan (RE-CSOP) as an alternative financing source for sustainable investments is of particular importance for municipalities that are charged with fulfilling energy efficiency (EE) and climate policy goals but have limited budgets and often lack the funding to make these investments. An objective of this contractual model is, above all, to facilitate single-source financing (i.e., employing one bank loan instead of many micro loans), thus reducing transaction costs. At the same time, individual liability of consumers is avoided, while participating consumers are able to acquire capital ownership, providing them with an additional source of income. Other important issues are easy tradability of shares, deferred taxation for consumer-shareholders and pooling of voting rights.
The CSOP was applied for the first time in 1958 with spectacular success in the U.S. by its innovator, Louis O. Kelso, a business and financial lawyer turning 4,580 farmers into (co-)owners of the new fertilizer manufacturer Valley Nitrogen Producers, Inc. This involved an investment of USD 120 million which today inflation adjusted would equal around EUR 915 million.
In Europe, CSOPs were – for the first time – implemented during the SCORE project, funded by the European Union under its HORIZON 2020 programme, facilitating consumers to become (co-)owners of renewable energies (RE). The aim of SCORE is to facilitate (co-)ownership in RE for consumers first in three pilot regions in Italy, Czech Republic and Germany – and later in various other follower cities across Europe.
Currently, more than 50 million consumers, among them low-income households and single women, struggle to pay for energy bills in Europe. They are victims of energy poverty caused mainly by high energy costs and low household income. However, energy prices and inequality keep on rising all over Europe. At the same time the European Union is promoting RE prosumership, that is, turning consumers into producers; prosumers have the option of self-consuming renewable energy they produce or selling surplus production to third parties. While prosumership provides financial benefits such as lower energy costs and additional income, only those able to afford the necessary investments benefit.
If, however, the energy transition is to be successful, its benefits must be distributed evenly across society. The first step in enabling vulnerable groups to become prosumers – a means to mitigate energy poverty – depends on providing access to finance. This is what the CSOP does through its leveraged financing approach. Nevertheless, for some groups of vulnerable consumers even the reduced capital needed to participate in a standard CSOP is an insurmountable hurdle. This is where the “Assisted” CSOP comes in.
Unlike as in a regular CSOP in the case of a “Assisted” CSOP a) the RE installation is donated while b) the acquisitions of the equity share by the consumer-beneficiaries is additionally facilitated by a matching contribution from a donor. As a result the joining consumers need an even smaller initial contribution to participate and do not have to wait for the amortisation of the investment before they benefit from revenues. The “Assisted” CSOP allocates the residents share of the monies saved though RE production and energy efficiency measures to a dedicated expense fund; this fund covers expenses for their personal needs like for example a new pair of boots, a joint leisure excursion or a musical instrument. A secondary aim of the “Assisted” CSOP is to entice the new co-owners to save electricity, become more energy efficient and – where possible – to train them as energy consultants.
As the Polish SCORE Pilot showed “Assisted” CSOPs (-> RE-CSOPs) are of importance with regard to particular vulnerable groups like for example the homeless living in the shelter in Krzywoustego Street 6 run by the charitable association Holy Brother Albert in Słupsk. Developing an “Assisted” CSOP, we assumed that in the best case 50 residents of the homeless shelter participate with an overall contribution of PLN 216 each (about EUR 50); this contribution includes PLN 72 (about EUR 17) in six monthly instalments of 12 PLN as well as a matching contribution of PLN 144 (two for one, about EUR 34) from the Kelso Institute. The planned overall investment of the 50 “Assisted” CSOP participants amounted to PLN 10,800 (about EUR 2,500), roughly equivalent to 25% of the value of the PV installation.
As the investment of the “Assisted” CSOP participants is conveyed and administered by a trusteed entity, a limited liability company (spólka z ograniczona odpowiedzialnosca) was to be set up by the local charitable association Holy Brother Albert in Słupsk and managed by the president of the shelter. The Trust Ltd. was to collect both the personal instalments and the matching contribution allocating them to each resident’s personal account. With these funds the Trust Ltd. was to purchase subsequently up to 25 per cent of the PV installation from the City of Słupsk (who became the formal owner once the mounting was completed). The funds the city was to receive were to be reinvested in energy efficiency measures estimated to bring down the shelter’s electricity consumption by a further 15 per cent additional to the energy savings of 30% achieved during SCORE.
Although the city suspended project implementation for political reasons the “Assisted” CSOP concept was successfully developed and is now to be implemented in Italy, the Czech Republic and Germany.
Nueva Venecia located in the coastal lagoon Ciénaga Grande consisting of approximately 460 households with about 2,500 inhabitants is one of the most isolated and poorest communities in Columbia. The community is one of the populations that had been severely affected, most severely in 2006, by the armed conflict in Colombia, which amongst others generates inequality and displacement. The settlement has a precarious connection to the electricity grid providing public buildings and a part of the residential buildings with access to electricity. Apart from technical problems that impair stable electricity supply from the mainland one of the central problems in the past has been that the local population simply has not been able to afford electricity and thus was reluctant to pay their energy bills. Therefore, the KIE with its strategic Columbian partner UNTADEO have developed a project proposal for an „Assisted” CSOP potentially to be applied also in other conflict zones.
Address:
Kelso Institute Europe
Kreuzbergstraße 76
10965 Berlin
Phone:
+49 (30) 62 86 01 06
E-Mail:
contact(at)kelso-institute-europe.de
Autonomy of a REC
Capital Tax Group
Clean Energy for All Europeans Package of the European Union
Citizen Energy Communities (CECs)
Consumer Stock Ownership Plan (CSOP)
Demonstration Projects for Innovative Technologies
Effective control of RECs and CECs
Electricity/Energy Sharing
Employee Stock Ownership Plan (ESOP)
Enabling Framework
Internal Electricity Market Directive (IEMD)
Internal Electricity Market Regulation (IEMR)
Investment Agreements
Leveraged investment
Mirror Loan
Renewable Energy Cluster
Renewable Energy Community (REC)
Renewable Energy Directive (RED II)
Trusteeship
close Glossary
Autonomy of a REC:
Recital 71 RED II stipulates the capability “of remaining autonomous from individual members and other traditional market actors that participate in the community as members or shareholders, or who cooperate through other means such as investment”.
Capital Tax Group:
Corporate structure that permits to calculate profits, losses and, what is most important here, costs, for tax purposes jointly for the combined tax group.
Clean Energy for All Europeans Package of the European Union:
A package of measures that the European Commission presented on 30 November 2016 to keep the EU competitive as the energy transition changes global energy markets; this legislative initiative has four main goals, that is, energy efficiency, global leadership in RE, a fair deal for consumers and a redesign of the internal electricity market.
Citizen Energy Communities (CECs):
Defined in Art. 2 (11) of the IEMD as a legal entity that “(a) is based on voluntary and open participation and is effectively controlled by members or shareholders that are natural persons, local authorities, including municipalities, or small enterprises; (b) has for its primary purpose to provide environmental, economic or social community benefits to its members or shareholders or to the local areas where it operates rather than to generate financial profits; and (c) may engage in generation, including from renewable sources, distribution, supply, consumption, aggregation, energy storage, energy efficiency services or charging services for electric vehicles or provide other energy services to its members or shareholders“.
Consumer Stock Ownership Plan (CSOP):
A financing technique that employs an intermediary corporate vehicle, facilitates the involvement of individual investors through a trusteeship and may use external financing, thereby achieving the benefit of financial leverage.
Demonstration Projects for Innovative Technologies:
Defined in Art. 2 para. 2 (x) of the IEMR as “a project demonstrating a technology as a first of its kind in the Union and representing a significant innovation that goes well beyond the state of the art”.
Effective control of RECs and CECs:
Defined in Art. 2 pt. (56) IEMD as “rights, contracts or other means which, either separately or in combination and having regard to the considerations of fact or law involved, confer the possibility of exercising decisive influence on an undertaking, in particular by: (a) ownership or the right to use all or part of the assets of an undertaking; (b) rights or contracts which confer decisive influence on the composition, voting or decisions of the organs of an undertaking”.
Electricity/Energy Sharing
(incl. (virtual) net-metering): Recital (46) IEMD stipulates: “Electricity sharing enables members or shareholders to be supplied with electricity from the generation installations within the community without being in direct physical proximity to the generating installation and without being behind a single metering point”. In the context of RECs, this is extended in Recital (71) and Art. 21 para. 6 to energy sharing.
Employee Stock Ownership Plan (ESOP):
An ESOP can use leverage and enables workers to acquire shares of their employer corporations, repaying the acquisition loan not from their wages but from the future earnings of their shares in the company.
Enabling Framework:
Art. 22 para. 4 RED II foresees an enabling framework “to promote and facilitate the development of RECs”; furthermore, Art. 21 para. 6. foresees an enabling framework “to promote and facilitate the development of renewables self-consumption“.
Fiduciary Trusteeship:
A fiduciary, fully fledged Trusteeship of a shareholding occurs when a shareholder (here the fiduciary entity = trustee) owns the shareholding for the account of one or more other entities (here individual consumer-shareholders = trustors) in the sense that she is entitled to the rights arising from the shareholding only in accordance with a fiduciary contract concluded with the trustors.
Internal Electricity Market Directive (IEMD):
Defines amongst others “citizen energy communities” (CECs), introducing in Art. 16 a new governance model and the possibility of energy sharing for them.
Internal Electricity Market Regulation (IEMR):
Mainly focussing on the completion of the internal market in electricity that has progressively been implemented since 1999.
Investment Agreements:
In the RE-CSOP these are concluded between CSOP participants and the Trusteeship and stipulate the fiduciary relationship including rights and obligations of both parties.
Leveraged investment:
Financing transaction that uses external financing (debt), thereby achieving the benefit of financial leverage.
Mirror Loan:
Structure of capital acquisition loan in a CSOP directly to the Operating Company and then in a second “mirror loan” to the Trusteeship resulting in favourable taxation and a stronger position of the lender.
Renewable Energy Cluster:
(Renewable) energy systems of the future, entailing flexibility, bi-directionality and interconnectivity options between prosumers and producers of energy and the market.
Renewable Energy Community (REC):
Defined in Art. 2 (16) the RED II as a legal entity: “(a) which, according to applicable national law, is based on open and voluntary participation, is autonomous, and is effectively controlled by shareholders or members that are located in the proximity of the renewable energy projects owned and developed by that community; (b) whose shareholders or members are natural persons, local authorities, including municipalities, or SMEs; (c) whose primary purpose is to provide environmental, economic or social community benefits for its members/the local areas where it operates rather than financial profits”.
Renewable Energy Directive (RED II):
Defines amongst others “renewable energy communities” (RECs) introducing a new governance model and in Art. 22 the possibility of energy sharing for them, while providing them with an enabling framework.
Trusteeship:
Contractual arrangement with a fiduciary (as a rule a legal entity but also a physical person) to facilitate individual shareholding of the participating consumers in a CSOP.
Benchmarking Employee Participation in Profits and Enterprise Results in the European Union, the United Kingdom and the United States