If I do not respond to him today, perhaps I may respond after reading Hansard.
I should like to take this opportunity to explain—and I hope address the noble Lord’s concerns—why we have set the 5% cap and why I am resisting the approaches proposed by both amendments. I am also grateful to the noble Lord, Lord Cameron, for his intervention, which—although the noble Lord, Lord Teverson, suggested an alternative—shows the serious possibility for communities, if so minded, to be able to stop a renewable project by trying to obtain a stake bigger than 5%. Let me develop my argument a little further.
The key reason why a 5% cap has been set in the Bill is to provide certainty to developers now on the maximum size of offer that can be legislated for in the future. While the Government wholeheartedly support community investment in renewable electricity and want to see a substantial increase in shared ownership, it cannot be at the expense of investment in renewables. The 5% cap provides absolute clarity to industry on the upper limit on the size of stake it may be required to offer to communities. Although of course we would welcome developers voluntarily offering more, by contrast the approach taken by my noble friend Lord Teverson who proposed a wide range of between 5% and 25% of the total capital costs of development does not provide any meaningful degree of certainty for industry. As such it could risk deterring future investors in the renewables industry. The alternative approach proposed by the noble Baroness, Lady Worthington, similarly does not provide certainty to industry on the maximum size of stake that could be legislated for in the future, since it leaves this to be defined in secondary legislation.
This takes me on to my second point which is about retaining flexibility. I recognise that the key benefit of providing a range, as proposed by my noble friend Lord Teverson, is to retain future flexibility on the maximum size of offer that can be legislated for in the future. However, the approach that we have taken also provides a sufficient degree of flexibility. The 5% cap represents the maximum that could be required, and the actual amount set in secondary legislation could vary by technology. This is important. We need to bear in mind that the scope of the powers covers a greater than 10-fold range in project size. So a 5% mandatory offer to communities might be appropriate for smaller schemes that have a lower capital cost. However, for schemes with a higher capital cost it might be more realistic to set a lower limit, for example at 1% of total project capital costs.
That takes me on to the size of the stake. It is important, when setting the cap on what may be legislated for, that the amount of investment which may be raised by the community is taken into consideration. Based on this, we consider it likely that if a multi-million pound community stake were mandated, there could be insufficient demand for this within the community even if the geographical area were quite large. That is why we have enabled a cap that would allow the offer of a mandatory stake to be set anywhere up to 5%. This approach ensures that the maximum size of stake required can be broadly aligned with the amount of investment that may be raised by the community. By contrast, the approach proposed by my noble friend Lord Teverson implies that a mandatory stake could not be set any lower than 5%. This would mean that developers could be required to offer a larger amount to the community than could plausibly be financed, particularly for larger schemes with a very high capital cost. In addition, raising the threshold to 25% may have a similar effect. Furthermore, under the Companies Act 2006 a level of 25% of shareholder equity ownership has the potential to block a special resolution. The purpose of these provisions is not to mandate that the community has a controlling stake.
That is not to say that we should not encourage developers to offer a stake greater than 5%. I would like to emphasise that this Government would fully support developers choosing to offer more in circumstances where that is appropriate. However, we do not feel that it is right to mandate this size of offer to communities since it could have such fundamental implications for project financing. The position on a 5% cap is supported by RenewableUK, the trade association for wind, which described it as an “ambitious objective”. In respect of setting a higher limit it states that this, “would simply delay a developer’s ability to secure investment from institutional and other investors”.
My noble friend Lord Teverson asked about the rules set by the Financial Conduct Authority. While developers will be required to comply with all Financial Conduct Authority rules as they are set, it would be inappropriate to change or relax those rules as they provide important safeguards for individual investors. Having introduced some clarity in this area, I hope that the noble Baroness will feel able to withdraw her amendment.