business models for community wind power · greentrust wind cic 4 1 introduction this report...

BusinessModelsforCommunityWindPower

ABackgroundBriefingforStakeholdersintheSouthWest

ProducedforTransitionNetwork

by

GreenTrustWindCIC

July2010

GreenTrustWindCIC 2

ThisdocumentisprovidedfreeofchargetoTransitionNetworktoassistitsmembersinunderstandingtheoptionsforcommunitywindpower.GreenTrustWindCICacceptsnoliabilityfortheuseoftheinformationprovidedinthisdocument.COPYRIGHT©GreenTrustWindCIC(July2010)Contact:JakeBurnyeatDirectorGreenTrustWindCICFalmouthAmbulanceBuildingQuarryHillFalmouthCornwallTR112BPt.07815014540e.jakeburnyeat@greentrustwind.co.ukwww.greentrustwind.co.uk

GreenTrustWindCIC 3

Contents1 Introduction ..................................................................................................... 4

2 Theneedforcommunitywindpower............................................................... 4

2.1 TheUKclimatechangeandenergychallenge............................................................................ 4

2.2 Whyarecommunitymodelsneeded? ........................................................................................... 5

3 Communitywindpoweroptions ...................................................................... 6

3.1 Background ............................................................................................................................................... 6

3.2 Model1:Communityinvolvement.................................................................................................. 7

3.3 Model2:Communityfunds ................................................................................................................ 8

3.4 Model3:Communityinvestment .................................................................................................... 9

3.5 Model4:Socialenterprisemodels ................................................................................................11

AppendixA‐WindPowerisPopular:Summaryofresearchonpublicattitudestowardswindpower ............................................................................................ 13

GreenTrustWindCIC 4

1 Introduction

This report explains the basic businessmodels possible for communitywindpower in theUK,whichare:

1. Communityinvolvement;

2. Communityfunds;3. Communityinvestment;4. Socialenterprisemodels.

Thereportprovidesanillustrationoftherangeofscaleofcommunitybenefitpossiblefrom

eachbusinessmodel,andanumberofcasestudies.Variationsonthesemodelsarepossible,andasingleprojectmaycombineanumberoftheseapproaches.

Aswithanywindproject, technically robust site selectionanddevelopment is requiredbydevelopersofcommunitywindprojects, toensureprojectsmeet theappropriateplanning

guidance,andtominimisenegativeimpacts.

Goodwindprojects can generate substantial profits. If thatprofit is retained locally,windpower has the potential to be a key driver of enabling communities that areenvironmentally,sociallyaneconomicallysustainable.

2 Theneedforcommunitywindpower

2.1 TheUKclimatechangeandenergychallenge

The UK’s world leading Climate Change Act passed in 2008 sets an objective of reducingcarbonemissionsby80%below1990levelsby2050.Toachievethat,theActrequires5‐year

carbonbudgetstoguidetheinterimtargetsanddeliveryplans.

Establishinga2050 lowcarboneconomywillbeachievedbytwobasicchanges: firstly,wehavetousea lot lessenergythatwecurrentlyconsumeandsecondly, themajorityof theenergywedouseneedstocomefromrenewablesources.Thefirstmajormilestoneonthe

pathto2050istheUK’slegallybindingobligationundertheEURenewableEnergyDirective.Thisistomeet15%ofallenergyconsumption(includingelectricity,heatandtransport)fromrenewablesourcesby2020.Theonuswillfallonelectricitygenerationbecauseofitsrelative

costeffectivenessandthepoliticaldifficultyofchangingheatandtransportenergyuse.Over30% of our electricity will have to come from renewable sources by 2020 (compared toaround5%today).

“Windpoweriscurrentlyoneofthemostdevelopedandcost‐effectiverenewableelectricitytechnologies.TheUKhasthelargestpotentialwindenergyresourcein

Europe.”(UKRenewableEnergyStrategy,DECC2009)

Tomeetitsshareofthe2020target,theSouthWestneedstobuildatleast500largewindturbines (a total of around 1,000MW). This assumes the region does all it can in other

technologies such as solar, hydro, offshorewind,wave and biomass. The SouthWest has

GreenTrustWindCIC 5

someofthebestwindresources intheUK,but(withtheexceptionofCornwall)very littlewindgenerationcapacityhasbeenbuiltheretodate.

2.2 Whyarecommunitymodelsneeded?

MostwindfarmsintheUKareownedbypowercompaniesandcommercialdevelopers.Too

often,windfarmapplicationsendupinanentrenchedbattlebetweenanoutsidedeveloperandthelocalcommunity.Thetypicaldeveloper‐ledbusinessmodelthatimposeswindfarmson localcommunitiesanddelivers little localbenefit is failingtodeliverwindpower inthe

SouthWest.

The majority of people are not opposed to wind turbines but (in contrast to anti‐windgroups)aretypicallypassive,soareoftennotrepresentedinthepressorbytheirplanningcommittees. There will always be a minority of people in opposition to schemes. The

challenge is not to silence them, but to mobilise the normally passive majority who areindifferent to, or in favour of, their local wind farm and to ensure their views arerepresented.Oneway to domotivate such support to redress the balance between local

impactandlocalbenefit.

Largewindturbinescanmakealotofmoneyand,undertherightbusinessmodel,couldbedriversofeconomicrevitalisationandself‐sufficiencyforruralcommunities.Self‐sufficiencyinbothdecision‐makingandfunding is thechallengeforruralcommunitiesunderthenew

Government’spoliticsoflocalismandtherequiredspendingcuts.

It is recognised at national level by the Department of Energy and Climate Change andregionallevelbyRegenSWthatcommunityfocussedbusinessmodelsareneededtodeliver

onshorewindintheUK,andespeciallytheSouthWest.

Todatefewcommunitywindprojectshavebeendeveloped,ascommercialwinddevelopersaregenerallyreluctanttogiveupsignificantvaluetothelocalcommunity.Fewcommunitieshave theskills, timeor financial resources todelivera large‐scalecommunitywindproject

ontheirown.Twooptionsforgettingroundthisbarrierare:

• Acommunitycanengageadvisorstohelpthem(requiringgrantfunding);

GreenTrustWindCIC 6

• A community can partner with a specialist community wind developer, who willprovidethefinanceandskills.

Grant funding has enabled some flagship community wind projects, and a number of

specialistwindprojectdevelopersareemergingintheUK.

3 Communitywindpoweroptions

3.1 Background

‘Community’ wind power is about the business model, not a scale of turbine or size of

project.The4projectsbelowareall‘community’projects.

Thebasicbusinessmodelsforcommunitywindpowerare:

1. Communityinvolvement;

2. Communityfunds;3. Communityinvestment;4. Socialenterprisemodels.

Theseareexplainedinthefollowingsections.

GreenTrustWindCIC 7

3.2 Model1:Communityinvolvement

3.2.1 Explanation

Wind developers must carry out a public consultation as part of the planning process.However,thelevelofengagement,andstageatwhichthisengagementiscarriedoutvaries

significantlybetweendevelopersandprojects.Publicconsultationactivities inrelationtoawindprojectcaninclude:

• Publicityandawarenessraising;• Focusgroups;

• Opinionsurveys;• Publicexhibitionsand‘villagehall’meetings;• Petitions,letterwriting,andrepresentationattheplanningcommitteehearing.

3.2.2 Communitybenefitpotential

The extent to which community involvement benefits the local community could be

assessedbythefollowingfactors:

• Thestageatwhichthecommunityisinvolved;• Theextentofinvolvement;• Theextenttowhichacommunity’sviewsareincorporatedintothedevelopment.

Anillustrativescaleisprovidedinthetablebelow.

Illustrativecommunityinvolvementscale

Communityled Collaborative Developerled

Stageofinvolvement

Atprojectinitiationstage:

“Doesthecommunity

wanttheprojectatall?”

Atsiteselectionandprojectdesignstage:

“Whereandhowbig?”

Oncetheprojectisreadytobesubmitted:

“Thisiswhatwearedoing;willthe

communitysupportit?”

Extentofinvolvement

Theprojectiscommunityinitiated,andthe

communityareproactivelyinvolvedthroughout

development

Allpartsofthecommunityreachedthroughextensive

andimaginativeconsultation

ConsultationtomeetminimumLPA

requirementsonly

Extentof

incorporationof

community’sviews

Theprojectisdesigned

aroundthecommunity’sneeds

Reasonableconcerns

addressed,asfarasispossiblewithout

significantlycompromisingtheproject

Consultationisfor

complianceonly,atastagewhenitistoolate

tomakesignificantchangestotheproject

GreenTrustWindCIC 8

Thelevelofcommunityinvolvementissomewhatindependentoftheprojectbusinessmodel.Adeveloperfundedandownedprojectcouldbe‘communityled’.

3.3 Model2:Communityfunds

3.3.1 Explanation

The most widespread and well‐known form of community benefit in the UK is the

communityfund.Thecommunitytakesnofinancialrisk,butreceivesafinancialcontributionthrough a ‘planning gain’ payment from the developer. Key characteristics of such fundsinclude:

• Canbepaidupfrontorannually;

• Canbemanagedbyan independent thirdparty, suchasCommunityDevelopmentTrust;

• Maybeallocatedtoaspecificcause(suchaslocalenergyandenvironmentrelated

initiatives);• Can only be a small percentage of profit from a commercial developer owned

project,astheircorebusinessistomakemoneyfortheirshareholders;

• Canbe substantial share of theprofit froma social enterprisewindproject, as itscorepurposeistocreatebenefitforthecommunity.


ThegraphbelowshowscommunityfundsizesfromprojectsacrosstheUK,showingannual

paymentsofupto£4,000/MW.Thevaluesareamixofupfrontfundpaymentsandannualpayments, normalised to an annual payment. They are not normalised for wind speed.Windierprojectswillbeabletoaffordalargercommunityfund.

GreenTrustWindCIC 9

3.4 Model3:Communityinvestment

3.4.1 Explanation

Amodel that has been common inDenmark, and has been applied by a number ofwinddevelopersintheUK,istoofferthelocalandwidercommunitytheopportunitytoinvestin

awindproject at construction stage (once theprojecthasbeen ‘de‐risked’) througha co‐operative share offer. This gives the community a sense of ownership in the project, andprovidesanattractivesavingsinvestment.Keycharacteristicsinclude:

• Thedeveloperofferstheprojectforco‐operativeinvestmentatconstructionstage.

The offer could be for the entire project (see Westmill example), a share of thewholeproject,orfor1ormoreturbinesinalargerproject(seeBoyndieexample);

• Individualscantypicallyinvestfrom£250to£20,000each,andreceiveanattractive

rateof return (e.g. 5% ‐ 10%on averageover theproject’s 20‐year life, plus theircapitalbackattheendoftheproject’slife);

• Thecommunitydoesnotneedtobedirectlyinvolvedintheproject;

• Thedevelopermay employ an agent tomanage the co‐operative share offer (e.g.Energy4All);

• Localpeoplemaybegivenfirst refusal for theco‐operativeshareoffer,but itmay

alsobeofferedouttothegeneralpublic;• Themodelbenefitsthosepeoplewillingandabletoinvestintheproject.


Thelevelofcommunitybenefitisdeterminedby:

• Thesizeoftheprojectandpercentageofferedforcommunityinvestment.

• Thelevelofuptakeoftheshareoffer;• The terms of the share offer (e.g. fixed income, capped income, or proportional

shareoftheprojectprofit);

GreenTrustWindCIC 10

• Theeconomicperformanceoftheproject.

3.4.3 Casestudies

BoyndieWindFarm(Aberdeenshire)

The7×2MWturbineprojectwasdevelopedbyFalckRenewablesin 2005. A local co‐operative (Boyndie Wind Farm Co‐op) wasestablishedpost‐construction topurchasea share in theprojectthrough a £730,000 co‐operative share offer assisted byEnergy4All. This provides an investment return to its 700 or soinvestors. Falck Renewables funded the remaining £15m+construction investment, manages the project, and retains themajorityownershipshare.

(www.boyndie.coop)

The Westmill Wind Farm Co‐operativeproject(Oxfordshire)

The5×1.3MWturbineprojectwasdevelopedby the landowner. The £7.6m constructioncostwasfinancedthrougha£3.7mpublicco‐operativeshare issuemanagedbyEnergy4AllandadebtloanfromtheCo‐operativebank.

The project demonstrates the appetite formaterial levels of public investment in windprojects.

(www.westmill.coop)


3.5 Model4:Socialenterprisemodels

3.5.1 Explanation

AnumberofwindprojectsintheUKhavebeeninitiated,developedandownedbythelocalcommunitythroughsocialenterprisebusinessmodels.

Characteristicsofasocialenterprisemodelwindprojectmayinclude:

• The project is community initiated and the community is closely involved in thedevelopmentprocess.

• The size of ‘community’ served by a project will depend on its size. A kW‐scaleprojectmayserveavillage.Amediumtolarge‐scalewindfarmcouldserveawholetownordistrict.

• Asmallprojectmaybemanagedandowneddirectlybythecommunity(withexpertsupport as required). A larger project is likely to be managed and owned by aspecialistsocialenterprisecompanyforthebenefitofthecommunity.

• The project can and should make a profit, but the profit must be allocated to astated local benefit cause, such as local community and household‐scale carbonreductionandsustainabledevelopmentinitiatives.Assuch,thecompanymaybean

asset locked ‘Community Interest Company’ (CIC) or an ‘Industrial and ProvidentSocietyBenefitfortheCommunity‘(IPSbencom).

• Theprojectmaybefundedbygrants,aco‐operativeshareoffer,commercialloans,

oracombinationofsuchsources.• Profitforlocalbenefitmaybeextractedupfront,annually,orboth.• Themajorityoftheprojectprofitisretainedlocally,asthecorebusinessmodelof

the company is to create local benefit. The local benefit will be of a differentmagnitudeofscaletowhatcanbeofferedbyacommercialdeveloperownedwindproject(seeGreenTrustWindCICexamplebelow).



Thelevelandnatureofcommunitybenefitisdeterminedby:

• Thesizeoftheprojectandsizeofcommunityitisserving;

• Theeconomicperformanceoftheproject;• Thetermsandcostoffunding;• Howfinancialbenefitisextractedandtransferredtothecommunity(e.g.upfrontor

annually);• Howthefinancialbenefitismanagedbythecommunity.

3.5.3 Casestudy

GighaWindfarm(IslandofGigha,Scotland)

The 3 × 225kW turbines are owned by the island community. The £440,000 project wasfundedthroughacombinationofseveralgrantsourcesanda loanof£148,000fromSocialInvestmentScotland.Itgeneratestheannualequivalentofalltheisland’spowerneedsandprovides an income to the community of around £80,000 per year. Some of the income isusedtopayoffacommunitylandbuy‐outloan,andsothewindfarmhasplayedakeyroleinestablishingaself‐determinedsustainablefutureforthecommunity.


AppendixA‐WindPowerisPopular:Summaryofresearchonpublicattitudestowardswindpower

DECCAwarenessandAttitudesResearch(November2009)

TheDepartmentforEnergyandClimateChangecommissionedGfKNOPSocialResearchtoconduct a quantitative research project to explore awareness and attitudes to renewableenergy amongst the general public in Great Britain. The research was administered by

telephone toa statistically representativepopulationof1,949.Themainobjectivesof thisresearchweretoprovideameasureof:

• Awarenesslevelsofrenewableenergysources.

• Attitudestorenewableenergy.

• Whatinfluencedtheseopinions.

• Gaugeperceptionsofrecentmediacoverageonrenewableenergy.

Theresultswerestrikinglyinfavourofrenewableenergyandwindpowerspecifically.Somehighlightsaregivenbelow:

• 81%areinfavourofwindpower,withafurther12%indifferent.

• 62%wouldbehappytolivewithin3milesofawindfarm,withafurther15%indifferent.

• 9in10ofthosewhostatedthatlivingneararenewableenergydevelopmenthadinfluencedtheirviewswereinfavouroftheuseofwindpower.


Peopleinfavourofwindpower:

Peoplehappytolivewithin3milesofawinddevelopment:

Levelofsupportforrenewableenergyasanalternativetofossilfuels:


Sustainable Development Commission summary of research conducted into attitudes towindpower

The Sustainable Development Commission’s ‘Wind Power in the UK’ handbook (2005)

presents a summary of research conducted into attitudes to wind power in the UK. Theresultsfromarangeofnationalandlocalstudiessuggestagenerallystrongpositiveattitudetowardswindpower.

business models for community wind power · greentrust wind cic 4 1 introduction this report...

Documents