BusinessModelsforCommunityWindPower
ABackgroundBriefingforStakeholdersintheSouthWest
ProducedforTransitionNetwork
by
GreenTrustWindCIC
July2010
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ThisdocumentisprovidedfreeofchargetoTransitionNetworktoassistitsmembersinunderstandingtheoptionsforcommunitywindpower.GreenTrustWindCICacceptsnoliabilityfortheuseoftheinformationprovidedinthisdocument.COPYRIGHT©GreenTrustWindCIC(July2010)Contact:JakeBurnyeatDirectorGreenTrustWindCICFalmouthAmbulanceBuildingQuarryHillFalmouthCornwallTR112BPt.07815014540e.jakeburnyeat@greentrustwind.co.ukwww.greentrustwind.co.uk
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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
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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
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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);
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• 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.
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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
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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.
3.3.2 Communitybenefitpotential
ThegraphbelowshowscommunityfundsizesfromprojectsacrosstheUK,showingannual
paymentsofupto£4,000/MW.Thevaluesareamixofupfrontfundpaymentsandannualpayments, normalised to an annual payment. They are not normalised for wind speed.Windierprojectswillbeabletoaffordalargercommunityfund.
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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.
3.4.2 Communitybenefitpotential
Thelevelofcommunitybenefitisdeterminedby:
• Thesizeoftheprojectandpercentageofferedforcommunityinvestment.
• Thelevelofuptakeoftheshareoffer;• The terms of the share offer (e.g. fixed income, capped income, or proportional
shareoftheprojectprofit);
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• 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)
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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).
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3.5.2 Communitybenefitpotential
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.
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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.
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Peopleinfavourofwindpower:
Peoplehappytolivewithin3milesofawinddevelopment:
Levelofsupportforrenewableenergyasanalternativetofossilfuels:
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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.