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G OVERNANCE M ODEL O PTIONS A NALYSIS N EW E NGLAND T ABLELANDS C

GOVERNANCE MODEL

OPTIONS ANALYSIS

NEW ENGLAND TABLELANDS

COMMUNITY WIND FARM STUDY

MAY 2011

G OVERNANCE M ODEL O PTIONS A NALYSIS N EW E NGLAND T ABLELANDS C OMMUNITY

GOVERNANCE MODEL OPTIONS ANALYSIS

OVERVIEW

The purpose of the New England Tablelands Community Wind Farm Study (New England Wind Phase 1 ) is to determine the feasibility for the establishment of a community co-operative based wind farm in the New England Tablelands.

This Report contrasts the (Preliminary) Recommendation for a Hybrid Governance Structure with analysis of the wider range of governance models which have been used in Australia and around the world for community renewable energy (CRE) projects.

The pros and cons of 10 governance models are detailed.

REPORTING STRUCTURE

This Analysis Report is to be read in conjunction with the below series of reports dedicated to each discrete part of the Study:

Preliminary Findings & Recommendations

Community Survey Analysis

Participatory Planning Forums Analysis

Community Renewable Energy Research Report ~ Community Power Agency

Legal Structure Advices

NSW Co-Operatives ~ NSW Environmental Defender's Office

Hybrid Structures ~ Wilson & Co Lawyers

Study Methodology & Activities Report

ACKNOWLEDGEMENTS

Study Methodology & Activities Report A CKNOWLEDGEMENTS This Report is largely a summary of the following

This Report is largely a summary of the following distinct reports detailed above:

Community Renewable Energy Research Report (2011), Prepared by the Community Power Agency for New England Wind, Hicks, J. & Ison, N;

Hybrid Legal Structures Advice ~ Hugh Piper, Wilson & Co Lawyers, 2011; and,

Denmark WA Community Wind Farm Case Study, Elizabeth Gardiner, 2011.

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• Denmark WA Community Wind Farm Case Study, Elizabeth Gardiner, 2011. C OMMUNITY W IND F

GOVERNANCE MODEL OPTIONS ANALYSIS

TABLE OF CONTENTS

Overview

2

Reporting Structure

2

Acknowledgements

2

Governance Models

4

Analysis Structure

5

Recommended (Preliminary) Governance Model

7

New England Energy

7

New England Wind

9

Local Government

10

Common Governance Principles

10

Public Company

11

Analysis for New England Wind

12

Case Study: Capital Wind Farm, Canberra, Australia

12

Public company with a community share offer

13

Analysis for New England Wind

14

Case Study: Dardesheim

14

Private developer & co-operative partnership

15

Analysis for New England Wind

16

Case Study: Energy4All/Falck Renewables Co-ops, Baywind

16

Private company

17

Analysis for New England Wind

18

Case Study: Mt Barker Community Wind Farm

18

Local Citizen’s Investor Company with Share Limits

19

Analysis for New England Wind

19

Case Study: Burgerwindpark

20

Co-operative with local fund

21

Analysis for New England Wind

22

Case Study: Hepburn Wind

22

Co-operative for the benefit of the community

23

Analysis for New England Wind

24

Case Study: Torrs Hydro, UK

24

Not-for-Profit Association & Private Company Partnership

25

Analysis for New England Wind

25

Case Study: Denmark, WA

26

Local Community Trust

28

Analysis for New England Wind

29

Case Study: Eigg Electric & Westray Renewables

29

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Wind 29 Case Study: Eigg Electric & Westray Renewables 29 C OMMUNITY W IND F ARM

GOVERNANCE MODEL OPTIONS ANALYSIS

GOVERNANCE MODELS

In Australia, there are five basic legal models available to community renewable energy projects:

Co-operative

Private company

Public company

Incorporated association

Trust

The pros and cons of these legal structures for New England Wind, based on preliminary parameters separately detailed in the Hybrid Structures Report, Wilson & Co. Lawyers, referred to earlier.

The relevant law pertaining to each of these legal models, and the structure of government incentive programs, can the possibilities and constraints for some elements of a CRE organisational structure.

At times this means choosing a structure that wouldn’t have been the first pick, however organisational structures can then be modelled to meet identified process and outcome goals.

The decisions on three key questions are most key to defining the community nature of a CRE project’s organisational structure:

1. Where does the money come from?

2. Where does the money generated go?

3. Governance/decision making – who is involved and how are they involved?

Associated with these questions there are (at least) three spectrums which move from more (left) to less (right) community orientated organisational features:

Local individual ownership All profit to a community fund One vote per person decision making

to a community fund One vote per person decision making Non-local organisational ownership All profit to

Non-local organisational ownership All profit to investors One investor has all votes

organisational ownership All profit to investors One investor has all votes C OMMUNITY W IND F
organisational ownership All profit to investors One investor has all votes C OMMUNITY W IND F

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organisational ownership All profit to investors One investor has all votes C OMMUNITY W IND F

GOVERNANCE MODEL OPTIONS ANALYSIS

ANALYSIS STRUCTURE

Each of the ten different governance models is analysed in terms of the three questions identified above. These models are a synthesis of over 40 community and non-community renewable energy projects worldwide and are adaptations of four basic organisational models (below).

Illustration 1: Four Basic Governance Models

Illustration 1: Four Basic Governance Models

The models are distinguished by who owns the renewable energy project.

The types of investors in a community renewable energy project could be local, state or national individuals or other legal entities. This is distinguished from partner legal entities that typically have a much larger share or different governance arrangement, such legal entities could be:

Renewable Energy Developers

Energy Utilities

Co-Operatives

Trusts/Not-For-Profit Associations

Universities

Local Council

Company

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Associations • Universities • Local Council • Company C OMMUNITY W IND F ARM S TUDY

GOVERNANCE MODEL OPTIONS ANALYSIS

Each of the organisational models discussed in this report are accompanied by a diagram with three arrows. A key to what these arrows mean is given in Figure 3.

Decision Making Where the money comes from Where the money goes Illustration 2: Governance Model
Decision Making Where the money comes from Where the money goes Illustration 2: Governance Model
Decision Making Where the money comes from Where the money goes Illustration 2: Governance Model

Decision Making

Where the money comes from Where the money goes

Illustration 2: Governance Model Key

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money comes from Where the money goes Illustration 2: Governance Model Key C OMMUNITY W IND

GOVERNANCE MODEL OPTIONS ANALYSIS

RECOMMENDED (PRELIMINARY) GOVERNANCE MODEL

The recommended structure (detailed on the following page) is a “community enterprise” ~ blended business with community processes, principles and benefits ~ to most strongly fit the Design Principles developed from the participatory planning process and detailed in the Report: Preliminary Findings & Recommendations.

This hybrid structure also reflects a cross-fertilisation of the various principles from the four streams of legal and structure advice, separately detailed:

Environmental Defender's Office ~ NSW Co-Operatives;

Wilson & Co Lawyers ~ Unlisted Public Company and hybrid structures;

Embark and Hepburn Wind ~ Hepburn Wind Victorian Co-operative;

Community Power Agency ~ case studies and analysis of other Australian and international community renewable energy governance structures.

It is recommended that a two-entity hybrid structure is required to best deliver the design principles identified by the community and key stakeholders.

NEW ENGLAND ENERGY

The key 'community governance' vehicle proposed is New England Energy, a NSW Co-operative.

All critical decisions affecting the community (such as site selection and land

leases) will be made by the Co- operative. Setting a modest fee for membership will enable the highest possibility of participation and accessibility. The Final Report will recommend a membership fee.

Illustration 3: Universal Co-Operative Principles

Illustration 3: Universal Co-Operative Principles

This is a one-member one- shareholder one-vote structure and will embody the Universal Co- Operative Principles detailed earlier in the Design Principles section (and copied to the right).

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detailed earlier in the Design Principles section (and copied to the right). C OMMUNITY W IND

PRELIMINARY REPORT: FINDINGS & RECOMMENDATIONS

Illustration 4: Recommended Governance Structure

Illustration 4: Recommended Governance Structure

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& R ECOMMENDATIONS Illustration 4: Recommended Governance Structure C OMMUNITY W IND F ARM S TUDY

GOVERNANCE MODEL OPTIONS ANALYSIS

By contrast, and to more clearly distinguish the different entity roles, New England Wind will be responsible for all operational decisions for the wind farm. New England Energy will be at all times the majority shareholder in New England Wind.

While New England Energy will initially be focussed on the successful fund raising and establishment of New England Wind, it will over time take a leadership role in the development of an energy plan to fulfil its long-term goal, that is:

~ to provide affordable, competitive, accessible, clean & renewable energy for the New England to become self-sustaining for its energy:

addressing usage, efficiency, embedded generation and distribution through to security, storage, sustainability and education ~

A Community Benefit Plan will be developed for the delivery of returns to the wider community from the wind farm operation (that is, returns beyond those to direct members, shareholders, employees, contractors, landholders and other direct stakeholders in the wind farm).

NEW ENGLAND WIND

An unlisted public company is recommended as the purpose-designed vehicle for the operation of the community wind farm itself.

Its majority owner will be New England Energy Co-Operative (detailed above).

New England Wind will return a yet to be determined flat percentage of top line income back to the community, comparable to a royalty, probably in the vicinity of 2-3% of gross income (potentially $2.5-3.5m over the 25 year lifespan of the wind turbines).

Shareholders will also be required to be members of the Co-Operative to ensure their involvement in the community governance process (noting this is on the basis of a one-member one-shareholder one-vote).

The unlisted public company is a one-vote for every share owned structure, with its constitution incorporating anti-takeover protection.

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structure, with its constitution incorporating anti-takeover protection. C OMMUNITY W IND F ARM S TUDY Page

GOVERNANCE MODEL OPTIONS ANALYSIS

LOCAL GOVERNMENT

There were conflicting views expressed throughout the Study with regards to the involvement of Local Councils. There was support for their inclusion as an investor, however differing views were raised as to Councils on the one hand being key to good governance, as community representatives, and at the same time concerns about their influence and vulnerability to politics.

That starts to allow the Council’s influence. I’m not saying whether that’s good or bad, I’m just throwing it on the table.

Some viewed energy as not being a 'core function' for local Council, whereas others felt it could or should be.

We propose that the inclusion of each local Council could contribute to the perception of an appropriate governance role. Consideration will be given to the establishment of an Advisory Council for New England Energy as a vehicle for representation from Local Councils and other similar stakeholders.

This will be further refined for incorporation into the Final Report.

COMMON GOVERNANCE PRINCIPLES

The Common Governance Principles reflect a two-entity structure needing to work in concert. Both entities are formed from the same set of Design Principles.

These include:

Quadruple bottom line approach

Accessible decision-makers

Open decision-making processes ~ genuinely hearing & responding to community concerns

Transparency & accountability

Professional merit-based boards & management

Investor return 12%pa 1

Ceiling on maximum investor shareholding of 5-10%

1 This proposed 12% annual return is competitive when compared with the long-term return from Australian Ethical's Small Companies Portfolios of just below 10% up to 30 April 2011.

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Small Companies Portfolios of just below 10% up to 30 April 2011. C OMMUNITY W IND

GOVERNANCE MODEL OPTIONS ANALYSIS

PUBLIC COMPANY

This is a classic model used for industrial wind farm development.

A wind farm developer

company, ‘Public Company A’, develop a wind farm that has a company structure of its own, ‘Private

Company B’.

Illustration 5: Public Company

Illustration 5: Public Company

In this model, Public Company A is a publicly listed company that wholly owns

Private Company B. This development model is often funded through bank debt of up to 70% and all profits go back to the parent company and its shareholders.

The Companies are motivated by profit and community benefit is minimal, generally coming in the form of donations to community events or to a community Fund. Donations are often in the range of $500 per turbine per year and often administered in conjunction with local council.

 

Description

Pros

Cons

Ownership & Decision Making Power

Public Company A owns & controls Private Company B Public Company A and the bank

Companies are a familiar and straightforward legal structure. Bank debt is easier to secure for a well

Doesn’t facilitate community involvement or ownership No local or community ownership

Where the money is from

Where the money goes

To Public Company A, its shareholders, the bank and some donations to the community.

established company High shareholder profits

Very little money goes back to local people, groups or sustainability projects

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little money goes back to local people, groups or sustainability projects C OMMUNITY W IND F

GOVERNANCE MODEL OPTIONS ANALYSIS

ANALYSIS FOR NEW ENGLAND WIND

The Proposed Hybrid Governance Model for New England Wind incorporates an unlisted public company legal structure, married with a Co-Operative.

An unlisted public company is best suited to the day to day operation of the wind farm itself, is a clearly understood and trusted mechanism for commercial partners and larger investors.

For more details, reference can be made to the separate paper on Hybrid Structures, Wilson & Co Lawyers, 2011.

CASE STUDY: CAPITAL WIND FARM, CANBERRA, AUSTRALIA

Capital Wind Farm is a 140.7 MW farm comprised of 67 2.1MW Suzlon turbines that became operational at the end of 2009. It is owned and managed Renewable Power Ventures Pty Ltd, which is a 100% owned subsidiary of Infigen Energy Ltd.

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Ventures Pty Ltd, which is a 100% owned subsidiary of Infigen Energy Ltd. C OMMUNITY W

GOVERNANCE MODEL OPTIONS ANALYSIS

PUBLIC COMPANY WITH A COMMUNITY

SHARE OFFER

This model is based on a renewable energy developer undertaking a project and making a certain percentage of the shares in the renewable energy project (the private company) available to members of the local community.

Illustration 6: Public Company with a Community Share Offer

Illustration 6: Public Company with a Community Share Offer

 

Description

Pros

Cons

Ownership & Decision Making Power

Wind developer/ company develops wind farm and opens it to the public to purchase a certain number of shares. Capital is predominantly raised by the developer/company, community shares are ancillary or a part of that capital raising depending on the project. Developer is the main profit recipient, although community shareholders get a decent return on their investment.

Provides the local community with a say and typically greater involvement in the development of the project Way for community investors to be part of larger renewable energy developments

The focus on a geographically prescribed community, can lead to resentment from people living just outside the region Can be tokenistic

Where the money is from

Where the money goes

Ensures that at least some of the revenue stays in the local community

Only allows members of the community with money to invest to benefit from the project

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members of the community with money to invest to benefit from the project C OMMUNITY W

GOVERNANCE MODEL OPTIONS ANALYSIS

ANALYSIS FOR NEW ENGLAND WIND

This model was canvassed during Community Forums and received a low level of support.

Similar to the analysis for the pure public company model above this approach fails to satisfy the communities' desire for community governance (as larger shareholders will likely have controlling interests) or provision of broader returns to the community than dividends and donations alone.

CASE STUDY: DARDESHEIM

Dardesheim is a small town in central Germany and the location of a 62MW wind-farm. The company of pioneer wind developer Heinrich Bartelt is the majority owner, however once operational a share offer was made available to members of the Dardesheim community.

All on-shore wind projects in Denmark, Europe from 2009 have utilised this model.

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wind projects in Denmark, Europe from 2009 have utilised this model. C OMMUNITY W IND F

GOVERNANCE MODEL OPTIONS ANALYSIS

Illustration 7: Private Developer/Investor Co-op Partnership Model

Illustration 7: Private Developer/Investor Co-op Partnership Model

PRIVATE DEVELOPER & CO-

OPERATIVE PARTNERSHIP

This model is based on the idea of a renewable energy project (private company) having two major investors. The first is a standard renewable energy development company; the second is a co-operative or other community vehicle.

The community

organisation enables communities of interest or communities of locality to benefit from a larger renewable energy development.

 

Description

Pros

Cons

Ownership &

The renewable energy development is part owned by a developer/company and part owned by an investor co-op. Decision making power would be proportional to investment share in the project. Internally the co- operative would be one investor one vote. Developer typically bears the risk of the feasibility process and finds capital for their percentage stake in the wind farm. Co-op bears the risk for running a community share offer and finds community investors for their percentage stake in the wind farm Revenue is split according to the relative stake’s in the wind farm going to the developer/company and the community investors through the co-operative.

Way for community investors to be part of larger renewable energy developments and by joining together in a co-op gives community members a greater measure of power and control in the partnership with a company.

Takes time and high legal costs to negotiate. Usually requires a community minded developer/company

Decision Making

Power

Where the money is from

Reduces the amount of up-front cash that a community needs to find to get the project to the construction phase, and reduces the associated early risk.

Can be hard to find a willing developer

Where the

 

money goes

Community members typically get a good return on investment as the project can generally be larger as it leverages both commercial and community investment.

Only allows members of the community with money to invest to benefit from the project

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members of the community with money to invest to benefit from the project C OMMUNITY W

GOVERNANCE MODEL OPTIONS ANALYSIS

ANALYSIS FOR NEW ENGLAND WIND

This model has been suggested to several commercial developers already operating in the New England Tablelands. They were largely uninterested, expressing the view that this model of capital raising is much more costly and labour intensive for them, and outside their normal expertise, compared with the typical model of 80-90% debt plus institutional investment.

There was some support for this model identified through the Community Forums and Survey.

It is worthy of continued investigation, however finding a willing and capable commercial developer will be key.

This model will result in a narrow return of benefits to the community, mostly through dividends and donations through some influence over the design and development by the commercial company may be possible if the community investment is large enough to give the Co-Operative a significant shareholding.

CASE STUDY: ENERGY4ALL/FALCK RENEWABLES CO-OPS, BAYWIND

Baywind, the UK’s first wind co-op, was founded as a developer and community partnership.

The Swedish company – The Wind Company developed a four-turbine wind farm and supported members of the Cumbrian community to develop a co-operative structure – Baywind.

Baywind then undertook a share offer and raised enough money to initially purchase a one-quarter stake in the wind project. The Baywind co-op also set up a local trust with 5% of the co-op’s annual income. This money is used for environmental initiatives near the site of the windfarm.

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money is used for environmental initiatives near the site of the windfarm. C OMMUNITY W IND

GOVERNANCE MODEL OPTIONS ANALYSIS

Illustration 8: Private Company Model

Illustration 8: Private Company Model

PRIVATE COMPANY

This model for CRE development is familiar and administratively uncomplicated option, however, it does come with some constraints.

In Australian Private Company law there can be a maximum of 30 owner-investors, which greatly limits the number of owners and

beneficiaries in the project. Voting rights are usually proportionate to the number of shares owned.

 

Description

Pros

Cons

Ownership & Decision Making Power

A company owned by up to 30 shareholders, who typically have one vote per share

Less risky for big investors, as they have decision-making power in proportion to their level of investment. A company is a familiar legal structure. The combination of a small number of shareholders and bank debt makes for a rapid fundraising strategy High level of shareholder return

Not democratically controlled; unless investors are local, there is no local control.

Where the money is from

From investors and the bank

Not a broad ownership base; bank debt adds costs.

Where the money goes

Goes to servicing debt and back to investors

No broader community or local benefit

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debt and back to investors No broader community or local benefit C OMMUNITY W IND F

GOVERNANCE MODEL OPTIONS ANALYSIS

ANALYSIS FOR NEW ENGLAND WIND

This model is unable to accommodate a large number of shareholders, whereas the New England community are especially keen to enable the widest number and range of local shareholders possible.

This model could be appropriate for a possible future project of on-site embedded generation where only a small number of parties were involved, and the already established New England Energy Co-Operative was the major shareholder.

CASE STUDY: MT BARKER COMMUNITY WIND FARM

Mt Barker Community Wind Farm is a 2.4MW wind farm on the outskirts of Mt Barker, Western Australia. The 12 investors that own Mt Barker Community Wind Farm Ltd are a mix of local, state, national and international individuals and companies. In place of bank debt Mt Barker secured a grant from the federal government that covered 50% of their capital costs. No donations are made to the local community.

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50% of their capital costs. No donations are made to the local community. C OMMUNITY W

GOVERNANCE MODEL OPTIONS ANALYSIS

Illustration 9: Local Citizen’s Investor Co-op Model

Illustration 9: Local Citizen’s Investor Co-op Model

LOCAL CITIZENS INVESTOR

COMPANY WITH SHARE

LIMITS

This model restricts investment in a CRE project to individuals or households living in a specifically defined geographical region.

Further, to increase the democratic nature of the

company structure the number of shares per individual or household is limited.

 

Description

Pros

Cons

Ownership & Decision Making Power

All decision making is made by members of the community who invest in the project Local community investors and often bank debt

Typically no one investor can have majority say, in some examples all investors have equal say.

Those who can’t afford to/don’t want to invest don’t really get a say.

Where the money comes from

Typically a supportive policy such as a feed-in tariff is required to make this possible and/or a wealthy local community. Benefit does not go to people who can afford the more expensive shares.

Where the money goes

Income goes to pay off debt and provide investors with dividends.

All income stays in the local community

ANALYSIS FOR NEW ENGLAND WIND

This model is similar to the traditional Co-Operative approach detailed below. As already stated earlier this particular structure is unsuitable since it places a restriction on the number of local investors. By contrast New England Wind is seeking to establish a large local shareholder base.

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New England Wind is seeking to establish a large local shareholder base. C OMMUNITY W IND

GOVERNANCE MODEL OPTIONS ANALYSIS

CASE STUDY: BURGERWINDPARK

The Burgerwindpark is a German company, which has had several rounds of wind farm development.

The first project in the early 90s was two wind turbines with 28 local members.

Now there are 70 2-3MW wind turbines and two 500kW biogas digestors. Each stage of CRE development is funded and owned by members of the Reu βenk öge community.

Shares are limited to one or a one-half share per household. Each share costs 1000s of Euros. The good wind resource, track record and Germany Feed-in Tariff means that 90-95% of the project funding is debt financing.

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Feed-in Tariff means that 90-95% of the project funding is debt financing. C OMMUNITY W IND

GOVERNANCE MODEL OPTIONS ANALYSIS

CO-OPERATIVE WITH LOCAL FUND

The key benefits of a Co-operative legal structure are that it facilitates broad collective ownership and democratic control.

Some co-operatives sell shares and offer dividends, and others do not, depending on the desired purpose. Any profits made by a co-operative are distributed back to the benefit of all members.

Illustration 10: Citizen’s Investor Co-op with Local Fund

Illustration 10: Citizen’s Investor Co-op with Local Fund

 

Description

Pros

Cons

Ownership & Decision Making Power

Owned and controlled by members on a one- member one-vote

Decision making is democratic rather than being determined by level of investment

Good democratic decision making process only operates well if members participate and feel ownership Co-operatives are a less familiar legal structure, as such, both banks and investors can be wary to provide money A lower rate of return to investors because funds are distributed more widely, although supporting a vibrant community has flow-on benefits for investors also.

Where the money is from

Member investments and bank debt

Broad member investment facilitates strong feelings of community ownership

Where the money goes

To a Community Fund, investors and the bank

The broader community reaps benefits from the project, as well as investors. Additional sources of funding are available for community projects.

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Additional sources of funding are available for community projects. C OMMUNITY W IND F ARM S

GOVERNANCE MODEL OPTIONS ANALYSIS

ANALYSIS FOR NEW ENGLAND WIND

The Proposed Hybrid Governance Model for New England Wind incorporates this Co-Operative legal structure, married with an unlisted public company.

The Co-Operative legal structure is best suited to the provision of a clearly understood and trusted mechanism for 'community governance'.

For more details, reference can be made to the separate paper on NSW Co- Operatives, NSW Environmental Defender's Office, 2011.

CASE STUDY: HEPBURN WIND

Hepburn Community Wind Park Co-operative is a 4MW community-owned wind farm in Victoria owned by 1,600 members, 51% of whom are local. Each year $30,000 will be put towards a local Community Sustainability Fund, to go towards local sustainability projects. Hepburn Winds predicts an average rate of return on investment of 15%.

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Hepburn Winds predicts an average rate of return on investment of 15%. C OMMUNITY W IND

GOVERNANCE MODEL OPTIONS ANALYSIS

CO-OPERATIVE FOR THE BENEFIT OF THE

COMMUNITY

A co-op for the benefit of the community is a particular legal model found in the UK.

The model is based on co-operative principles including one-person-one- vote, however is set up to provide services for people other than their members. As such, the majority of income is set aside in a community fund to run community programs.

Illustration 11: Co-op for the Benefit of the Community

Illustration 11: Co-op for the Benefit of the Community

 

Description

Pros

Cons

Ownership & Decision Making Power

Decisions are made by the investors and board of the co-op

Typically, shares are set at a lower price so more people can invest and thus have assay. Also since the remit of the organization is community benefit there is generally a greater proportion of local ownership and thus decision making. Benefits associated with having investors, that is independence of the government and easier to raise money.

Those who are not investors do not have legal decision making rights.

Where the money comes from

Investors, debt financing and sometimes grants fund this model.

The lack of priority given to return on investment, means that people and organisations are not likely to invest large amounts. Often large amounts of money are not generated.

Where the money goes

To a local community fund and investors typically to recoup their investment, but not profit.

Whole community benefits from the project as well as investors getting their money back.

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benefits from the project as well as investors getting their money back. C OMMUNITY W IND

GOVERNANCE MODEL OPTIONS ANALYSIS

ANALYSIS FOR NEW ENGLAND WIND

Not applicable in Australia.

CASE STUDY: TORRS HYDRO, UK

To be added for final reports.

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C ASE S TUDY : T ORRS H YDRO , UK To be added for final

GOVERNANCE MODEL OPTIONS ANALYSIS

NOT-FOR-PROFIT

ASSOCIATION & PRIVATE

COMPANY PARTNERSHIP

This model of CRE ownership enables a strong common ground between community and company ownership.

Here, any local person can be a member of the Not-For- Profit (NPF) Association and, through its community fund, the entire community can benefit from the CRE project.

Illustration 12: Not-For-Profit Association & Private Company Partnership

Illustration 12: Not-For-Profit Association & Private Company Partnership

The CRE project is owned by a company in which the NFP Association is a co- owner along with other investors. Depending on the rules of the company, the other investors may be local or non-local individuals or business or other NPF Associations.

ANALYSIS FOR NEW ENGLAND WIND

The key difference with this structure is that the community investment is through the NFP Association. Benefits are returned to the community by way of the works undertaken by the NFP Association.

While the New England community identified the importance of providing broader benefits to the wider community, and ensuring these benefits were more than just dividends for shareholders alone, however at the same time there was still an individual interest to be a shareholder as well.

This structure is unable to provide returns both direct to community shareholders as well as wider community benefits.

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both direct to community shareholders as well as wider community benefits. C OMMUNITY W IND F

GOVERNANCE MODEL OPTIONS ANALYSIS

 

Description

Pros

Cons

Ownership & Decision Making Power

Investors own the company and have decision-making power based in level of investment. The NFP Assoc represents the collective views of its membership Money comes from the investors in the company and the NFP Assoc. The NPF Assoc gets its money from grants and (usually very low) membership fees.

Is a mix between broad democratic control (though the NPF Assoc) and investor control as per their level of investment (and corresponding risk)

It isn’t completely democratic; may not be totally locally owned.

Where the money is from

Because the money comes from a local NFP Association, a very broad membership can feel ownership over the project, without having to contribute money directly. The company structure may encourage a bigger number of bigger investors feel comfortable investing The financial benefit of the project goes to the general community as well as the company investors

Having low membership fees enables the greatest number of individuals from all financial backgrounds to be members of the NFP Assoc. This does, however, require the NPF Assoc to secure grant funding in order to be a significant co- owner in the project

Where the money goes

The NFP Assoc receives return on its investment, which goes towards projects of general community benefit, including a community fund. Money also goes back to the other company investors as returns on investment

CASE STUDY: DENMARK, WA

Denmark Community Wind Farm will comprise two 800 kW wind turbines which will be erected at Wilson Head, taking up about one hectare or 1% of a coastal reserve (Crown Land). It will supply about 55% of the demand for electricity by Denmark homes and businesses.

DCW Incorporated, a registered not-for-profit community group started and initially managed the project on behalf of its members and the broader community, through an elected committee of local residents.

The project is now owned and operated by Denmark Community Windfarm Ltd, a public company limited by shares. DCW Inc. will hold shares in the company, in recognition of the in-kind and cash inputs it has made over the past eight years.

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of the in-kind and cash inputs it has made over the past eight years. C OMMUNITY

GOVERNANCE MODEL OPTIONS ANALYSIS

This project “changed owners” because in WA a not-for-profit association cannot conduct a commercial business that makes a profit and distribute that profit amongst it members. Because the wind farm is a profit-making venture offering financial rewards for shareholders, there was a need to create a commercial entity that permitted public investment.

DCW Inc.’s constitution requires that the wind farm be owned and operated by the community. This ensures that all Denmark residents will benefit – either directly, through holding shares, or indirectly, through a community “future fund” which will provide financial assistance for community projects. No single shareholder will be allowed to have a majority interest.

Federal and State government agencies have awarded grants totalling more than $450,000. These include the federal Department of Transport and Regional Services, the Great Southern Development Commission, the Great Southern Area Consultative Committee and the Sustainable Energy Development Office. An additional grant of $1.4 million was approved in October 2008 by the federal government, to cover 50% of project capital costs.

The remaining 50% of capital costs will be sought through a public share offer.

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remaining 50% of capital costs will be sought through a public share offer. C OMMUNITY W

GOVERNANCE MODEL OPTIONS ANALYSIS

Illustration 13: Local Community Trust

Illustration 13: Local Community Trust

LOCAL COMMUNITY TRUST

This model of CRE development is found extensively across Scotland, where most rural communities have existing community or heritage trusts.

The Community Trust, who’s membership is typically restricted to the local adult population,

forms a subsidiary company to develop a renewable energy project.

The Community Trust apply for bank loans and government and philanthropic grants to fund the project.

 

Description

Pros

Cons

Ownership & Decision Making Power

Decisions are mad at two levels, by the community trust and the board of the subsidiary company. The board of the subsidiary typically consists of local community members active in the development of the CRE project. Trust based models of CRE rely on government grants or low-interest loans as well as debt funding from a financial institution

A very democratic structure, as everyone can have a say regardless of their financial status. The mechanism of decision making are typically through AGMs and an energy working group. Does not rely on individual investors

None come to mind

Where the money comes from

Relies on good government policy and the existence of progressive financial institutions preferably with an experience of CRE. Additionally, makes CRE dependent on the state. All communities have politics, large sums of money can increase conflict in a community.

Where the money goes

Income goes to pay off debt and then to the community trust for the membership to decide on its use

All income goes to a communal fund, examples on what this money goes to fund includes the development of new enterprise, environmental projects and needed social services

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of new enterprise, environmental projects and needed social services C OMMUNITY W IND F ARM S

GOVERNANCE MODEL OPTIONS ANALYSIS

ANALYSIS FOR NEW ENGLAND WIND

Similar to the NFP Associated detailed above, the Community Trust structure is unable to provide returns both direct to community shareholders as well as wider community benefits.

CASE STUDY: EIGG ELECTRIC & WESTRAY RENEWABLES

Westray Renewables is a 100% owned subsidiary of Westray Development Trust.

The project consists of one 900kW Enercon Wind Turbine that has been operational since September 2009.

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900kW Enercon Wind Turbine that has been operational since September 2009. C OMMUNITY W IND F

GOVERNANCE MODEL OPTIONS ANALYSIS

ILLUSTRATION INDEX

Illustration 1: Four Basic Governance Models

5

Illustration 2: Governance Model Key

6

Illustration 3: Universal Co-Operative Principles

7

Illustration 4: Recommended Governance Structure

8

Illustration 5: Public Company

11

Illustration 6: Public Company with a Community Share Offer

13

Illustration 7: Private Developer/Investor Co-op Partnership Model

15

Illustration 8: Private Company Model

17

Illustration 9: Local Citizen’s Investor Co-op Model

19

Illustration 10: Citizen’s Investor Co-op with Local Fund

21

Illustration 11: Co-op for the Benefit of the Community

23

Illustration 12: Not-For-Profit Association & Private Company Partnership

25

Illustration 13: Local Community Trust

28

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Company Partnership 25 Illustration 13: Local Community Trust 28 C OMMUNITY W IND F ARM S