Professional Documents
Culture Documents
OVERVIEW
The purpose of the New England Tablelands Community Wind Farm Study (New England Wind Phase1) 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
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.
CONTENTS
Overview........................................................................................................................................................................................ 2
Reporting Structure....................................................................................................................................................................................................... 2 Acknowledgements..................................................................................................................................................................................................... 2
Governance Models.............................................................................................................................................................. 4
Analysis Structure........................................................................................................................................................................................................... 5
Public Company.................................................................................................................................................................... 11
Analysis for New England Wind......................................................................................................................................................................... 12 Case Study: Capital Wind Farm, Canberra, Australia......................................................................................................................... 12
Private company................................................................................................................................................................... 17
Analysis for New England Wind......................................................................................................................................................................... 18 Case Study: Mt Barker Community Wind Farm....................................................................................................................................... 18
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 wouldnt 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 projects 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 spectrum 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 Non-local organisational ownership All profit to investors One investor has all votes
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).
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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~ 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).
That starts to allow the Councils influence. Im not saying whether thats good or bad, Im 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.
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.
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 Public Company A owns & controls Private Company B Public Company A and the bank To Public Company A, its shareholders, the bank and some donations to the community. Pros Companies are a familiar and straightforward legal structure. Bank debt is easier to secure for a well established company High shareholder profits Cons Doesnt facilitate community involvement or ownership No local or community ownership Very little money goes back to local people, groups or sustainability projects
Ownership & Decision Making Power Where the money is from Where the money goes
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.
PUBLIC
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.
Description 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.
Pros 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
Cons The focus on a geographically prescribed community, can lead to resentment from people living just outside the region Can be tokenistic
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
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.
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.
Ownership & Decision Making Power Description 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 cooperative 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 stakes in the wind farm going to the developer/company and the community investors through the co-operative. Pros 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. Cons Takes time and high legal costs to negotiate. Usually requires a community minded developer/company
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.
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
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.
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 Illustration 8: Private Company Model beneficiaries in the project. Voting rights are usually proportionate to the number of shares owned.
Description A company owned by up to 30 shareholders, who typically have one vote per share Pros 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 Cons Not democratically controlled; unless investors are local, there is no local control.
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.
Income goes to pay off debt and provide investors with dividends.
ANALYSIS
FOR
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.
CO-OPERATIVE
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: Citizens Investor Co-op with Local Fund
Pros Decision making is democratic rather than being determined by level of investment Broad member investment facilitates strong feelings of community ownership The broader community reaps benefits from the project, as well as investors. Additional sources of funding are available for community projects.
Cons 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.
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 CoOperatives, NSW Environmental Defender's Office, 2011.
CO-OPERATIVE
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-onevote, 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.
Description Decisions are made by the investors and board of the co-op
Pros 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.
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.
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.
The CRE project is owned by a company in which the NFP Association is a coowner 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
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.
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 coowner in the project
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
The Community Trust apply for bank loans and government and philanthropic grants to fund the project.
Description 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
Pros 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
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
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.
ANALYSIS
FOR
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.