Guidelines for development of renewable energy co-operatives in Ontario


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Guidelines for development of renewable energy co-operatives in Ontario
Speaker: Jennifer Heneberry, Co-operative Development Manager, Ontario Co-operative Association

Part of the 2010 Community Power Finance Forum at MaRS:

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  • Co-op structure – not organized as profit/NFP Share Capital vs Non-share capital: Share capital refers to shares offered by the co-op to members or outside investors. Often called member equity. Often used to buy equipment, land, or other fixed assets. Incorporating without share capital means that the co-op must rely on debt financing to raise money. Fine for covering operating expenses such as supply purchasing. Co-ops can combine debt financing with share capital. Shares pay a return to members. On Co-op is organized as a co-op without share capital. In BC, the BC Co-op Association has share capital and pays dividends back to members. Revenue and distribution of surplus Revenue used to buy assets and pay expenses. In co-ops surplus can be distributed to members through patronage, which is usually distributed based on how much business a particular member does with the co-op. payments can be in cash or in additional patronage loans.
  • For co-ops: Non profit does not mean NO profit NFP – community focus Co-ops better the lives of their members (not always the same); membership is the end benefit, community is ancillary In Canada. Profit/NFP is defined by Canada Revenue Agency. Essentially means that the organization does not operate with the primary purpose of generating profit.
  • Guidelines for development of renewable energy co-operatives in Ontario

    1. 1. Guidelines for the Development of Renewable Energy Co-ops Community Power Financing Forum May 10 th , 2010 Jen Heneberry, Co-op Development Manager, Ontario Co-operative Association
    3. 3. What is a co-op? <ul><li>Co-ops are member-owned enterprises </li></ul><ul><ul><li>Primary purpose is to meet the needs of members </li></ul></ul><ul><li>An internationally recognized business model </li></ul><ul><ul><li>Incorporated under provincial or federal legislation </li></ul></ul><ul><ul><li>Similarities to not-for-profits and private businesses </li></ul></ul><ul><ul><li>Can be used in virtually all business scenarios </li></ul></ul><ul><li>Democratically controlled: One-member, one-vote, regardless of investment in co-op </li></ul>
    4. 4. Basic Co-operative Structure
    5. 5. Co-ops vs. Business Corporations <ul><li>CO-OPERATIVES </li></ul><ul><li>Exist to meet needs of members </li></ul><ul><li>Accountable to members </li></ul><ul><li>Surplus distributed to members </li></ul><ul><li>One member one vote </li></ul><ul><li>Board represents members; directors must be members </li></ul><ul><li>Shares generally not traded </li></ul><ul><li>BUSINESS CORPORATIONS </li></ul><ul><li>Exist to maximize ROI </li></ul><ul><li>Accountable to shareholders </li></ul><ul><li>Unlimited return on shareholder capital </li></ul><ul><li>Vote based on number of shares held </li></ul><ul><li>Board represents shareholders; director may not be shareholder </li></ul><ul><li>Shares may be traded </li></ul>Refer to detailed comparison sheet for more details Download from (Factsheet section) OR
    6. 6. Co-ops vs. Not-for-Profits <ul><li>CO-OPERATIVES </li></ul><ul><li>Always member controlled </li></ul><ul><ul><li>One member one vote </li></ul></ul><ul><li>Mandated to meet the needs of members </li></ul><ul><li>Board of Directors elected from membership </li></ul><ul><li>Operate under CC Act or CU&CP Act; with or w/out share capital </li></ul><ul><li>Surplus & patronage may be distributed to members </li></ul><ul><li>NOT-FOR-PROFITS </li></ul><ul><li>Usually member controlled </li></ul><ul><ul><li>Membership voting classes </li></ul></ul><ul><li>Broader mandate to the community </li></ul><ul><li>Board of Directors elected from membership </li></ul><ul><li>Operate without share capital under Ontario Corp. Act </li></ul><ul><li>Surplus kept to further goals and objectives of organization </li></ul>Refer to detailed comparison sheet for more details Download from (Factsheet section) OR
    8. 8. History of Ontario RE Co-ops <ul><li>RE co-ops, based on European models started development after deregulation </li></ul><ul><li>1999-2002: TREC/Windshare developed the 1 st project, Ex Place turbine </li></ul><ul><li>2002-2004: Several other co-ops were formed in quick succession </li></ul><ul><ul><li>Larger focus on wind power due to economics </li></ul></ul>
    9. 9. History, part two <ul><li>Many used a NFP ‘development’ arm that would seek grants to support early phase work </li></ul><ul><ul><li>Mimic the ‘TREC/Windshare Model’ with private partnership capital </li></ul></ul><ul><li>2003-2006: Barriers related to grid connection, RFP process, co-op regulations increasing </li></ul><ul><li>New RE co-op start-up slowed down (2008: 23 co-ops listed as energy co-ops) </li></ul><ul><li>2009: GEA passed, eliminates many co-op issues </li></ul>
    10. 10. RE Co-op challenges <ul><li>Business with members requirement of Co-op Act </li></ul><ul><ul><li>Co-ops are required to do a majority of business with members </li></ul></ul><ul><ul><li>Demonstrating the link between members, the co-op and energy purchaser was problematic </li></ul></ul><ul><li>Offering Statement process and limits </li></ul><ul><ul><li>Process of raising capital was challenging as a result </li></ul></ul>
    11. 11. Green Energy Act Changes <ul><li>Creates newly defined ‘renewable energy’ co-ops </li></ul><ul><ul><li>Have to meet definition requirements in the Act </li></ul></ul><ul><li>Removes business with member requirements previously present in Co-op Act </li></ul><ul><li>Allows RE co-ops to distribute patronage in any way they choose to define it in the bylaws </li></ul>
    13. 13. How do co-ops get financing? <ul><li>Equity Source: </li></ul><ul><ul><li>Members (always) & community investors (sometimes) </li></ul></ul><ul><ul><li>Shares, bonds or debentures, or member loans </li></ul></ul><ul><li>Differences in financial statements for co-ops can make leveraging this equity challenging </li></ul><ul><ul><li>Nature of co-op means that co-op securities show as debt on balance sheet (have to educate lenders) </li></ul></ul><ul><li>Co-ops can participate in larger financial partnerships to facilitate financing </li></ul>
    14. 14. Offering Statements <ul><li>Offering statements are special documents that are prepared for co-ops to use to sell securities to members and others </li></ul><ul><ul><li>Analogous to prospectus require for OSC </li></ul></ul><ul><li>Required in certain cases </li></ul><ul><li>Meant to be a full, plain and continuous disclosure of risk to investor </li></ul><ul><li>Need to be submitted and receipted by FSCO before co-op can sell securities </li></ul>
    15. 15. When is an OS required? <ul><li>If your co-op has less than 35 security holders, you do not need an offering statement </li></ul><ul><li>More than 35, co-op can still be exempt from an OS if co-op meets certain conditions </li></ul><ul><li>Two most common are: </li></ul><ul><ul><li>Raising <$200,000 from members through the offering </li></ul></ul><ul><ul><li>Members contributing <$1,000/yr, <$10,000 lifetime </li></ul></ul>
    16. 16. Additional financing issues <ul><li>Co-op shares can be RRSP eligible if certain conditions are met </li></ul><ul><ul><li>Co-op has to be considered Canadian Active Business </li></ul></ul><ul><ul><li>No one shareholder can hold more than 10% of all the shares unless less than 25k </li></ul></ul>
    17. 17. Alternate financing <ul><li>Co-ops have explored alternate financing methods to avoid or mitigate OS concerns </li></ul><ul><li>Co-ops can enter into other financing structures with partners, landowners, developers </li></ul><ul><ul><li>Exploring combinations of the limited partnership model, where co-op is a partner in LP </li></ul></ul><ul><ul><li>Co-op as joint venture partner with another partner </li></ul></ul><ul><ul><li>Term loans or other arrangements with landowners </li></ul></ul>
    18. 18. CO-OP SUCCESS FACTORS <ul><li>How to make them work </li></ul>
    19. 19. Co-op model is NOT right if… <ul><li>Steering committee not committed to democratic functioning and one-member, one-vote principle </li></ul><ul><li>Technology or return on investment are the only reasons you want to develop a project </li></ul><ul><ul><li>(at the expense of process /community buy-in/ member ownership) </li></ul></ul><ul><li>Co-op model is being explored solely as a way to gather community acceptance </li></ul><ul><li>You are attempting to develop in saturated market, or in blocked location </li></ul>
    20. 20. Contact Infomation <ul><li>Jen Heneberry </li></ul><ul><li>Co-op Development Manager </li></ul><ul><li>Ontario Co-operative Association </li></ul><ul><li>519.763.8271 x23 </li></ul><ul><li>[email_address] </li></ul>