Koenig - Top ROI For Community Power


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Top ROI For Community Power by Ingo Koenig
Presented at the Green Energy Act Finance Forum on January 29th, 2010

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Koenig - Top ROI For Community Power

  1. 1. The Value Factory ™ Top ROI for community power Presented by Dr. Ingo Koenig Toronto, 29th of January 2010
  2. 2. AGENDA ! What is community power (in Europe)? ! Why does community power generate superior returns? ! Risks? ! Lessons for Ontario 2
  3. 3. Wind energy value chain Initiate Build Operate and Develop and construct and Maintain " Find suitable land " Public " Financing " Construction " Run " Sell energy " Set-up technology support " Refund " Maintain " Procure relevant scheme/ permits buyers Community power makes a difference! 3 02/02/2010
  4. 4. Wind power is leading new power generation capacity in Europe New power capacity in Europe 2008 18% 2% 10% 29% 6% 3% 0% 36% Wind power Gas PV Oil Coal Hydro Nuclear 4
  5. 5. Community power in Europe is.... Definition: A community wind farm is a consequent financial, conceptual and organisational participation of citizens (local community) in a wind farm.  Exclusive investment and participation of people living in the vicinity of the farm  Management is done by local investors Rigid Community  Investment and participation of people wind farms living in the vicinity of the farm, but also from outside the community with max. participation (e.g. $50,000) Relaxed  Management is done by local investors or professional service firms 5
  6. 6. Legal Structure and Taxes A German "GmbH & Co. KG" is a limited partnership in which the general partner is a GmbH, a private limited company. General Partner Limited partners (GmbH) (Kommanditist)  Limited partners can deduct losses whenever they occur in personal tax statement! 6
  7. 7. Financing Debt: Private commercial banks, state owned banks with preferable rates Equity: At first: Individual investors via closed funds, medium sized investment groups, cooperatives; now utilities and larger cooperation, insurance companies 120% 100% 80% State sponsored 60% loans Commercial banks 40% 20% Equity 0% Community power Absantee investors 7
  8. 8. AGENDA ! What is community power (in Europe)? ! Why does community power generate superior returns? ! Risks? ! Lessons for Ontario 8
  9. 9. Community power in Europe is more profitable because... " High personal involvement keeps “soft costs” low (5-10% of investment compared to 15-40% investment) 300 " High personal involvement improves information 295 flow, and peer pressure lead to short repair reaction 290 times and therefore higher availability and 285 revenues 280 Community power 275 Other farms " Lower land leases as everybody is a community 270 member (3% vs. 6%) 265 " Improved understanding in community leads to 260 faster permitting process; from push to pull (They 255 do not have to accept the park, they now want it!) Total payback " Equity is relatively inexpensive, you do not deal with professional investors and very expensive due diligence processes 9
  10. 10. Community power has other benefits than an improved ROI Local multiplier effect benefits everyone " Every local dollar invested results in a minimum of 3 times the benefit to the local community <--> If an external developer owns and controls the project these benefits are lost " Re-Powering of machines becomes much easier in the future " Municipal, provincial taxes stay locally Jobs " ~ 110,000 new jobs have been created in Europe " Potential construction jobs and training for local community " Two local positions per project created to administer and maintain the project and coordinate owners and finances " Service personnel is regionally based (accountant, lawyers, maintenance, etc.) 10
  11. 11. AGENDA ! What is community power (in Europe)? ! Why does community power generate superior returns? ! Risks? ! Lessons for Ontario 11
  12. 12. Community power has risks... General risks: ! High investment, but Specific risks:  No planning ! Limits to financing consent/permits e.g. for off-shore  Grid access delayed or too costly if additional projects infrastructure is required ! Depending on Risks ! Unprofitable project, number of investors, because decision making can  Analysis (e.g. wind forecast) was too be difficult and exit optimistic can be even more  Operations and difficult maintenance becomes too expensive 12
  13. 13. …that can be mitigated " Create a network of support and knowledge " Learn from comparable projects " Employ experts as required " Ensure access to sufficient capital " Make allowances for bad wind years " Choose your partners carefully " Make long term maintenance contracts with availability guarantees " Get as much community involvement as possible (partners and owners) 13
  14. 14. AGENDA ! What is community power (in Europe)? ! Why does community power generate superior returns? ! Risks? ! Lessons for Ontario 14
  15. 15. Lessons for Ontario... ! Make wind power a grass-roots movement by including as many Ontarians as possible in the set-up of farms, funds, and their future. ! The GEA and its Feed-in-tariffs are very strong incentives to start the movement. ! Educate finance community, it is a profitable low-risk investment. ! Do it yourself , do not let big developers “shave” the profitability by including to many “soft costs”. Ontarians become wind power entrepreneurs!!! 15
  16. 16. Thank you for your attention! www.koenigconsultants.ca 16