The ROI of Community Power


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The ROI of Community Power
Speaker: Dr. Ingo Koenig, Managing Partner, Koenig & Consultants

Part of the 2010 Community Power Finance Forum at MaRS:

Published in: Business, Economy & Finance
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The ROI of Community Power

  1. 1. The Value Factory ™<br />Top ROI for community power<br />Presented by Dr. Ingo Koenig <br />Toronto, 10th of May 2010<br />
  2. 2. What we do – the 15 second commercial<br /><ul><li>Business and Project-Plans
  3. 3. Technology assessment and Investments
  4. 4. Stakeholder-Communication</li></ul><br />
  5. 5. AGENDA <br />What is community power (in Europe)?<br />Why does community power generate superior returns?<br />Risks?<br />Lessons for Ontario<br />
  6. 6. 4<br />Wind energy value chain<br />Initiate <br />and Develop <br />Build <br />and construct<br />Operate <br />and Maintain<br /><ul><li>Find suitable land
  7. 7. Set-up technology
  8. 8. Procure relevant permits
  9. 9. Financing
  10. 10. Refund scheme/ buyers
  11. 11. Construction
  12. 12. Run
  13. 13. Maintain
  14. 14. Sell energy
  15. 15. Public support </li></ul>Community power makes a difference!<br />07/05/2010<br />
  16. 16. Wind power is leading new power generation capacity in Europe<br />
  17. 17. Community power in Europe is.... <br />Definition: A community wind farm is a consequent financial, conceptual and organisational participation of citizens (local community) in a wind farm.<br /><ul><li>Exclusive investment and participation of people living in the vicinity of the farm
  18. 18. Management is done by local investors
  19. 19. Investment and participation of people living in the vicinity of the farm, but also from outside the community with max. participation (e.g. $50,000)
  20. 20. Management is done by local investors or professional service firms</li></li></ul><li>Legal Structure and Taxes <br /> A German "GmbH & Co. KG" is a limited partnership in which the general partner is a GmbH, a private limited company. <br />Limited partners<br />(Kommanditist)<br />General Partner<br />(GmbH)<br /><ul><li>Limited partners can deduct losses whenever they occur in personal tax statement!</li></li></ul><li>Financing<br />Debt: Private commercial banks, state owned banks with preferable rates<br />Equity: At first: Individual investors via closed funds, medium sized investment groups, cooperatives; now utilities and larger cooperation, insurance companies<br />
  21. 21. AGENDA <br />What is community power (in Europe)?<br />Why does community power generate superior returns?<br />Risks?<br />Lessons for Ontario<br />
  22. 22. Community power in Europe is more profitable because... <br />High personal involvement keeps “soft costs” low (5-10% of investment compared to 15-40% investment)<br />High personal involvement improves information flow, and peer pressure lead to short repair reaction times and therefore higher availability and revenues<br />Lower land leases as everybody is a community member (3% vs. 6%)<br />Improved understanding in community leads to faster permitting process; from push to pull (They do not have to accept the park, they now want it!)<br />Equity is relatively inexpensive, you do not deal with professional investors and very expensive due diligence processes<br />
  23. 23. Community power has other benefits than an improved ROI<br />Local multiplier effect benefits everyone<br />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<br />Re-Powering of machines becomes much easier in the future<br />Municipal, provincial taxes stay locally<br />Jobs<br />~ 110,000 new jobs have been created in Europe <br />Potential construction jobs and training for local community<br />Two local positions per project created to administer and maintain the project and coordinate owners and finances<br />Service personnel is regionally based (accountant, lawyers, maintenance, etc.)<br />
  24. 24. Community power in Nordfriesland<br />After tourism and agriculture the third largest industry<br />Community wind farms account for more than $ 170 mill. revenues<br />6.000 individual investors of 166.270 inhabitants (4%)<br />750+ MW installed capacity, still growing<br />Local taxes paid: $ 13.5 mill. <br />Leases to land owners: $ 8 mill.<br />
  25. 25. AGENDA <br />What is community power (in Europe)?<br />Why does community power generate superior returns?<br />Risks?<br />Lessons for Ontario<br />
  26. 26. Community power has risks...<br />General risks:<br /><ul><li>High investment, but
  27. 27. No planning consent/permits
  28. 28. Grid access delayed or too costly if additional infrastructure is required
  29. 29. Unprofitable project, because
  30. 30. Analysis (e.g. wind forecast) was too optimistic
  31. 31. Operations and maintenance becomes too expensive</li></ul>Specific risks:<br />Limits to financing e.g. for off-shore projects<br />Depending on number of investors, decision making can be difficult and exit can be even more difficult<br />Risks<br />
  32. 32. …that can be mitigated<br />Create a network of support and knowledge<br />Learn from comparable projects<br />Employ experts as required<br />Ensure access to sufficient capital<br />Make allowances for bad wind years<br />Choose your partners carefully<br />Make long term maintenance contracts with availability guarantees<br />Get as much community involvement as possible (partners and owners)<br />
  33. 33. AGENDA <br />What is community power (in Europe)?<br />Why does community power generate superior returns?<br />Risks?<br />Lessons for Ontario<br />
  34. 34. Lessons for Ontario...<br />Make wind power a grass-roots movement by including as many Ontarians as possible in the set-up of farms, funds, and their future.<br />The GEA and its Feed-in-tariffs are very strong incentives to start the movement. <br />Educate finance community, it is a profitable low-risk investment.<br />Do it yourself , do not let big developers “shave” the profitability by including too many “soft costs”.<br />
  35. 35. Actions<br />When the wind of change blows...<br />...there are always some who start building walls...<br />…others start building wind farms!<br />
  36. 36. Thank you for your attention!<br />Leader in Community-Power<br />15+yrs experience<br /><br />