Organizational Models Exploring a menu of models for Community Power project ownership Simon Gill; Membership Kris Stevens; Policy
Agenda AGENDA INTRODUCTION PROJECT OWNERSHIP MODELS Examples Advantages & Disadvantages Summary KS
Introduction -About OSEA What is OSEA? A province-wide member-based non-profit founded in 1999 How many members does OSEA have? 1500+ (30 organizations plus individuals) Who does OSEA represent? OSEA represents individual citizens, cooperatives, farmers, First Nations, businesses, institutions and municipalities; the Community Power sector KS
Introduction - OSEA s Vision and Mission What is OSEA s Vision? A sustainable energy economy based on 100% renewables in Ontario What is OSEA s Mission? To facilitate the transition to a sustainable energy economy in Ontario through the development and support of community based renewable power initiatives and enabling policy KS
Introduction -Guiding Principles and Values A commitment to achieving a portfolio of 100% Renewables To help, not hurt community power Prudency and sustainability Economic: Efficient, effective and inclusive of external costs and benefits Social: Committed to community ownership, control and community economic development (Rural and Urban) Ecological: Committed to ensuring minimal health and environmental impacts KS
Introduction - Community Power Defined THE IDEAL More than 50% ownership control is retained by primary and secondary CP investors at all times A minimum of 5% ownership control is retained by primary CP investors at all times More than 50% of all gross revenues over the first 20-years of a project accrue to primary and secondary CP investors Contractual details (land lease, share offering, etc.) are transparent and public All local residents have the ability to participate financially PRIMARY & SECONDARY CP INVESTORS Primary Geographically local citizens and CP groups Secondary Citizens (Ontario, Canada, NA), Non-local CP groups GAP ACKNOWLEDGEMENT Communities that are in economically challenged regions (ie. Remote communities, FN, etc.) require capitalization funds if they are to realize the 50% control and revenue accrual threshold. For this reason OSEA is actively pursuing funding mechanisms and training CP developers to address these challanges. KS
Introduction -The Top 3 Rungs KS
Introduction -Summary of Stages of Development Awareness Understanding & Advocacy Working Knowledge Project Initiation Threshold (CP Group Formation) Project Operation/ Sectoral Participant (CP Org & Partners or delegated Contractor) Project Development Establish Contractual Relationships Acquire Organizational & Technical Capacity KS
Introduction - Overview of Models 1. Co-operative 2. Landowner Partnership 3. Joint-Venture a. Co-operative - LDC b. Co-operative - Municipality c. Co-operative - Landowner d. Co-operative - Investment group e. Co-operative - Developer 4. RESCOs 5. Bulk Purchase Model And many many more. KS
Landowner Co-operative Simple and traditional Prominent in Germany & Western Europe, this model is the traditional Co-operative comprised of local investors Landowners or other local residents form as a co-operative, pool equity, and commence a utility-scale renewable energy project
Landowner Co-operative Examples Local Initiative for Future Energy SHARE
Landowner Co-operative Advantages Lower Overall Costs Incorporation IPO Democratic Community- Building Limited Liability Access to Profit Disadvantages Diversity of Investment Timeliness Low-Growth Potential lack of expertise and experience
Landowner Partnership Simple Structure Similar to a Landowner cooperative There is a different process for incorporation and initializing an Initial Public Offering
Landowner Partnership Examples Middelgrunden (Denmark) The wind turbine cooperative is established as a partnership. As a partner you own a share corresponding to 1/40,500 of the partnership per share you buy. A partnership has joint and several liability. All jointly owned wind turbines in Denmark are organized as partnerships, which have not given problems for any of them with the joint and several liability. In practice, the Middelgrunden Wind Turbine Cooperative has minimized the risk of joint and several liability by not being able to contract debt in the partnership.
Landowner Partnership Advantages Very similar to advantages of a cooperative Potentially advantageous: do not have to adhere to cooperative principles Disadvantages Much more expensive to establish Incorporation IPO Legal
Joint-Ventures Utilizing Each Party s Respective Skills Joint Ventures can take on many forms, and are excellent at allowing the multiple partners to contribute their unique skills and experience to the project Joint Ventures (JVs) are explored in the following slides
Co-operative -LDC JV Works Well, but Potential Problems Co-operatives are able to enter into a JV with their local utility The LDC may play the part of an investor, but may also act to facilitate the sale of electricity or shares With monthly accounts and correspondence with local residents, utilities can provide services such as on-bill financing of shares
Co-operative -LDC JV In the absence of a PPA, tariff or otherwise LDCs can facilitate the sale of green electricity at a premium to account holders A potential problem is the provincial electricity code: Utilities may not be able to own electricity generation projects LDCs in Ontario have acted to circumvent this
Co-operative -LDC JV Examples Toronto Renewable Energy Cooperative/WindShare and Toronto Hydro
Co-operative LDC JV Advantages Ability to utilize distribution channels of LDC Similar advantages to Co-op model Access to debt Disadvantages LDCs share sometimes very reluctant or unable to become involved in generation Current Paradigm: get electrons from substation to consumers
Co-operative Municipality JV Strength in Communities A local citizen s group (co-op or LLP) in a JV with their local municipality have excellent ability to move quickly Since the local municipality is a representation of the community, they would be excellent to partner with for an electricity project
Co-operative Municipality JV Examples Barrie WindCatchers & the City of Barrie Barrie WindCatchers were able to convince council to invest in a prefeasibility study for 2 utility-scale wind turbines
Co-operative Municipality JV WindCatchers, cont d. The City will also be paying for a MET Tower Barrie WindCatchers will be able to offer shares, and allow city residents to invest in the project as much as they are able, and the municipality will invest the remainder
Co-operative Municipality JV Advantages Municipalities are familiar with the RFP process and contracting for services Potentially better access to grants or financing Wide range of engineering and technical project management ability Zoning and by-laws Disadvantages Potentially very slow process Low project control Municipality might have strict requirements for RFPs Potential for loss of control: mitigated by clear collaborative agreements upfront
Co-operative Landowner JV Simple & Flexible Co-operatives interested in developing a project may run across a cluster of landowners or a single landowner with a large amount of capital, and an excellent wind resource In negotiating the JV, the land for turbines will be used as a form of investment
Co-operative Landowner JV Examples Positive Power Co-operative Structural Diagram on following slide
Co-operative Landowner JV QuickTime and a decompressor are needed to see this picture.
Co-operative Landowner JV Advantages Potential access to large amounts of project capital Security of land Disadvantages Potential loss of control: If landowner(s) hold a majority, they will control the project with an appropriate clause Shortage of expertise Small group of investors will be heavily financially involved
Investment Group Co-op JV Connecting Investors to Projects It is possible for organizations such as LLPs, companies or investment co-ops to JV with a co-operative developing a project, to provide capital financing or equity This brings potential investment from across the Province to a local community power project
Investment Group Co-op JV Examples WindShare II & Countryside Energy Co-op Toronto Milverton
Investment Group Co-op JV Advantages Access to Equity Shared expertise Disadvantages May be very expensive to establish the investment organization High ratio of outside investment may reduce local coop s control
Co-operative Developer JV Leaving the hard stuff to professionals If established properly, this structure can have extraordinary benefits Co-operatives will do much of the early project work, and seek a developer to partner with once it comes time to bid into an RFP
Cooperative -Developer JV Awareness (Core OSEA Services) Understanding & Advocacy (Core OSEA Services) Working Knowledge (Core OSEA Services) Project Initiation Threshold (CP Group Formation & Contracting of CP Developer) Project Operation/ Sectoral Participant (CP Org & Partners or delegated Contractor) Project Development (CP Developer) Establish Contractual Relationships (CP Developer) Acquire Organizational & Technical Capacity (CP Developer)
Co-operative Developer JV There are two prominent models of this type of ownership structure, differing largely Examples Valéo (Lac St. Jean East) Pic Mobert First Nation
Co-operative Developer JV Val-Éo Business Model Patrick Coté will be able to explain this model further Landowners, after forming a cooperative, determine the rules surrounding shares and payment dependent on useful land, placement, participation, etc. The project manager takes on all of the community engagement activities, and at the point where they have the equity and land logistics completely figured out, seek a developer to aid with an RFP
Co-operative Developer JV Pic Mobert First Nation Business Model Seed Money: The ANCAP contributed $250,000 to Pic Mobert FN for the development of their hydro project, which included completing the design, development strategy, and preparation of their power purchase agreements submissions. Project: 18 MW Budget: $60,000,000 Business Partner: Partnership between the Pic Mobert FN and Regional Power Incorporated. The early project development work and land rights allow the FN to leverage their early investment to be able to invest continually over the project, owning the entire project eventually but very little at the onset.
RESCOs Putting Renewables on Lay-away RESCOs, or Renewable Energy Service Companies, offer a different model of ownership - typically used with solar energy and energy conservation investments. There are two potential models
RESCOs RESCOs, or Renewable Energy Service Companies There are two forms of RESCOs that can be pursued by a community group: System Owner, and System Host
RESCOs System Owner Community organization invests in a renewable energy system The organization enters into a PPA with a local business or government The system is installed on or near the host building, and the host will make payments to the organization for the energy generated System Host Community organization such as a community centre enters into a PPA with a RESCO The community organization then purchases energy from the RESCO for a set time period, gaining ownership of the system after the contract term has elapsed
Bulk Purchase Model Community action for individual benefit This model has been used exclusively for Solar systems, but could be used for individual small-scale wind turbines Community organization issues an RFP seeking quantity discounts on similar individual RE systems
Summary of Models 1. Co-operative 2. Landowner Partnership 3. Joint-Venture a. Co-operative - LDC b. Co-operative - Municipality c. Co-operative - Landowner d. Co-operative - Investment group e. Co-operative - Developer 4. RESCOs 5. Bulk Purchase Model And many many more.
Thank You! Questions? Simon Gill Membership & Services Simon@ontario-sea.org 416-977-4441 x27 Kris Stevens Policy & Communications Kristopher@ontario-sea.org 416-977-4441 x42