The way of generating and distributing electricity traditionally consisted of centralized, utility owned, large scale generating plants; namely coal, hydro and nuclear, delivering electricity to consumers via long distance, high voltage transmission lines. Power flowed in one direction, from the generators, through the transmission network before stepping down to the local distribution network to supply local homes and businesses.
The technological advances seen in alternative forms of generation accompanied by sharply falling costs has made local generation more attainable, affordable and attractive. This has led to a significant shift in how electricity is generated and used where a more decentralized and local generation model is commonplace. This decentralized model means power is generated and used locally, providing energy independence and an opportunity for electricity cost offsetting and potentially revenue generation to a wide range of independent power producers, including developers, home owners, businesses and communities.
The vast number and varied nature of decentralized generation projects, particularly in relation to community generation has led to the requirement to explore different options of ownership models. Whilst generation has become more accessible to communities than traditional generation assets, implementation must be balanced with the appetite for risk and access to capital. There are numerous different community ownership models that exist with relation to renewable energy projects, though most fall within four categories further detailed below.
- 100% Ownership
As the name suggests under this model the community would own and operate the generation asset. Often at a smaller (distribution) scale than developer-led projects may be, these projects require a strong community backing and can often take longer to develop. However, as these projects provide maximum benefit to the local social and economic development of the community, and they may have fewer issues during the permitting process. Project financing can be difficult to achieve, as community groups often have a very low risk appetite. There are however federal and local government support mechanisms that aid projects through grants and rebates.
- Joint Venture
Under a joint venture model typically the project would be jointly owned between the community and a developer partner. This setup allows for the community to take on less risk whilst leveraging a developer’s experience to progress the project more quickly and may also enable the community to be involved in larger projects which would otherwise be out-of-reach. This type of model is generally mutually beneficial and is the most common model of community ownership. The percentage ownership split is usually an agreement between the community and developer partner. The second round of the Renewable Energy Program (REP) in Alberta was launched earlier in 2018 with a condition that the project being developed requires to have an Aboriginal group with at least 25% equity stake.
- Split Ownership
Under a split ownership model, a developer typically will take the lead in developing the project and the risk associated with developing the project and the project would then be ‘split’ for the purposes of ownership. Both the developer and the community would each own a physical generating asset or assets, but these would be owned independently and not under a joint venture where each party would be shareholders. For example, a wind farm consisting of 30 wind turbines, 28 of which may be owned by the developer and 2 of which may be owned separately by the community. The benefits of this model is the opportunity to share development and infrastructure costs allowing the community to benefit from economies of scale without taking on the risk and liabilities of a larger project.
- Community Benefit Fund
In instances where the community does not have the means to finance development, or the risk appetite to own a generating asset, there may be opportunity to agree a community benefit fund with a developer of a project in the vicinity of the community. Generally, this is allocated as a set fund per year for the duration of the operational life of the project and is an opportunity for the community to share the benefits of a generation project to which they are host. Whilst this model will have a smaller benefit to the community versus the ownership models there is also the least risk to the community. Community benefit funds are commonplace in many jurisdictions and generally there is a ‘best practice’ guideline of a $/MW/yr amount to feed back into local community good causes.
Across many jurisdictions around the world, support mechanisms have been designed to incentivize the development and ownership of community based small scale renewable energy projects. The benefits of community and local generation can have widespread positive socioeconomic benefits such as creation of local skilled jobs, educational programs and the ability to recycle revenues generated back into wider projects for the community.
The different ownership models recognized have enabled ownership of generation assets by a wide variety of different groups, such as community cooperatives, charities, farmers and landowners, schools, hospitals and rural associations. Solving the financial/ownership structure questions early on is critical for the development of the project as this can allocate risk, funds and benefits accordingly to whomever is involved – there is no one-size-fits-all model and every community and project is different. The diverse types of ownership explored here have enabled significant deployment of community and locally owned generation and made renewable generation ownership accessible to all.