Community ownership is a winner for all sides

WORLDWIDE: Governments the world over try to maximise the economic gain of wind-farm developments in their countries. While much local economic benefit will arise from activities that need to be carried out on site, such as operation and maintenance, often governments seek more.

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They do this by encouraging or demanding local content, leading to the construction and operation of new facilities to supply components.

The logic behind this is that since the wind project has been subsidised by local taxpayers, the developers and turbine manufacturers profiting from it need to bring more direct local economic benefits in return.

Of course, local-content requirements are not straightforward to implement or police. Many barriers have to be overcome when mandating local content, both practical — how do you identify "pure" local content in a global supply chain?

What sanctions are available if promises aren’t met — and legal —including compliance with international trade agreements.

The wind industry has long argued that ambitious local-content demands lower the competitiveness of the supply chain and so has a cost penalty, which ultimately results in higher bills for local businesses and consumers.

There is an easier, if much more radical, approach to maximise local economic benefit from wind energy development. It’s community ownership.

Recently, we undertook an analysis for EDF Energy with Steve Westbrook from the University of the Highlands and Islands, looking at the impacts from the utility’s planned onshore developments in Scotland’s Western Isles.

Our analysis showed that the construction and operation of the wind farms would create a significant number of jobs.

However, the economic impact of these jobs was dwarfed by the positive effect of EDF Energy’s plans to sell a significant share of the wind farms into community ownership.

The scale of these benefits could well have been a significant factor in the UK government’s recent decision to include remote islands in the next contract for difference auction.

The implications of this analysis are significant, especially as the cost of wind continues to fall and energy markets become more competitive.

Governments in northern Europe are currently wondering how to choose between offshore project bidders if they all bid at prices that require zero subsidy. In such a scenario, price is neutralised as a decision-making tool.

Instead of using price (or level of subsidy), governments may consider one of the options to decide on the winning bid is how much developers are prepared to sell into community ownership or royalty.

This need not be a complex or even materially significant share offer, the equity could be as little as 5%.

Community trusts could be set up that can borrow finance, administer the revenue and invest in projects that benefit the local community, ranging from facilities such as leisure centres and playgrounds, to infrastructure projects in areas that desperately need investment.

Not just onshore

This is nothing new. In the UK, there have been many successful community-owned energy-cooperative share offers.

Although of a smaller scale, they have all been approved by the Financial Services Authority, and such schemes for larger projects would be no more complicated.

Community ownership does not have to be limited to onshore projects.

The Danish 40MW Middelgrunden offshore wind farm, which came online in 2000, is 50% owned by 10,000 investors from the local community. Ørsted owns the other 50%.

What’s not to like? Community ownership need have no impact on cost, and the supply chain can continue to invest and deliver projects in the optimal way.

By providing the local community with a tangible, financial and direct benefit from wind energy projects, community ownership is likely to increase the likelihood of neighbourhoods welcoming rather than objecting to new projects.

A challenge will be to identify the relevant community for wind farms located many tens of kilometres offshore, but in these cases, revenues could be paid into the fund such as the UK’s Coastal Communities Fund.

As wind energy becomes the cheapest form of new generation, community ownership allows developers to boast of double benefits from wind projects: lower consumer prices and greater investment on local neighbourhoods.

The current rapid expansion of potential wind farms in both new and established markets, together with the sector’s continued success in driving down costs, is requiring the industry to look at new business models as much as new ways of working and new technology.

Local communities having a stake in developments could accelerate that learning.

Alun Roberts is an associate director at BVG Associates

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