Should you invest in a community wind farm?

The top 3 in wind

Macarthur: over $1.13M – topping its own $1M-plus result the week before
Waubra
North Brown Hill

South Australia as a whole earned over $4M for the week, against Victoria’s $2.7M – and half of Victoria’s total came from Macarthur alone.

The economics of a community wind farm

Kickstarter and Indiegogo had just reached mainstream attention on the back of a few projects raising several million dollars each. The model is simple: a site lists someone’s plan to build a product, and if the crowd likes it they put money up before the thing exists. The founder spends that money on development and manufacturing; the backers get to be early adopters, plus whatever small rewards sweeten the deal – a cheaper price, a name on a website, founding-customer status.

Community wind farms have been doing a version of this for far longer. Some of these organisations were already scouting sites and running community consultations back in 2003, and the projects are not small.

Four Australian examples

Hepburn, Victoria – 2 turbines, 4.1 MW, completed 2011. Installed cost over $11M, of which just under $10M was raised in shares from community members. Only about $2M was borrowed to cover the balance.
Denmark, Western Australia – 2 turbines, 1.6 MW, roughly $5M all up. They issued 1.8 million shares; at around a dollar each that is a couple of million from the community, with the rest covered by a loan and a substantial contribution from the WA state government.
Mount Barker, Western Australia – installed cost of $8.5M.
Fremantle, Western Australia – a 6.4 MW proposal at a total cost of around $18M.

Why the community money matters

The pool of potential investors here is far smaller than a crowdfunding platform’s – these projects draw from, or at least target, the local community rather than the whole world. What the community money buys is a lower cost of capital, because selling shares rather than borrowing covers the majority of the project up front. At these small scales that is plausibly the difference between a project that is financially viable and one that is not.

And the stated goal of many of these projects is not only a sense of ownership in green electricity. It is a real financial dividend to the shareholders.

Can you invest if you don’t live there?

If you wanted exposure to a project like this but did not live in a community that was eligible or willing to build a wind farm – could you still buy in? The answer appears to be yes. Hepburn took applications from community members interstate, which reportedly took some legal work to establish, but in the end it went ahead. So there is not much holding you back from investing in a community wind farm you believe in, whether it is in Victoria, Western Australia or on the central coast of New South Wales.

The big question

As crowdfunding platforms become mainstream, how does that change the way a community perceives the risks and the rewards? And how much does Hepburn’s success factor into the thinking of a community weighing up a project of its own?

Would you invest in a community-based wind farm even if you didn’t live in that community? What would make a scheme like this more attractive to you?

Transcribed from the recording by machine, then edited for punctuation and paragraphing. Names, figures and misheard words have been corrected where the original show notes or the rest of the series settle them; anything they could not settle is left as spoken, rough patches and all.

Hi there, I’m Jervis Whitley. Today is Friday, 2nd of August, and you’re listening to WindFront, the weekly roundup of the wind industry from Australia and around the world. Today, I’ve covered the weekly top three earners in wind, and the economics behind the community wind farm.

The top three in wind this week are Macarthur, Waubra, and North Brown Hill. Macarthur had a smashing week of over $1.13 million, which tops their last week’s effort, which is also over $1 million. Really huge week, and South Australia as a whole earned over $4 million, to Victoria’s $27 million, half of which, I would note, is been earned by Macarthur.

And now on to today’s main topic, which is the economics behind the community wind farm. Now you might be familiar with Kickstarter and projects like Indiegogo, which are crowd funding platforms. Now, they’ve recently risen to the mainstream media attention, because of a few projects earning well over a couple of million dollars. And how it works is, it’s a simple website which lists a company or a person’s plan to build a product. And if the community and the crowd likes the idea, they’ll put money up front, before the product’s even been built, and the founder of that product will use that money to actually pay for development costs, pay for manufacturing, and get that product made and shipped out to the crowd. Now, what the crowd gets in return for that is, I guess, being an early adopter, and some small rewards here and there to sort of sweeten the deal, maybe a cheaper price or, a promise that a name will be written on a website somewhere or as a founding customer.

So that’s sort of a fairly recent online movement. But it’s interesting to note that these community-based wind farms have their roots much earlier than a couple of years ago. In fact, back in 2003, some of these community backed wind farm organisations were looking around for sites and community consultations. And these community wind farm projects are not small. I’ve got some examples of 4 here that have been constructed in Australia, which I’ll go through now.

Of course, the main one that people have heard of is Hepburn, which has 2 turbines at a total of 4.1 megawatt, and was completed in 2011. Its install cost was over $11 million for those turbines. The interesting part is that they raised over just under $10 million in shares, from community members, and only borrowed just around about $2 million to cover the balance of costs. Now, there’s another example here at Denmark Wind Farm, which is now running at 1.6 megawatt and 2 turbines. And they issued 1.8 million shares to cover the total $5 million cost. Now that total $5 million cost, not all of it was from their shares. I’m assuming each of those shares would have been about a dollar each, meaning about give or take $2 million from the community, and the remainder and the balance covered by a loan and a large amount by the state government in Western Australia. Now, there’s a few other projects, Mount Barker, and install cost of 8.5, and Fremantle, a 6.4 megawatt proposal, at a total cost of $18 million. So these are not small numbers here, but we’re looking well over $10 million for some of them, and the many 100s of dollars for Denmark, for instance.

And the pool of potential investors is much smaller than these crowdfunding platforms, which have a broad appeal across the United States and around the world. Whereas these, they tend to draw investors from the local community, or at least they target the local community. So it’s interesting to see that the crowdfunding or community funding aspect is where you can get these projects over the line. You’ve got the lower cost of capital, because of the sale of the shares, means the community raises the majority of the money to pay for the project in the 1st place, which probably pushes it over the line between a project which may not have been financially viable and one which is at such small scales. In fact, the stated goal of many of these projects is not just to provide, I guess, a sense of ownership in green electricity for the community, but also, to provide a real financial dividend to share owners.

So my question is, if a mum or dad wanted to be exposed to a project like this, but they didn’t necessarily live in a community that was eligible or willing to build a wind farm, could they still get access to invest in one of these schemes? And I think the answer is yes. Hepburn being a great example where they had applications for community members from interstate, which apparently did take some legal trouble to go through to find out whether or not it could go ahead, but in the end it could. So there is nothing really holding you back, invest in one of these community-based wind farm projects that you believe in, in either Victoria or in Western Australia or central coast of New South Wales.

As crowdfunding platforms hit more of the mainstream, how does that impact on the way the community perceives the risks and rewards? And how does the success of the Hepburn project factor in to a community that’s looking at a project like this? So what do you think? Would you invest in a community-based wind farm, even if you didn’t live in that community? What would make it more attractive for you to invest in a scheme like this?

Let me know. Until next time, keep buying those green electrons.