In Denmark and Germany, large numbers of individuals own shares in local wind farms. If the government encouraged this in the UK, a large part of the local opposition would disappear. Onshore wind farms in windy locations are good investments which could form an effective part of many people’s pension plans. One of the few co-operatively owned wind farms in the country has almost finished raising its funds. Investors have put up £3m to buy two existing turbines in the Fens. Locally owned wind farms should be encouraged as a cost effective means of cutting emissions.
About 100,000 people in Denmark own shares in wind farms. Although most of the newest developments have been financed in conventional ways, the early growth of wind power was largely driven by cooperatives. Individuals bought their stake and receive income from their investment. The arc of 20 wind turbines that sits outside Copenhagen harbour is a good example: 8,000 investors own 50% of the venture with a local utility owning the rest.
The Danish example has been copied by a small number of wind farms in the UK. Two years ago, Westmill Wind Farm in Oxfordshire raised £5m to build a wind farm on a hilltop site in the west of the county. After the money was raised, Siemens, the equipment supplier, told the co-operative that it no longer had any turbines for sale, having committed all its output to the US market. Negotiations eventually resolved the issue and the wind farm is now being constructed. It has 2,400 shareholders, most of whom live within a 30-mile radius. Shareholders typically invested £2,000 each. Additional finance was provided by the Co-operative Bank.
In recent months another co-operatively owned wind farm has been raising cash. The closing date for the share offer is 30 November, but the business looks as though it has got the cash commitments that it needs. The Fenland Green Power Co-operative has the rights to buy two 2MW turbines that have already been constructed near Deeping St Nicholas in Lincolnshire. The rest of the wind farm is owned by EDF and these two turbines were promised to local investors as part of the package that got the planning permissions several years ago.
The economics of the venture make investment reasonably attractive to local investors:
- The risk is negligible. The turbines are already working, and have produced almost as much power as predicted before they were constructed. Modern turbines are extremely reliable and should need very little unplanned maintenance for the 25 years of their life.
- The two turbines should produce about 11,200MWh a year in total. If the energy were sold by an independent entity on the spot market, the current value of this would be about £500,000 a year. The Renewable Energy Certificates (ROCs) that the co-operative is entitled to will also be worth about £500,000, making a total of about £1m of revenue.
- Probably to assist with debt financing, the venture has gone a different route and has sold the ROCs and the power to EDF. Its actual revenue is likely to be about £750,000.
- Operating costs are low and the cash flow before interest is likely to be about £500,000 a year. About £200,000 is kept as a sinking fund to repay the investors at the end of 25 years.
- The total cost of the project is about £4.4m, of which £3m is being raised in equity. With the leverage from the bank loan, the cash return to investors will be over 10% within a few years.
- Shareholder investments will benefit from 20% EIS relief, raising the prospective return to investors to more than 15% per annum over the life of the project.
- The principal uncertainty is the price that is obtained for the power when the initial contract with EDF has finished in some years time.
- For an investment that has a highly predictable and secure cash flow, the returns to individual investors seem attractive and better, for example, than typical corporate bond issues.
- The return on the Fenland investment is likely to be slightly better than the UK average. The percentage of peak output achieved by the turbines has been about 32% compared to the UK average of around 28%. (A turbine has a maximum power, reached when the wind is high, but not so high that the turbine is closed down. 28% is the typical yearly output compared to the figure that would be reached if the turbine was operating at full power all the time.)
Local ownership and the impact on public opinion Some of the antagonism to wind farms arises from the perception that they are owned by large remote companies with no interest in the area. A large part of the opposition can be defused if the local community is offered a chance to participate in the financial success of the venture. Boyndie Wind Farm in Aberdeenshire, Scotland is also partly owned by co-operative investors as a result of a deal with the local community when the farm was constructed.
Most surveys show that about 80% of the population favours wind farms. A figure of about 60% or slightly more would be happy to have turbines within view. This second figure means that a substantial fraction of the affected population is likely to oppose wind farm plans. If neighbourhood opinion-formers had a financial stake in a successful wind turbine, their opposition might be more muted.
The Westmill wind farm in Oxfordshire faced serious local opposition during the ten years or so it took to get through the planning process. As the first wind farm in the UK designed from inception as a local co-operative, Westmill was blazing a trail, and most local residents probably did not understand that it might eventually be possible to buy a share in the venture. Once the Westmill model (pushed by an organisation called Energy4All) is well understood around the country, it should help wind farm proposals through the planning process.
Government, companies, and co-operative wind farms In his November speech on climate change (see this edition of Carbon Commentary), Gordon Brown talked about onshore wind farms. He seemed to suggest that the government would be sympathetic to any schemes that improved the local acceptability of turbines. Perhaps he was hinting that the government would do more to assist co-operatively owned wind projects.
BT has announced it will attempt to set up 120 wind turbines on its properties around the country (see Carbon Commentary Newsletter #4). Its chances of getting these ambitious plans approved would be significantly enhanced if it brought in local investors at each of its sites. It might even be able to reduce the overall cost of capital for its wind plans by using equity money from private individuals, who might be willing to invest with expected rates of return no greater than the cost of bank debt.
The cost per tonne of carbon dioxide saved is low for commercial wind farms. I calculate that the Fenland wind turbines will typically save a tonne of CO2 per £36 invested. This cost is higher than the £8 that climate care might charge, but far below the price needed to subsidise small-scale home renewables. In windy areas, large commercial wind turbines, funded by the local community, are the most effective means of cutting carbon emissions.