IEA-RETD Report: Cost and financing aspects of community renewable energy projects (FIN-COMMUNITY) Gregory Vaughan-Morris, Ricardo-AEA The key barriers faced by community energy projects are generally well understood, however, there is much less information available about the actual cost and financing implications of these projects. The FIN-COMMUNITY project seeks to identify, document and assess the cost and financial impacts faced by community-owned renewable energy projects compared to commercial renewable energy projects.

1. Cost and financing aspects of community renewable
energy projects
Name: Gregory Vaughan-Morris
Gregory.Vaughan-morris@Ricardo.com
Date: 27 August 2015
Location: Foreign and Commonwealth Office
FIN-COMMUNITY

2. www.iea-retd.org 2
Project objective
The overall objective of the envisaged FIN-
COMMUNITY project is to:
“Identify, document and assess the cost and
financial impacts faced by community-owned
renewable energy projects compared to
commercial renewable energy projects.”
Sub contractors
Data contributions
Main contractor

3. www.iea-retd.org 3
What is community energy? No standard
National Community Energy Strategy Summary, 2015: “…the wide range of ways that communities can develop, deliver and benefit from
sustainable energy. It can involve supply-based projects such as renewable energy installations, storage, and demand side projects such as energy
efficiency and demand management. Community energy can even include community-based approaches to selling or distributing energy.
Community energy projects encompass a variety of technologies and activities across a range of scales, determined by community needs,
availability of local natural resources, technologies and funding, and community support.”
(i) Community members control or exercise material influence on the definition, management and execution of the project, such that the goals
of the project align with (or are intended to align with) the goals of the host community. This may include geographic co-location;
(ii) A material share of project ownership resides in the project host community or communities;
(iii) Projects are designed to provide local economic and social benefits rather than primarily to provide economic rents to share-holders; and
(iv) Profitability is not necessary for the project to be deemed a success.
Ripens et al. 2013: Community led projects consist of a group of people who participate in the energy transition by cooperating in the field of
renewable energy
Bolinger 2001. These projects are initiated, developed, and operated primarily by the local community and often run in the form of “general
partnerships”
Leuphana University: Narrow definition (1) Actors: Private persons and/ or small agricultural businesses (along with other legal entities) invest
individually or together into RES installations; (2) Form of participation: actors invest equity in the project so have voting rights and rights of
control; (3) Participation quota: Citizens hold at least 50% of voting rights; and (4) Regionality: Investing company members come from or live in
one region, although that region can cross administrative boundaries.
Wider definition includes lower requirements towards the participation quota (minority participation) and the principle of regionality (community
of interest rather than community of locality).
DECC: “community interest company; or a community benefit society or co-operative society, or a registered charity or a wholly owned trading
subsidiary of a registered charity, other than such a company or society with more than 50 employees.”

4. www.iea-retd.org 4
Project objective - detail
To answer seven questions
1. What types/size of common and specific costs of project development and technology
deployment are faced by existing local renewable energy projects broken down by
model (community-led, shared ownership, fully commercial) and scale?
2. What are the external factors that could impact the costs of community-led
renewable energy projects (e.g. tax relief, government incentives)?
3. Are there specific constraints and related cost/financing implications that could apply
only to community-led/shared ownership projects, but not to commercial ones?
4. Of the types of cost which were common to all model types, are there any invariably
higher cost for community-led and/or shared ownership projects than for commercial
projects? If so, why?
5. Are there any costs that are lower for community-led projects? For example, does
government backing to community projects reduce perceptions of risk and therefore
lower capital in some respects?
6. What might these costs be in the years up to 2020, assuming the sector expands in
line with the expected potential?
7. Where community-led and/or shared ownership projects faced additional or higher
costs, are there opportunities to reduce or avoid them for future projects? How can
this be achieved?

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Shared ownership – what forms are there?
Key question: How do negotiations take place? Open book or not?

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Missing question: Are the revenue drivers different?
Missing question: Are the revenue drivers different?
Profitability of any renewable energy project depends on two factors:
• What are the costs (interest rates, taxes, operating costs)?
• What are the annual revenues?
The difference is net cash flow (akin to profit) which can be distributed to community
investors and to other community beneficiaries (as is common in the UK for example).
Commercial developers will look for optimal locations for siting their assets, which are
locations that meet a ‘sweet spot’ of:
1. Favourable environmental factors to maximise electricity generation per year:
• For wind projects, windy throughout the year
• For solar projects, locations facing the sun with high levels of insolation and low
cloud cover
2. Low costs of connecting the assets, e.g. low grid connection costs, minimal costs to
prepare the land for the installation, low rentals, etc.
Community developments will tend to be located near to the community in question,
which means their proposed location is unlikely to be optimal, e.g. there may be a sunnier
site 50 miles away, or a windier hilltop 4 miles away.

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Answers: Q 1
1. What types/size of common and specific costs of project development and
technology deployment are faced by existing local renewable energy projects broken
down by model (community-led, shared ownership, fully commercial) and scale?
Community
Shared
community
involvement
Shared
commercial
involvement
Commercial
Development costs
 Initial feasibility
 Planning permission preparation
 Project management costs
 Other advisory
 Community consultation
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Construction costs    
Operations costs    
Taxation costs ? ?  

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Answers: Q 6
6. What might these costs be in the years up to 2020, assuming the sector expands in line
with the expected potential?
When we asked communities whether they thought a commercial developer developing a
project of the same size in the same location would have been able to build and operate a
solar or wind projects more cheaply than the community the general response was no, there
will not be a material difference. This is backed up by some of the cost numbers communities
gave compared to the limited data we had for small scale commercial projects.
Therefore, there is no reason not to believe that operating and construction costs for
community and shared ownership projects will not mirror the general trends for construction
and operating costs for commercial projects, namely:
• onshore wind costs falling by about 10% in real terms from a Levelised Cost of Energy of
€2,570/kW to €2,300/kW based on an exchange rate of USD$1 = EUR €0.87
• solar costs 1MW+ falling by about 20% in real terms from a Levelised Cost of Energy of
€1,740/kW to €1,390/kW based on an exchange rate of USD$1 = EUR €0.87
• solar <1MW falling by about 18% in real terms from a Levelised Cost of Energy of €1,910/kW to
€1,570/kW)
Nevertheless, the area where there may be reductions is in development costs if
communities do a second project or where communities are given assistance or helpful how-
to guides to avoid wasted time.

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Answers: Q 6
Wind Cost Projections 2015 - 2050 IEA.
Source: IEA. “Technology Roadmap. Wind Energy. 2013 edition, Figure 13, p.23.
USD$ 1 = EUR €0.87

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Answers: Q 6
Solar PV Cost Projections 2015 - 2050 IEA.
Source: IEA. “Technology Roadmap. Solar Photovoltaic Energy. 2014 edition, Figure 11, p.23.

11. www.iea-retd.org 11
Australia: Policy background
The Australian energy sector is dominated by centralised fossil fuel generation, with coal-
fired electricity making up an average of 75% of electricity demand. The remaining 25%
has been predominantly sourced from gas-fired generators and large hydro-electric power
schemes, but 7% is solar and 5% is wind.
Community energy is a challenging environment, where apart from a few grants there is
no particular support for community energy. There are currently 22 operating community
renewable energy projects. The renewable energy market is targeted with towards larger
projects with Large-scale Generation Certificates (LGCs) 100kW+, but there are also Small
Technology Certificates (STCs) <100kWs.
Nevertheless, community energy projects exist, by being innovative and going behind the
meter (“net meter”). Electricity costs in Australia are falling and are currently about
AUD$60/MWh (€37/MWh), but retail costs can reach AUD$180/MWh (€111/MWh) or
more. Deals are structured where communities set up “development companies” that
offer companies the opportunity to have solar panels installed on their roofs. For the
electricity generated the company pays the community development company the same
electricity bill they normally would have paid for the first 7-10 years (so the community is
receiving a revenue stream at about AUD$180/MWh), and at the end of the term the solar
panels are given ‘for free’ to the company. There is no, or little, community benefit, but
local people can invest in local solar panels, earning a return of 5%-6%.

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Canada: Policy background
Canada generates two thirds of its electricity from RES installations:
• Hydro is approximately 60%
• Wind is approximately 5% (6GW)
• Solar is approximately 1%
There is little support for community renewable electricity with no national support.
However, at the Provincial level there is support in:
• Ontario with the Green Energy and Green Economy Act giving a FiT and recognising the
importance of community power. For example, if developments have >50% of their
shares owned by local individuals they can claim FiTs. There are about 20 community
projects, mostly solar in the 50kW – 500kW range.
• Nova Scotia has had a favourable FiT for community renewable electricity generation,
and income tax breaks for local investors. However, Nova Scotia has recently
announced the end of this support, stating the FiT has met its target of increasing RES
and FiTs would only increase electricity bills if it were to continue.
In addition there is special support for Aboriginal and Northern Communities for First
Nation and remote (off-grid) communities to establish energy self-sufficiency; tackle high
energy prices and reduce local environmental impacts. Electricity prices in these areas are
heavily subsidised by Government, e.g. costs of CAD$ 250/MWh but communities only
pay CAD$120/MWh.

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Denmark: Policy background
Denmark has been a leader in community energy with many projects from the late 1980s
to 2002 when a feed-in tariff (FiT) regime was removed. From 2003 to 2009 the
Community Energy sector was moribund.
However, since 2009 community energy has started again, with reform of the Promotion
of Renewable Energy Sources Act which increased the market premium (like a UK Contract
for Differences). However, since 2009 community projects have tended to be shared
ownership projects with commercial developers or municipalities, either because:
• Cooperatives found it the only way to be able make profits; or
• The Danish Promotion of Renewable Energy Act, 2009 makes it a statutory regulation
that at least 20% ownership of new wind projects must offered to local residents in the
municipality (with those within 4.5km given preference over those living further than
4.5km from the wind turbines)
Wind energy (onshore and offshore) accounts for 4,855MW of installed capacity (circa
35% of the country’s electrical energy demand). PV adds another 500MW of so.
Danish Promotion of Renewable Energy Act, 2009
“13.-(1) Any person who erects one or more wind turbines of at least 25m in height onshore, or offshore wind
turbines established without a tendering procedure, cf. section 23(4), shall, prior to commencement of
erection, offer for sale at least 20 per cent of the ownership shares to the persons entitled to make an offer
pursuant to section 15.”

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Germany: Policy background
RES generation in Germany is very significant, with many community energy projects
especially energy cooperatives. However, at the national level there is no particular
support for community energy, although some municipalities help community projects
find roofs for solar PV projects.
Like many other countries, community RES is more about local ownership, rather than
community benefit.
Traditionally Germany has relied on a FiT, but this is now being reduced to <100kW
projects from 2016 onwards. For projects >100kW there is direct marketing (where
generators have to find energy companies to sell electricity to) and tendering (like the UK
CfDs) is being tested for future projects.
In the first round of tendering no
community or civil law partnership
organisations were selected.
The German Government backed bank KfW
offers communities or commercial
developers loans of up to €25m at very
attractive rates, c. 1.3%-4%.

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UK: Policy background
The UK has a rapidly expanding renewable energy market
with renewable electricity now representing 19.2% of
electricity generation capacity with approximately
24,226MW installed.
Of the 24,226MW of installed capacity, 18,264MW (75%) is
from generators with a capacity greater than 5MW –
nearly all commercial developers with only a handful being
5MW+ (e.g. Westmill Solar Park). From 2017 this 5MW+
will be supported by Contracts for Difference (CfD).
There is estimated to be around 66MW of community
renewable electricity capacity installed. There are many
support mechanisms for community energy – see over.
For projects <5MW these have historically been supported
by a Feed in Tariff (FiT) although there is currently a review
of FiTs. Since its introduction in 2010 the FiTs for newly
accredited projects have fallen in most years (degression).
As can be seen in 2011 and 2012 there was a very large
reduction in FIT support to solar PV projects as a result of
the rapidly declining cost of PV units.
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Solar PV Feed in Tariff Rates 2010-2015 (p/kWh)
Solar 10-50kW Solar 1,500-5,000kW

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UK: Support structures
Fiscal incentives Legal structures Grid connection Planning Other
Like commercial
projects FiT for projects
less than 5MW and CfD
for 5MW+ projects
Different legal
structures in Table 1,
many of which enable
dividends to be passed
tax-free for community
benefit
DECC Grid Connection
Working Group
Varies by each Local
Authority
Encouragement for
shared ownership, with
differences between
England and Wales and
Scotland
Pre-accreditation for
FiTs six months longer
for communities (e.g.
12 months for solar and
18 months for wind)
DECC Planning Working
Group
DECC Shared Ownership
Working Group
Ability for a community
project up to 5MW and
another project up to
5MW to share a grid
connection and both
receive FiTs
Licence Lite route to sell
electricity to
households
Tax incentives for
investors, e.g. EIS and
SITR
DECC Hydro Working
Group
Grants, e.g. £20k pre-
planning grants from
UCEF, RCEF, Ynni’r Fro
and CARES
Attractive loans, e.g.
from the Green
Investment Bank or
Renewable Energy
Investment Fund

17. www.iea-retd.org 17
Answers: Q 2
2. What are the external factors that could impact the costs of community-led
renewable energy projects (e.g. tax relief, government incentives)?
+ No particular support, although the Coalition for Community Energy (C4CE) has developed a National Community
Energy Strategy to grow the community energy sector in Australia
+ Some States are now starting to develop community energy policies
+ In the Province of Ontario there is a special FiT for renewable energy projects with >50% local share ownership
+ Historically Nova Scotia also had a special FiT for community renewable energy projects, and income tax breaks
+ Grants for the feasibility and development phases, e.g. in Ontario and for Aboriginal and Northern Communities
+ Some State backed loans (guaranteed financing), e.g. Farm Credit Canada
+ Obligation to offer 20% of commercial wind farm projects to local people, encouraging developers to be open with
their costings
+ Grants for some cooperatives, e.g. Danish Climate and Energy Ministry grants and loans for the development phase
+ Subsidies for some small scale RES technologies deemed of strategic importance by the Government
+ Little support available, apart from the low interest kFW loans and a very active cooperative market where
cooperative members are willing to accept low dividends (approx. 4-5%)
+ Grants (e.g. CARES, UCEF, RCEF, big lottery) and attractive loans (e.g. Scottish Government loans, REIF, CO2 Sense)
+ How-to guides and free technical support
+ Longer pre-accreditation for FiTs with pre-accreditation enabling communities to approach commercial banks
+ Income tax breaks for investors

18. www.iea-retd.org 18
Answers: Q 3
3. Are there specific constraints and related cost/financing implications that could apply
only to community-led/shared ownership projects, but not to commercial ones?
+ Internal community organisation procedures can slow down the development phase
+ Internal community organisation procedures can slow down the development phase
+ Harder to raise bank finance if no FiT – sometimes communities have to sell some of their projects to private
developers to generate sufficient cash flows
+ Internal community organisation procedures can slow down the development phase
+ Few new 100% community owned projects exist now, rather they are shared ownership projects with local investors.
nevertheless, the finance raising process for the local investors may take longer than the commercial investor
+ Internal community organisation procedures can slow down the development phase
+ Lack of experience with direct marketing or the new tendering process which are both complicated
+ Commercial banks are more reluctant to lend to communities that have no assets (£s) or will do so with lower gearing
+ Internal community organisation procedures can slow down the development phase
+ Communities can’t raise money quickly again slowing down development phase
+ Weak negotiating strength for shared ownership projects, or lack of knowledge about third party netting and sleeving

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Answers: Q 4
4. Of the types of cost which were common to all model types, are there any invariably
higher cost for community-led and/or shared ownership projects than for commercial
projects? If so, why?
+ None noted
+ Higher development costs
+ Poor reputation making bank lending harder
+ 100% community ownership doesn’t exist to the same extent
+ Existing 100% community owned projects are able to broker deals through an independent, non-profit
trading cooperative (Vindenergi DK) helping to reduce start up costs and costs of selling electricity
+ Maybe construction costs a little higher as communities not able to negotiate such good terms
+ Before financial close is reached grid connections and deposits are often needed – communities do not have
ready access to money for this, and until they have FiT pre-accreditation banks won’t engage.
+ Negotiating for shared ownership structures where the developer does not provide open book accounting
+ Development costs (even excluding ‘free’ volunteer time) tend to be higher

20. www.iea-retd.org 20
Answers: Q 5
5. Are there any costs that are lower for community-led projects? For example, does
government backing to community projects reduce perceptions of risk and therefore
lower capital in some respects?
+ No, apart from volunteer time.
+ For first nation PV projects no rentals for roofs, and insurance and legal costs are non
existent
+ For 100% community owned projects equity may be raised more cheaply than commercial
developers
+ Operating costs may be a little lower, as maintenance for solar PV carried out by for free, and
commercial companies may artificially set high operational costs to reduce their corporate tax
burden
+ Coops may be able to negotiate attractive deals with municipalities to rent roofs cheaply
+ Can structure vehicles to be tax free
+ Community share offerings can be sourced more cheaply than commercial loans
+ Some commercial bank lenders will lend more cheaply if project supported by a soft lender

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Answers: Q 7
7. Where community-led and/or shared ownership projects faced additional or higher
costs, are there opportunities to reduce or avoid them for future projects? How can this
be achieved?
+ Communities encouraged to develop more projects as is already happening in the solar market
+ Encourage communities to develop more than one scheme
+ Long-term/stable support
+ More development phase grants in Provinces, and more how-to guide and technical/ financial support to communities developing
new projects
+ Encourage more community benefit as outside aboriginal communities does not seem to exist
+ None considered, apart from if communities can develop more than one scheme
+ Communities to be encouraged to develop more than one scheme
+ Communities to be encouraged to develop more than one scheme
+ How-to guides are welcomed as if free technical assistance, with consideration of standardised contracts for shared ownership
+ More encouragement for large developer led projects to offer shared ownership, and more encouragement for open book
accounting for shared ownership options (e.g. as is sometimes achieved when Government backed banks pressure developers)
+ Consider the cost effectiveness of income tax breaks for wealthy investors

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Policy recommendations: Current situation analysed
Decide what community energy policy is about? Is
it about subsidising projects in unfavourable
locations or encouraging community involvement
in favourable locations (e.g. through shared
ownership)?
Neither, as
policy is
emerging.
Community
projects need to
go behind the
meter
Seems to be
more about
subsidising
unfavourable
locations
Seems to be
more about
favourable
locations, i.e.
large shared
ownership
projects
Seems to be
about
favourable
locations as no
special
support
Mix of
favourable +
unfavourable
locations
(sometimes
going behind
the meter)
Who is community energy meant to benefit? Seems to be
local investors,
with minor
community
benefit
Local investors +
first nation
communities
Local investors
within 4.5km or
in municipality
Local investors Local investors
+ wider
community
benefit
Predictable Feed in Tariff type support No In Ontario yes,
elsewhere no
Some, but focus
is large scale
Yes, but now
only <100kW
Yes, but now
questions
Sources of grants and favourable loans to help
cover the risky development phase costs
No Some, e.g. 1st
Nation, Ontario
Some Few Plenty
How to guides to reduce development costs (and
importantly time), free technical support,
standardised agreements, etc.
No No TBC No Yes
Support to allow for longer development times,
and ability to secure pre-financial close loans for
grid connections, turbine deposits
No No No No Yes, with FiT
pre-
accreditation
Government backed banks (junior lenders)
encourage commercial banks to offer better terms
No No No No, but KfW
loans v. cheap
Yes

23. For additional information on RETD
Online: www.iea-retd.org
THANK YOU!

24. www.iea-retd.org 24
Germany: Results

25. www.iea-retd.org 25
UK: Detailed data gathering (1 of 3)
We collected data for 24 projects, summing to 15.2MW of wind and 5.3MW of solar. Ricardo-
AEA collected data for 17 projects where we conducted interviews. We chose to collect data
on completed projects – so that the cost data represented actual, rather than predicted,
costs. We obtained data for seven Scottish community projects that was gathered by the
James Hutton Institute and Scene Consulting. This data was part of a ClimateXChange project
entitled ‘The Comparative Costs of Community and Commercial Renewable Energy Projects in
Scotland’ funded by the Scottish Government.
Whilst sometimes people and companies responding to surveys may not state correct values
if they perceive benefits to understating or overstating results (e.g. to overstate costs to
portray a worse financial position than the reality) the respondents were very open and we
believe very honest with the information they provided.
We also obtained data from two shared ownership projects:
1. A 2013 shared revenue model where the commercial developer used open book
accounting so the community and commercial developer get similar equity returns giving
a equity IRR of circa 10% (which is different from the post-tax pre-finance IRRs which
would only be available if the community had access to the model used to finance the
whole project)
2. A 2013 Joint Venture model where the community owns a percentage of the shares in the
company using open book accounting so the community and commercial developer get
similar equity returns with an equity IRR of circa 24%.

26. www.iea-retd.org 26
UK: Detailed data gathering (2 of 3)
Comparison of the time from project planning to commissioning for
community v commercial wind projects
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
Monthsfromdevelopmentto
commissioning
Community Commercial
Community average Commercial average
Source: ClimateXChange. Comparative Costs of Renewable
Development: Community vs Commercial Projects. July 2015.
Figure 13: Average cost £/MW for 9 community wind projects and 11
commercial projects
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
Development Cost
(£/MW)
Construction
Cost(£/MW)
Operating Cost
(£/MW/year)
£
Community Projects
Commercial Projects (ClimateXChange)
Data from Renewable UK*
DECC Commercial (1-5 MW) assuming 10% ofproject costs are development costs **
Sources: * Figure 6 ** DECC. Electricity Generation Costs 2013. July
2013. p.66.

27. www.iea-retd.org 27
UK: Detailed data gathering (3 of 3)
0%
5%
10%
15%
20%
25%
30%
1 2 3 4 5 6 7 8 9
Community wind post-tax IRR (%) versus
commercial wind hurdle rate (%)
Community returns Commercial hurdle rate
0%
5%
10%
15%
20%
25%
30%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Community solar post-tax IRR (%) versus
commercial solar hurdle rate (%)
Community returns Commercial hurdle rate
Using the data on costs and income we have calculated the post-tax pre-financing Internal Rate of
Return (IRR) for each community project (which happen to be the same as the pre-tax pre-financing
IRRs as all community projects were structured to be tax free), shown below:
19 of the 24 100% community projects pass the commercial hurdle rate is evidence that the sample of
community projects is self-selecting.
Even though from a returns perspective they would be attractive to commercial perspective, this is not
to say a commercial developer would have invested in the project. This is for two main reasons:
• Commercial developers will have a choice of projects,
• Commercial developers will want to focus big ticket projects.
This therefore means that in some cases without the community engagement the project, or a similar
project near that location, would not have gone ahead. This is especially true for the projects with a
lower IRR, as they have a lower safety margin.