Author: Amy Wise
Contributors: Simon Holmes à Court, Mim Dineen, Taryn Lane
Australia’s first community wind farm has been built on farmland at Leonards Hill, near Daylesford, north-west of Melbourne. Despite many challenges, overwhelming support from the community has made it happen – inspiring similar projects to explore the co-operative model for community-owned renewable energy projects.
Project overview
The Hepburn Community Wind Park Co-operative (Hepburn Wind) comprises two turbines with a combined capacity of 4.1 MW, expected to produce enough electricity to power 2300 homes.
Turbines were ordered in December 2009, and a full construction contract was signed in April 2010. The turbines were erected in March 2011, and began generating power in June 2011. The landowner at Leonards Hill has agreed to a 25 year lease for the wind park.
The wind farm is owned by the local community through Hepburn Wind. The co-operative manages the wind farm, provides financial returns to its members and funds community projects through a community fund. The co-operative structure allows for wide-scale community involvement. 2000 co-operative members have contributed $9.8 million to the construction of the wind farm. The Victorian state government has provided grants totaling $1.725m and the Bendigo Bank a $3.1m loan.
Raising such a large sum has been a significant achievement, particularly for a project that has never been attempted before in Australia. It shows other communities a new way of funding and developing wind energy resources, through direct investment from small investors and local communities who want to support local renewable energy.
Project funding
- $9.8 million raised by 2000 community investors
- $975,000 grant from Sustainability Victoria's Renewable Energy Support Fund
- $750,000 grant from Regional Development Victoria's Regional Infrastructure Development Program
- $3.1m loan from Bendigo Bank
Awards and Recognition
- 2010 Innovator of the Year Award
- 2011 Victorian Premier’s Sustainability Award
- 2011 Banksia Environmental Award
- 2011 Australian Sustainability Award
- 2011 Clean Energy Future national advertising campaign
- 2012 World Wind Energy Award
- 2012 UN International Year of Co-operative (Australian flagship project
Origins
In late 2005, a wind farm developer held a community consultation meeting regarding the proposed Clarkes Hill wind farm. The development proposal received strong community opposition, much to the disappointment of a small group of Daylesford residents. Instead of accepting the community's negativity and rejection, this group decided to pursue the idea further.
Local architect and Daylesford resident, Per Bernard, formed a steering group and began looking for wind developers who might be interested in the community co-operative model. Most were not interested in building such a small wind farm for a group with no industry experience and no money.
However one developer referred Per to niche developer Future Energy, which was interested in the development of small to medium-sized renewable energy projects. Future Energy had already identified Leonards Hill, near Daylesford, as a suitable site.
Backed by a local steering committee, Per formed an agreement with Future Energy whereby they agree to attempt to develop a community-owned wind farm, with Future Energy co-ordinating project development and advising the community. Per's steering committee would build local individual and organisational support. Future Energy agreed to take on much of the early financial risk in exchange for a development fee.
The wind park cooperative was established by the Hepburn Renewable Energy Association, now known as the Sustainable Hepburn Association – Renewing the Earth (SHARE). The association was formed to garner local support for the wind park. It did this through a broad range of educational activities, including community forums, personal visits to site neighbours, information meetings, bus tours, festival displays, newsletters and fortnightly street stalls in Daylesford’s main street. The amount of energy, goodwill and commitment that went into this exercise is immeasurable.
Major project priorities
Community support
Right from the start, the team knew that community support was vital to the success of the project. The steering committee wasn't prepared to go ahead without a community mandate, and this would involve a lot of consultation. A community forum was held to explain the idea and gauge support. The response was overwhelming – a survey taken at the end of the forum showed that 95% of those present were in favour of the idea. A presentation to Hepburn Council also met with an encouraging reaction, and shortly afterwards Per formed the Hepburn Renewable Energy Association (HREA) to garner the community support necessary to get planning permission.
The HREA had soon signed up more than 200 members at $10 a member, and grew by around 30 new members each month. They were tireless in their campaign to see the wind park succeed, organising a wide range of events and materials to get the message across. One of the standout features of their efforts was over 100 street stalls in the main street of Daylesford, at which they addressed misconceptions about wind energy.
“I don't believe you can develop a community wind farm without first building the grassroots movement to support it,” Simon Holmes à Court,
Chairman of Hepburn Wind says.
“The Daylesford area didn't have a strong environment action group until we galvanised around the simple idea of building our own wind farm. Any community wanting to build a significant community energy project would benefit greatly from having a supportive community environment action group in the area.”
State government support
Support provided by Sustainability Victoria was critical to the project's success. Early on, the project expressed its interest in funding from the agency’s Renewable Energy Support Fund (RESF). The proposal made the case for the innovative ownership structure – a new business model for the nascent renewable energy industry. It also argued that there would be one-off costs associated with being the first project of its type which would make this project unable to provide investment-grade returns to investors. In late 2006, Sustainability Victoria granted $975,000.
Sustainability Victoria believed the project was well conceived, likely to succeed and likely to provide value as a demonstration for other communities. With the RESF support, risks in the project development phase were significantly reduced for both Hepburn Wind and Future Energy, and potential community investors developed greater confidence in the project.
The RESF grant was structured over more than 20 stages, or 'milestones', with the majority payable at the back-end. The milestones were aligned with the typical stages of project development. By metering out the grant against a strict set of milestones, the risk to the Victorian Government was minimised. In addition, the Sustainability Victoria's Renewable Energy Group, headed by John Edgoose, has played an important advisory role to the various project stakeholders.
The co-operative
After an exploration of several structures, HREA determined that the most appropriate way to own and operate the wind farm would be a co-operative, completely separate from their own operations.
Co-operatives are run democratically, whereby each member has a single vote, regardless of the number of shares they own. Technically, co-operatives are run primarily for the benefit of their members whereas companies are run to maximise the return on investors' capital. In Hepburn's case, while members expect to receive dividends from a profitable wind farm, they also want the benefit of producingemissions-free electricity as well ensuring benefits for the entire community.
Through early 2007, the wind farm steering committee worked with Jenni Matilla (a Sydney based lawyer with deep expertise in co-operative law) to develop the Rules and Disclosure Statement, and on 18 July 2007, the Hepburn Community Wind Park Co-operative Limited (known as Hepburn Wind) was established to allow the local community to invest in and own their own wind farm.
Project benefits
Community engagement
Hepburn Wind's community engagement is unprecedented for any wind farm in Australia. A major advantage in having contact with the community is that the volunteers and staff are a part of the community and can also draw on a large number of volunteers over a sustained period.
The list of community-engagement activities by the HREA is extensive. Among many more things, over the past five years it has:
- conducted more than 80 personal home visits to local residents
- held more than 120 information stalls in the main street of Daylesford and local events
- run seven bus tours for more than 250 people to visit wind turbines at nearby wind farms
- published and emailed more than 40 e-newsletters to a mailing list of more than 6,500 members
- sent frequent update letters to local residents
- issued more than 30 media releases, featuring in articles in local, state and national print, television, magazine and radio outlets
- advertised in the local paper
- sponsored many events, including the International Day of Climate Action and Walk Against Warming
- appeared at events such as the Sustainable Living Festival (Melbourne and Woodend), Alternative Energy Association meetings,
- no appetite for capital loss
- high levels of patience
- a high requirement for communication
- a high expectation of transparency.
Regional economic benefits
Profits from the project remain in the community as dividends returned to investors and through the Community Fund. From conception, Hepburn Wind has been determined to ensure that the entire community, beyond the investors, will benefit from the project.
As such they have committed to establish a Community Fund which will fund projects that contribute to strengthening the environmental, wellbeing, recreational, cultural and educational sustainability of the local area.
The project has committed to contribute $15,000 per turbine annually into the fund. With indexing, this will total more than $1m over the next 25 years. They also have a unique arrangement with their retail partner Red Energy which grows their community fund and are actively working to develop other revenue streams to allow them to increase this commitment.
Hepburn Wind believes that this is the most generous community fund in the industry (on a per turbine basis), by an order of magnitude. They donate more to the community than they pay in lease fees to the landowner at Leonards Hill.
Local jobs
The Hepburn Wind project has created 3 ongoing part time roles (2 Full time equivalent roles). These jobs involve skills including site operations, membership communication, public affairs, construction project oversight, regulatory compliance, and administration.
Community empowerment
Direct ownership changes attitudes at the local level, and leverages committed individuals giving them a positive outlet for climate action. Community ownership encourages greater diversity in the investor base and has tapped a latent, and lower-cost patient source of capital.
Capacity building
The Hepburn Wind project has directly enhanced the capacity and skills of many of the local people who have worked on it. Skills have developed across a broad range of areas as the project has moved through the various phases - project management, communications, and governance are just a few.
Model for others
Hepburn Wind has come up against a range of challenges that have at times slowed progress. But in doing so, many lessons have been learned that other communities can take on board – hopefully significantly reducing the timeframe and costs for similar projects.
Key lessons
Finding appropriate partners
Managing the development of a major infrastructure project of this nature is a significant challenge for a community group in which much of the work and governance is undertaken by volunteer directors.
In the early stages of the project the relationship with Future Energy provided essential professional and project management expertise. As the project progressed it became important for the board to be able to draw directly on specialist expertise in areas such as network connection, contract negotiation, project management and the legal issues surrounding fund-raising.
An important lesson for future projects is the need to retain flexibility to bring on appropriate partners at different stages of project development as needs are identified.
Governance arrangements
Delivery of the project required more than 30 commercial arrangements to be struck, most of which have long term implications for the project. The project must also comply with a wide range of regulations, permit conditions and technical requirements.
Hepburn Wind’s structure means that the ultimate responsibility for the project rests with the board of directors. In addition, Hepburn believes that its status as a community co-operative adds an additional layer of governance in the form of a social contract with the community.
It is not possible, nor desirable, for these responsibilities to be delegated to a third party. At all times, contractors must be ultimately accountable to the board and the board must be ultimately responsible for the entire project.
Grid connection
The difficulty in obtaining grid access and the costs associated with the connection were both significantly underestimated. Hepburn would recommend that future projects engage at the earliest opportunity an independent consultant with deep technical and commercial experience.
Communications capability
Hepburn Wind is particularly proud of the high level of communication maintained with the community throughout the project, in the form of street stalls, public events, speaking engagements, media releases, newsletters, wind farm tours, and general accessibility via email and telephone.
Maintaining high levels of communication requires significant organisational and financial resources. We recommend that future projects adequately resource their communication capability early in the project.
Administrative capacity
Throughout the project, Hepburn’s board members contributed an enormous amount of unpaid time and expertise to the project. While this has been invaluable, the demands of the project have placed an unsustainable load on many directors at various stages of the project. In addition, the fragmented nature of volunteer hours means that a project of this complexity is beyond the capability of a purely volunteer organisation.
Hepburn identified the requirement for administrative staff in early 2009 and fortunately was in a position to fund the engagement of their first staff member out of the interest accumulating on the share capital raised.
This enabled the project to move forward much more quickly and professionally. Hepburn would recommend that future projects hire staff much earlier in the project.
Fund-raising
Raising the required capital from members took longer than anticipated, in part due to the global financial crisis as well as the challenges of a model that did not have a track record in Australia.
The announcement at the end of March 2011 that the share price would rise on 1 July 2011 was an important contributing factor to the success of the final capital raising push for the project. From this Hepburn learnt (late in the process) the power of an impending share price increase as a call to action for prospective investors.
Other groups considering similar capital raisings should give careful consideration to mechanisms that will reward the crucial early investment and ensure momentum throughout the capital raising period and to adequately address the risk-reward balance at different stages of project development.
Capital raising is a specialist skill. While Hepburn Wind was ultimately successful in raising the required funds, they now appreciate the value of specialists. Future projects may want to consider engaging professional capital raising support, especially if this opens up avenues for project underwriting.
Community investors
The project has shown that the community is prepared to invest significant capital in local infrastructure, provided that local benefits are created. During the course of the project, they have demonstrated that a new class of investor is emerging, the community investor, who may be characterised as having:
- modest return expectations — prepared to accept a slightly lower rate of financial return than institutional investors, offset by an increased expectation of non-financial returns
- generally modest sums to invest — notwithstanding that a significant proportion of funds came from self-managed superannuation
- low appetite for risk
- no appetite for capital loss
- high levels of patience
- a high requirement for communication
- a high expectation of transparency.
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