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Cost and financing aspects of community renewable energy projects VOLUME II: CANADIAN CASE STUDY

March 2016

Cost and financing aspects of community renewable energy projects | ii

Volume II: Case Studies - Canada

ABOUT IEA-RETD

The International Energy Agency’s Implementing Agreement for Renewable Energy Technology Deployment (IEA-RETD) provides a platform for enhancing international cooperation on policies, measures and market instruments to accelerate the global deployment of renewable energy technologies.

IEA-RETD aims to empower policy makers and energy market actors to make informed decisions by: (1) providing innovative policy options; (2) disseminating best practices related to policy measures and market instruments to increase deployment of renewable energy, and (3) increasing awareness of the short-, medium- and long-term impacts of renewable energy action and inaction.

For further information please visit: http://iea-retd.org or contact [email protected]. Twitter: @IEA_RETD

IEA-RETD is part of the IEA Energy Technology Network.

DISCLAIMER

The IEA-RETD, formally known as the Implementing Agreement for Renewable Energy Technology Deployment, functions within a Framework created by the International Energy Agency (IEA). Views, findings and publications of IEA-RETD do not necessarily represent the views or policies of the IEA Secretariat or of its individual Member Countries. This project was awarded to Ricardo Energy & Environment. Ricardo Energy & Environment accepts no liability whatsoever to any third party for any loss or damage arising from any interpretation or use of the information contained in this report, or reliance on any views expressed therein.

COPYRIGHT

This publication should be cited as:

IEA-RETD (2016), Cost and financing aspects of community renewable energy projects. Volume II: Canadian Case Study. Ricardo Energy & Environment and Pembina Institute, IEA-RETD Operating Agent, IEA Implementing Agreement for Renewable Energy Technology Deployment (IEA-RETD), Utrecht, 2016.

Copyright © IEA-RETD 2016

(Stichting Foundation Renewable Energy Technology Deployment)

Cost and financing aspects of community renewable energy projects | iii


ACKNOWLEDGEMENTS

The authors would like to thank the IEA-RETD FIN-COMMUNITY Project Steering Group (PSG) members for their guidance and support throughout the project. We wish to thank the community organizations in Ontario, British Columbia and Nova Scotia who participated in the interviews and surveys for their time and their insights. For reasons of information protection the names of these communities have been withheld. We also acknowledge assistance provided by several renewable energy groups who helped identify the projects for the case study; the groups including the Canadian Wind Energy Association, Federation of Community Power Co-operatives, Canadian Solar Cities, Solar Share, and Ontario Renewable Energy Co-operative.

Project Steering Group

Coraline Bucquet Operating Agent, IEA-RETD

Fiona Booth Department of Energy and Climate Change (DECC) - UK (PSG Chair)

Martin Kelly Department of Energy and Climate Change (DECC) - UK

Michael Paunescu Natural Resources Canada - Canada

Axel Tscherniak Fachagentur Windenergie an Land e.V. on behalf of the Federal Ministry for Economic Affairs and Energy – Germany

Sascha Van Rooijen Operating Agent, IEA-RETD

AUTHORS

Barend Dronkers (Pembina Institute)

Binnu Jeyakumar (Pembina Institute)

Jason Switzer (Pembina Institute)

Gregory Vaughan-Morris (Ricardo Energy & Environment)

Colin McNaught (Ricardo Energy & Environment)

Other contributors

Dave Lovekin (Pembina Institute)

Ricardo Energy & Environment

Cost and financing aspects of community renewable energy projects | iv


Executive summary

This Case Study report presents the results of data collection and analysis on community and commercial wind and solar photovoltaic (PV) installations in Canada. It has been based on information available as at the end of July 2015 and does not refer to any policy changes that may occur after this date.

Cost Data Comparison

Through direct interviews and desk research we have financial and qualitative data from six community projects (four solar projects and two wind projects) and have obtained commercial data from the International Renewable Energy Agency (IRENA), IEA (International Energy Agency) and other Canadian specific reports. The average kW capacity of the community solar projects was 950 kW - of comparable magnitude to the commercial solar data we obtained which was for solar projects less than 1 MW. The average kW capacity of the two wind projects was 2,640 kW, but we are unsure of the average capacity of the commercial Canadian wind project data. However, as individual wind turbines tend to be sized in the 2 – 3 MW capacity range, the findings should be quite comparable. The actual cost comparison per development, construction and operating phases is shown below.

Comparing the commercial wind project data with the community projects provides evidence that development, construction, and operation costs are broadly comparable for community and commercial projects. However, qualitative responses from the interviewees representing the different projects indicate that the developmental costs are likely to be higher for community projects.

A comparison of community solar project data shows more variation, with construction and development costs tending to be significantly higher than commercial projects. One of the reasons is that one of the solar projects was commissioned in 2009, when PV units were much more expensive, which brings up average prices.

Although most community projects in Canada are structured to be corporation tax free, some pay corporation tax, and for this reason the post-tax pre-finance Internal Rates of Return (IRRs) for the community projects are compared to the post-tax pre-finance commercial hurdle rates. Only one of the six projects we interviewed had to pay corporation tax, with the community receiving about 1.25% of the revenue from this commercial venture. After paying off the community investors, remaining profits were used for education programs related to the wise use of sustainable energy. The IRRs are shown below.

As can be seen, whilst the community wind returns were higher than the commercial hurdle rates. However, again for solar there is more of a mixed message, driven significantly by the downward trend in feed-in-tariff (FIT) rates — specifically in Ontario — and again the falling cost of solar PV units. With the exception of one First Nation solar project in British Columbia, all other projects are in Ontario and have been supported by Ontario’s FIT payments.

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

Development Cost($/MW)

Construction Cost($/MW)

Operating Cost($/MW/year)

Solar PV Energy Projects

Community Projects Commercial projects

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000




Wind Energy Projects


Cost and financing aspects of community renewable energy projects | v


Qualitative comparison

The main messages from the qualitative research questions are:

Community renewable energy system (RES) projects may offer host communities a range of potential benefits, including enhanced economic opportunities and benefit sharing including improved public health outcomes, and strengthened community cohesion;

Debt financing is expensive for communities due to the risks perceived by commercial investors — banks, pension funds and insurance companies. Financing is particularly difficult for communities, partly because of the historically poor returns of cooperatives, and the perception that RES cooperatives will also offer poor returns;

Long-term community RES revenue from guaranteed revenue through Power Purchase Agreements (PPAs), programs such as Ontario’s FIT, and formerly from Nova Scotia’s Community FIT (COMFIT) are a necessary pre-requisite to access financing, unless an innovative behind the meter arrangement can be found where electricity is sold directly to users (or the community) at retail prices;

Partnering with commercial developers makes access to affordable debt easier, but often decreases the share owned by the community, and hence the benefits. Partnering also imposes new challenges in terms of framing the partnership and engaging on an equitable footing with better-resourced and more-experienced commercial developers and financiers;

For a commercial partner, community leadership or co-ownership may offer a range of counterbalancing incentives, such as access to grants and lower-cost finance, easier ability to secure planning permission and social acceptance, reduced barriers to grid access, volunteer support and outright political encouragement that offset the financing challenges impeding their development.

From a policy perspective:

Provincial and territorial clearinghouses would be helpful in distributing not only ‘how-to guides’, standardized developer-community agreements and fundraising guides, but also in providing a one-window single point to obtain an up-to-date summary of public funding mechanisms in place. A clearinghouse could also offer training for the development of a cadre of community RES project facilitators who could bring experience and contacts from other projects. National co-ordination of clearinghouses could further assist with sharing of best practices and financing opportunities;

Due to the limited investor experience with community RES in Canada, public-backed loan guarantees are a useful mechanism for lowering the cost of capital. It is critical to think about the sustainability of such a program over time in the event of success, including clearly defined thresholds for reducing levels of support. As an example, the Federation of Canadian Municipalities already has its Green Municipal Fund targeted to municipal projects, and it could create a separate program specifically for community RES projects;

A key opportunity for advancing community RES projects in Canada would be through aggregation of electricity generation across multiple communities. An important upside of aggregating projects is that it delivers ‘mother’ electricity generation projects and could enable

0%

5%

10%

15%

20%

25%

1 2

Community wind post-tax IRR (%) versus commercial wind hurdle rate (%)

Community returns Commercial hurdle rate

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1 2 3 4

Community solar post-tax IRR (%) versus commercial solar hurdle rate (%)


Exact number

unknown but

shown as

20%

Cost and financing aspects of community renewable energy projects | vi


a higher electricity price to be secured. Joint funding of multiple projects during the development phase is also an effective means of obtaining lower cost financial support;

Significant paid or unpaid man-hours are needed to acquire funding and manage multiple funders. Professionalization of these functions could be prioritized, to accelerate the process of securing finance and negotiating long-term purchase agreements including Renewable Energy Credits;

The recently announced Pan-Canadian Task Force to Reduce Use of Diesel for Electricity in Remote Communities offers an opportunity to support development of community RES projects in these remote communities;

There is a high degree of variance between provinces, between on- and off-grid projects, between aboriginal and non-aboriginal projects. This study exposes the need for a more-detailed, wider assessment of community RES experience across these diverse domains.

Cost and financing aspects of community renewable energy projects | vii


Table of contents

1 Introduction ................................................................................................................ 2

2 Background: Canadian renewable energy ............................................................... 2 2.1 Definition of Community Renewable Energy Source Projects .......................................... 2 2.2 Possible forms for Community RES Projects .................................................................... 3 2.3 RES development in Canada ............................................................................................ 8 2.4 Policy support mechanisms for RES ............................................................................... 12

3 Costs faced by renewable energy developers ....................................................... 18 3.1 Commercial RES projects ............................................................................................... 18 3.2 Community led RES projects .......................................................................................... 20 3.3 Interview process results ................................................................................................. 20 3.4 Results from financial modelling...................................................................................... 21 3.5 Results from qualitative questions................................................................................... 24

4 Responses to research questions .......................................................................... 27 4.1 Cost components for different ownership options (community-led, shared ownership and fully commercial) ......................................................................................................................... 27 4.2 External factors that can affect the costs of community-led and shared ownership projects ....................................................................................................................................... 28 4.3 Constraints and related cost/ financing implications that only apply to community-led and/ or shared ownership projects .............................................................................................. 30 4.4 Whether some of the cost components are invariably higher for community-led and/or shared ownership projects .......................................................................................................... 30 4.5 Whether some of the cost components are invariably lower for community-led and/ or shared ownership projects .......................................................................................................... 31 4.6 Cost projections to 2020 .................................................................................................. 31 4.7 Opportunities to reduce community-led and/ or shared ownership costs ....................... 32

5 Conclusions ............................................................................................................. 33 5.1 Policy recommendations ................................................................................................. 34

Appendices

Appendix 1: Glossary

Appendix 2: Results from financial modelling

Appendix 3: Bibliography

Cost and financing aspects of community renewable energy projects | 2


1 Introduction

This Canada case study is structured into four main sections:

Firstly, a short overview of the Canadian renewable energy sources (RES) market is given, focusing on community RES activities in wind and solar photovoltaics (PV). A definition of community RES projects is proposed and contrasted with that of commercial projects;

Secondly, the costs faced by community based and commercial RES projects are described

and analysed. The information on costs for six community-based RES projects was collected

via interviews with community RES project managers. The projects were selected to represent

a cross-section of technology types and ownership models. Information on the financial viability

of comparably sized commercial projects was compiled through a literature review. The cost

data for both sets of projects was then transferred into a financial model to compare financial

performance of the selected community projects versus commercial projects in Canada. Where

data was unavailable, assumptions were made based on international and Canadian literature

and expert judgment;

Thirdly the responses to the project research questions are provided, drawing on the outcomes from the interviews with communities and RES sector specialists, and on wider literature research;

Finally, the Case Study provides overall conclusions targeted at policy makers.

This Case Study is based on information available as at the end of July 2015 and the policy framework that applies to projects developed and operating prior to July 2015.

2 Background: Canadian renewable energy

2.1 Definition of Community Renewable Energy Source Projects

Renewable energy encompasses a broad range of energy sources including wind, solar, geothermal, biomass, marine and hydropower; and end uses, including heat, motive force, liquid fuels production and electricity generation (off-grid, micro-grid and connected to a regional transmission grid). This Case Study focuses on projects using solar PV technology or wind turbines to generate power for sale onto electricity grids.

Countries have different definitions of community ownership or leadership, as distinct from “commercial”, or primarily profit-oriented project development. There is no legal or policy definition of community RES projects in Canada or in any of the provinces. Therefore, for the purposes of this study we define Community-Led Renewable Energy Source Projects (hereafter, “Community RES Projects”) as the subset of renewable energy projects in Canada in which:

(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) Projects are designed to provide local economic and social benefits rather than primarily to provide economic rents to financial returns;

(iii) Profitability is not necessary for the project to be deemed a success.

Although not a focus of this research, Box 1 describes some of the wider economic, social and environmental benefits of community energy.



Box 1: Wider financial, economic and social benefits of community energy

From a community perspective, renewable energy projects offer a range of potential benefits that would incentivise their development. For example, many communities — in particular those in remote rural locations — have access to abundant renewable resources, are paying disproportionately high costs for the import of diesel or propane fuels1. Renewable energy projects can provide additional revenue streams for residents and help to defray these higher energy costs and can help shelter residents from price fluctuations for conventional energy.

Renewable energy projects can create local jobs — often creating more employment than conventional energy production per unit of energy produced. For instance, wind power and solar PV offer 40% more jobs per dollar than coal production.2 By generating energy locally, renewable energy projects can help keep dollars in the local economy.

From an environmental and public health standpoint, in particular for off-grid remote communities that rely on diesel or propane generators for power, renewable energy projects are likely to decrease particulate pollution (and its attendant air quality impacts) and reduce the risks of fuel spills and fuel shortages.

Community renewable energy projects3 can offer other benefits, including building community capacity for deployment and maintenance of innovative technologies, and serving as a source of community pride.

Finally, community leadership or participation can reduce or avoid ‘not in my backyard’ (NIMBY) barriers to renewable energy project development. Such barriers can be costly and sometimes fatal for projects, which makes partnerships with community investment models an attractive option for commercial developers. From the point of view of community project developers, partnering with commercial developers may offer a better chance at securing affordable financing options with longer terms and lower interest rates.

2.2 Possible forms for Community RES Projects

The community attributes and external factors identified above in Section 2.1 set the context in which a RES project is developed. Several different business models could possibly be used but the choice of model is context and people-dependent, based on the people developing the project and which community attributes or external factors are seen as the priority or the limiting factor to the development. The structure of the renewable energy project may even change during the development of the project. The nature of structure used also shapes the distribution of risks and rewards

“Each type of operation has its pros and cons; the stage of choosing your structure must not be short-changed. The strength and relevance of the organizational structure you choose can determine the success or failure of the project. In addition, the answer to which structure is right will vary from one jurisdiction to another, and from one technology to another...”

Source: Commission for Environmental Co-operation’s Guide to Developing a Community Renewable Energy Project in North America.4

Various legal structures are available for community RES projects. As well as different legal structures, different ownership models exist which include:

Shared revenue projects, where the community invests money and in return gets a share of the revenues or net cash flows;

1 Pembina Institute. Renewable Energy Policies for Rural and Remote Communities: Energy Policy Assessment. Prepared for Agriculture Canada, 2009. 2 Sing, Virinder et al. “The Work That Goes Into Renewable Energy,” Renewable Energy Policy Project Research Report, 13. 2001 http://www.repp.org/articles/static/1/binaries/labor.pdf 3 Community-based renewable energy projects are projects generally owned, developed and controlled at least in part by residents of the community or communities where the project is located. 4 Commission for Environmental Co-operation, Guide to Developing a Community Renewable Energy Project in North America, prepared by ENVINT Consulting and the Ontario Sustainable Energy Association (OSEA). 2008. www.cec.org/Storage/88/8461_Guide_to_a_Developing_a_RE_Project_en.pdf.

http://www.repp.org/articles/static/1/binaries/labor.pdf



Joint ventures, where the community invests money in a special purpose vehicle company owned partly by the community and partly by the commercial developer, with each shareholder owning a proportion of the renewable energy assets;

Split ownership, where a community owns outright part of a renewable energy asset and a commercial developer owns outright the other part of the asset, implying physical differentiation between sets of assets such as individual wind turbines. Some other assets may be shared, such as the grid connection;

Outright ownership, where the community, or Community Economic Development Corporation, owns all renewable energy assets.

The legal structures outlined in Table 1 have or could be used for a community RES project.5 In the sections that follow, we provide a description of the organizational design, along with several examples of RES projects that have adopted these structures.

2.2.1 Co-operatives

In Canada all co-operatives can be registered with federal and provincial governments, and may operate under slightly different rules by jurisdiction.

In Canada, renewable energy co-operatives typically charge a membership fee and will often offer members the option to purchase further shares in the project, but most specify a maximum investment per member. Dividends are paid to members based on their level of investment, but control of the co-operative is based on each member only receiving one vote. Preference for membership can be given to local residents. Co-operatives can be involved in one or all of energy production, development, financing/investment, distribution and promotion of renewable energy.6

Ontario has a specific definition for a “renewable energy co-operative” included in their Co-operative Corporations Act. It is described as a co-operative whose articles restrict the business of the co-operative to “(a) generating, within the meaning of the Electricity Act 1998, electricity produced from one or more sources that are renewable energy sources for the purposes of that Act; and (b) selling, as a generator within the meaning of that Act, electricity it produces from one or more renewable energy sources.”7 As of 2009, renewable energy co-operatives are permitted to generate and sell to the grid as much electricity as they can, regardless of how much electricity their members use. Prior to this amendment, co-operatives in Ontario were obliged to do business primarily with their members.8

Examples of renewable power projects run by co-operatives:

• Local Initiative for Future Energy in Waterloo-Wellington, Ontario is working on a wind

development near St. Agatha, Ontario;

• Coopérative Forestière de la Matapédia is a co-operative based in Quebec that uses biomass

waste to create heat;

• Integrated Grain Processors Co-operative in Aylmer, Ontario is an agricultural co-operative

involved in biofuel production for transportation uses;

• Solar Share is a renewable energy co-operative with several solar power installations in rural

Ontario;

• Le Groupe Dynaco has a biomass-fuelled feed mill in St-Philippe-de-Néri, Quebec.

5 The descriptions of the business models rely in part on: Simon Gill and Kris Stevens, Ontario Sustainable Energy Association, “Organizational design: Exploring a menu of models for Community Power project ownership,” 2008 http://www.eltonenergy.org/pdf/OwnershipModels%20v2%20jan%2010%2008.pdf; and Ontario Sustainable Energy Association, Community Power Financing Guidebook, prepared by York Sustainable Enterprise Consultants. 2007. 6 Canadian Co-operatives Association, Co-operatives Helping Fuel a Green Economy: A Report on Co-ops in Canada’s Renewable Energy Sector.

2011. http://www.coopscanada.coop/public_html/assets/firefly/files/files/Rpt_on_Renewable_Energy_Coops_FINAL_final_2.pdf 7 Government of Ontario, Co-operative Corporations Act. c. 12, Sched. I, s. 2. 2009. 8 Iler, Brian. “Energy Act gives co-operatives a green light” Green Energy Act Alliance Newsletter. http://www.greenenergyact.ca/Page.asp?PageID=376&ContentID=1158&SiteNodeID=223&BL_ExpandID=

http://www.eltonenergy.org/pdf/OwnershipModels%20v2%20jan%2010%2008.pdf

http://www.greenenergyact.ca/Page.asp?PageID=376&ContentID=1158&SiteNodeID=223&BL_ExpandID



Table 1: Legal structures used in Canada for community RE projects

Legal Structures Description Corporate Tax Obligation

Non-Profit Co-operative

Co-operatives in Canada are registered under either federal or provincial governments. Renewable energy co-operatives are specifically legislated in Ontario to allow selling of electricity to non-members via the electricity system operator. (However, non-profits are prohibited from sharing surplus revenue with co-operative members.) Both non-profit and for-profit co-ops are registered under Canada’s Co-operative Corporations Act.9

N

For-Profit Co-operative

Similar to non-profit co-operatives, but able to share surplus revenues with members. Also, for-profit cooperatives are allowed greater legal flexibility and less tax-scrutiny in preparing accounts.10

Depends

Non-Profit Private Corporation

Non-profit (private) corporations in Canada are regulated under the Non-for-profit Corporations Act, while the taxable nature of such organizations is decided by the Income Tax Act. Both acts are federal.11 The corporation may earn a profit, but this must be used to “further the goals of the corporation” rather than paid as dividends to members.12

N13

For-Profit Private Corporation

A private corporation is a legal entity (called a “company”) whose legal form differentiates it from owners (the shareholders), managers, directors and employees of the company.14

Y

Partnerships Partnerships include Limited Partnerships, Joint Ventures (JVs) and bulk purchase models where assets are purchased in bulk, but used in separate projects.

Depends

Sole Proprietor (non-incorporated)

This is the simplest form of a business where only one owner is responsible for the profits and risks associated with the organization.

Y

Public Ownership (Community Economic Development Corporations)

(Community) Economic Development Corporations (EDCs) are arm’s-length organizations that work closely with government, managing the financing for community-benefit projects in order to develop the local economy.15 In First Nation communities, the EDC is the major economic development arm for communities. For example, in Ontario, 61 EDCs represent around 100 communities.16

Y

2.2.2 Corporations

A business corporation (defined as a separate legal entity that can enter into contracts and own property in its own name, separately and distinctly from its owners) can also be the owner of a renewable energy project.17 Corporations are tasked with providing a return on the capital invested by shareholders. Shareholders in corporations are not personally liable for the debts, obligations, or actions of the corporation.18

9 Ontario Co-operative Association, For‐Profit and Not‐for‐Profit Co‐operatives. 2015.

http://www.ontario.coop/cms/documents/285/STR06_For_Profit_and_Not_for_Profit_Co-ops_FINAL.pdf 10 Ibid 11 Ibid 12 Ibid 13 Ibid 14 Corporation Centre, Canadian Non-Profit Incorporations. 2015. http://www.corporationcentre.ca/docen/home/faq.asp?id=incnp 15 Useful Community Development, “Definition of Economic Development Corporation.” http://www.useful-community-development.org/definition-of-economic-development-corporation.html 16 Canadian Council for Aboriginal Business, Community and Commerce: A Survey of Aboriginal Economic Development Corporations in Ontario.

2013. https://www.ccab.com/uploads/File/CCAB-EcoDevel-Report2013-FA-web.pdf 17 Government of Canada, “Invest in Canada: Selecting a business structure,” 2011. http://investincanada.gc.ca/eng/establish-a-business/business-structure-select.aspx 18 Ibid.

http://www.ontario.coop/cms/documents/285/STR06_For_Profit_and_Not_for_Profit_Co-ops_FINAL.pdf

http://www.corporationcentre.ca/docen/home/faq.asp?id=incnp

http://www.useful-community-development.org/definition-of-economic-development-corporation.html


https://www.ccab.com/uploads/File/CCAB-EcoDevel-Report2013-FA-web.pdf

http://investincanada.gc.ca/eng/establish-a-business/business-structure-select.aspx




A corporation can either be for-profit or not-for-profit. It can be private or public (with a prospectus filed with a provincial Securities Commission and shares listed on a Canadian stock exchange).19

A corporation with other commercial interests, such as forestry or mining, may have access to renewable energy resources, or land, that they can develop as part of their operations. For example, a lumber mill may create heat and electricity by combusting waste wood at their mill facility. Alternatively, a corporation may be exclusively or primarily a renewable energy development company. In the case of a wind development, a commercial wind development company could lease all or a portion of land from a landowner. The company would then install, own, and operate the wind turbine and sell the electricity generated by the wind turbines to a customer under contract. The landowner would receive a royalty payment or rent for the use of their land for the period of the lease. This model could also apply to a solar installation, where the corporation would lease space for ground-mounted solar panels from a landowner, or space for rooftop solar panels from a building owner.20

The corporate ownership model can still allow for significant community involvement through consultations, employment opportunities and other forms of engagement. Communities can also benefit from wholly developer-owned renewable energy projects in their community. Following this model, the corporation takes on most of the risk in developing the project. While this also means that the corporation reaps many of the rewards, communities can still share in the economic gains. For example, in Alberta, the Municipal District of Pincher Creek receives 27% of its annual revenue from additional property tax revenue generated by wind farms.21

2.2.3 Partnerships

In a partnership, partners contribute money, property, labour or skills to a common business venture, and expect to share in the profits and losses of the business endeavour.22 In a limited partnership, some partners are general partners who manage the business, and others are limited partners who have no management control and contribute only capital. Limited partners are only liable to the business and its creditors in the amount of their investment. General partners have unlimited liability for the debts of the business.23 A limited partnership requires a legal document that outlines the terms of the partnership. Examples in the community energy context include:

• For a hydroelectric project near Atlin, British Columbia, the Taku River Tlingit First Nation owns 99.99% of the Xeitl Limited Partnership as the sole limited partner. Atlin Power Ltd. owns the other 0.01%;

• The Fairmont Wind Project near Antigonish, Nova Scotia, will involve a limited partnership between Wind Prospect Inc. (general partner) and the Wind4All Community Economic Investment Fund (limited partner).

2.2.3.1 Joint ventures

A joint venture (JV) is a form of partnership between two or more entities, often to undertake a specific task, like a renewable energy project, for a limited period of time. While both parties are invested in the joint venture and share revenues, expenses and control, they retain independent ownership over their own businesses.24 A joint venture can involve a public institution, a corporation, a co-operative or any other ownership model, and it is defined and governed by a contract between the parties involved. Contracts can be complicated, particularly between entities with different organizational structures (e.g., a co-operative and a corporation), and professional advice from lawyers and accountants on tax and liability implications is advisable.25

As many of the barriers to community-based renewable power relate to limited access of financing, land or expertise, projects that involve partnerships between entities with access to different resources and expertise can improve the probability of project success.

19 Government of Canada, “Invest in Canada: What are the types of corporations,” 2011. http://investincanada.gc.ca/eng/establish-a-business/faq.aspx?action=article&oid=4 20 Province of Nova Scotia, Wind Energy in Nova Scotia: A guide for landowners and communities. The Pembina Institute and the Ecology Action Centre. 2011. https://nsrenewables.ca:44309/sites/default/files/pdfs/wind_energy_guide.pdf 21 Bell, Jeff and Weis, Tim, Greening the Grid, The Pembina Institute. 2009. http://pubs.pembina.org/reports/greeningthegrid-report.pdf 22 Government of Canada, “Invest in Canada: Selecting a business structure”. 2011. 23 Canada Revenue Agency, “Partnership”. http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/prtnrshp/menu-eng.html 24 Government of Canada, “Invest in Canada: Selecting a business structure”. 2011. 25 Ontario Sustainable Energy Association, OSEA Community Power Financing Guidebook. York Sustainable Enterprise Consultants. 2007. http://www.ontario-sea.org/Storage/37/2855_CommunityPowerFinancingGuidebook.pdf

http://investincanada.gc.ca/eng/establish-a-business/faq.aspx?action=article&oid=4


https://nsrenewables.ca:44309/sites/default/files/pdfs/wind_energy_guide.pdf

http://pubs.pembina.org/reports/greeningthegrid-report.pdf

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/prtnrshp/menu-eng.html

http://www.ontario-sea.org/Storage/37/2855_CommunityPowerFinancingGuidebook.pdf



JVs can be undertaken early or late in the development processes. In several examples below, a community co-op or First Nation engaged a partner after the project design, equity arrangements and logistics of the project had already been determined. Nevertheless the relative share in a project can also change over time. For example, in the Pic River First Nation’s Twin Falls hydroelectric project, the First Nation’s share of the project will increase until it has achieved full ownership.

JV models differ substantially according to the nature of the two (or more) entities involved. Some examples:

• The Revelstoke biomass district heating system is run by the Revelstoke Community Energy Corporation, a partnership between Downie Street Sawmills and the Town of Revelstoke;

• An example of two co-operatives forming a JV is the partnership between Toronto-based WindShare II and Countryside Energy Co-op based in Milverton, Ontario. Each co-operative will eventually own half of the planned 10 MW wind project26;

• The Positive Power Co-op in Waterdown, Ontario, is a wind power project that involves a JV between a co-op and a landowner;

• Pic River First Nation formed several JVs, including the JV with Sunridge Power that resulted in the Wawatay Generating Station, a run-of-river hydroelectric plant.

Examples of JVs between co-operatives and developers include:

• The Val-Éo wind project in Lac-St. Jean;

• The Pic Mobert First Nation hydroelectric project in Québec;

• The Bear Mountain Wind Park wind project, which is a partnership between Peace Energy Co-

op and AltaGas in British Columbia;

• The Lamèque Renewable Energy Co-operative and Acciona (a wind developer) in New

Brunswick.

2.2.3.2 Bulk purchase model

In the bulk purchase model, a contracting organisation, such as a community group or municipality, issues a request for proposal for quantity discounts on many similar individual renewable energy systems (e.g., solar thermal installations).27

To our current knowledge, there are no projects in rural or remote contexts that have yet undertaken the bulk purchase model. In an urban context, the Halifax Solar City initiative is applying this model to solar hot water installations on homes as a pilot project.28

2.2.4 Sole Proprietor (100% Ownership)

Renewable energy projects can also be solely owned by farmers, homeowners, small business owners or others. This is the simplest model of ownership, and it means that the owner of the project is legally inseparable from the project itself (including its liabilities, acts, etc.).29 For example, a homeowner could install a solar hot water system in her own house, and be the sole proprietor of that renewable energy. An example is the Vandermeer Greenhouses near Niagara-on-the-Lake, Ontario, which has an anaerobic digester that depends in part on waste material from nearby wineries.

2.2.5 Public Ownership

Ownership by public institutions, such as provincial governments, municipalities, First Nations governments, schools or universities, is one way of structuring a renewable energy business model. Renewable energy projects can be owned and managed by the public institution itself, or by an entity owned solely by the public institution, such as a Crown utility, community trust, economic development corporation, or First-Nation-owned corporation. Examples include:

26 Commission for Environmental Co-operation, Guide to Developing a Community Renewable Energy Project in North America. prepared by ENVINT Consulting and the Ontario Sustainable Energy Association, OSEA, 2008. www.cec.org/Storage/88/8461_Guide_to_a_Developing_a_RE_Project_en.pdf 27 Gill, Simon and Kris Stevens. “Organizational Models: Exploring a menu of models for Community Power project ownership”. Ontario Sustainable Energy Association. 2008 http://www.eltonenergy.org/pdf/OwnershipModels%20v2%20jan%2010%2008.pdf 28 Halifax Regional Municipality, “Community Solar Project.” http://halifax.ca/solarcity/ 29 Government of Canada. “Invest in Canada: Selecting a business structure,” 2011. http://investincanada.gc.ca/eng/establish-a-business/business-structure-select.aspx


http://halifax.ca/solarcity/





• The Kluane First Nation in Burwash Landing, Yukon, owns a biomass district heating system;

• Westbrook School in southern Alberta set up a school-based solar project funded primarily from community fundraising. A portion of the proceeds of any fundraising activity from the school’s “Friends of Westbrook” society is earmarked for environmental projects at the school.30

2.3 RES development in Canada

2.3.1 RES trends and context

Canada had 128 GW of installed electricity generation capacity in 2013.31 The majority (64%) of the installed generating capacity is from renewable energy sources, of which 58% consists of hydro power plants.32 Figure 1 provides more information. Other renewable energy sources such as wind, solar, bioenergy and tidal account for a smaller but rapidly growing share of Canada’s installed generating capacity.

Figure 1: Installed electricity generation capacity in Canada 2006-2013 (MW)

Data source: Statistics Canada, CANSIM Database33

In particular the installed capacity of wind and solar projects has been rising very rapidly as shown in Figure 2.

30 Friends of Westbrook, “Welcome to the friends of Westbrook home page,” 2009. http://westbrook.rockyview.ab.ca/fow/friends-of-westbrook & http://westbrook.rockyview.ab.ca/publications/policies-and-handbook/parent-handbook-online 31 Canadian Electricity Association, CANSIM Database, Table 127-0009: Installed generating capacity, by class of electricity producer 32 Ibid. 33 Statistics Canada, CANSIM Database, Table 127-0009 and Table 127-0010

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http://westbrook.rockyview.ab.ca/fow/friends-of-westbrook

http://westbrook.rockyview.ab.ca/publications/policies-and-handbook/parent-handbook-online



Figure 2: Annual growth and cumulative installed capacity of renewable electricity generation by type (MW)

Sources: Wind data from Natural Resources Canada and solar data from International Energy Agency. National Survey Report of PV Power Applications in Canada.2014. September 2014, p.8.

In terms of actual power generation, the contribution from renewables has also been increasing; this is illustrated in Figure 3 below for wind and solar energy.

Figure 3: Wind and solar electricity generation in Canada: 2009-2013 (TWh/yr)

Source: Statistics Canada, CanSIM Database, Table 127-0007: Electric power generation, by class of electricity producer

2.3.2 RES trends by province

The Canadian electricity system has been developed by the individual provinces and territories, with differing amounts of interconnection capacities between provincial grids. The type of generation capacity and the amount of renewable resource development are highly dependent on the resources of the particular province, as well as on the jurisdictional regulations or policies supporting renewables.

As shown in Figure 4, in four of ten provinces, including British Columbia and Manitoba, hydro-electricity makes up over 90% of the total electricity generation capacity. It makes up only around 20% in Saskatchewan and is a small part of the generation mix in Alberta where coal and natural gas dominate. Although Alberta has the third highest proportion of wind capacity of any province, the wind farms make up less than 10% of capacity in the province.

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Figure 4: Size of in-province generating capacity (MW) and capacity mix, by province (2013)

Source: Statistics Canada, CanSIM database, Table 127-0009: Installed generating capacity, by class of electricity producer (MW)

Another indicator, renewable electricity generation by province (Figure 5), shows increasing adoption of renewables by provinces,

Figure 5: Renewable (excluding hydro) electricity generation by province (TWh)

Source: Statistics Canada, CanSIM Database, Table 127-0007: Electric power generation, by class of electricity producer

129

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In terms of solar power, large-scale developments are advancing primarily in Ontario, with the support of Feed-in-Tariff (FIT) policies.34 For example, of the 1,834 MW of solar capacity that was installed by the end of 2014, 1,828 MW (99.7%) was in Ontario. The only other provinces with more than 1 MW of solar capacity are British Columbia with 3MW, Alberta with 6MW and Saskatchewan with 4MW.35

KPMG suggests that Alberta, British Columbia and Quebec are markets with the greatest near-term potential for RES project growth.36 Wind development in Ontario is expected to slow due to grid capacity constraints, social license challenges and uncertainty around policy.

Greenhouse gas intensity of electricity generation varies highly by province, as shown in Figure 6. Heavy reliance on coal for electricity results in very high average greenhouse gas intensities in Alberta and Saskatchewan, at 739 and 745 tCO2e/GWh respectively. They are bookended by two of the lowest-emitting provinces, hydro-rich British Columbia and Manitoba, at 11.3 and 3.32 t/GWh.

Figure 6: 2012 Greenhouse gas intensity by province (darkest shading in the highest-emitting provinces)

Source: NIR37

2.3.3 Community RES development

Community energy projects in Canada range from a handful of projects with greater than 1 MW installed capacity to smaller systems of 100 kW or less. The type of RES project — solar or wind — is very much dependent on the jurisdiction, which dictates the support mechanisms available to project developers.

Obtaining accurate information on the exact numbers of community renewable energy projects is difficult, as specific data is not collected by the Canadian government. In 2011, it was reported that there were more than 200 collectively managed alternative energy projects in Canada, including over 70 co-operatives.38

In 2011, the largest group of RE co-ops (26% of total) were biofuel co-operatives; 68% of these are owned by agricultural producers. The next largest type were wind co-ops (22%), followed by solar co-

34 http://fit.powerauthority.on.ca/ 35 International Energy Agency. National Survey Report of PV Power Applications in Canada. 2014. September 2014, p.9. 36 KPMG. Wind Energy in Canada: Realizing the Opportunity. Issue: 2. 2013. 37 Environment Canada, National Inventory Report 1990-2012: Greenhouse Gas Sources and Sinks in Canada. 2013, Pt 3. 38 Community investment co-operatives are a relatively new form of co-op, which first appeared in the non-profit community development sector. Then extend the opportunity to the broader community to acquire memberships and participate in share offerings as investments. Lipp, Judith et al., Renewable Energy Cp-op Review: Scan of Models and Regulatory Issues, 2012, p.2

http://fit.powerauthority.on.ca/



ops (13%). Almost two thirds of renewable energy co-ops in Canada had some level of community ownership.39

Ontario is a leader in the number of renewable energy co-ops under development. This can be attributed the favourable policy environment that has been created by the Green Energy and Green Economy Act and the price clarity provided by the FIT program as well as the recognition of the importance of community power in the FIT application process. Together, these provide a lower-risk political and economic environment in which to develop RE projects (once the FIT is awarded), compared to other provinces where competitive RE development processes are common.

One of the largest renewable energy co-ops in Ontario is Solar Share, which partners with local stakeholders and installers to build projects from 10 kW to 500 kW in size.40 The system size and number of shareholders involved is trending upwards with more than half of its latest ten projects sized at 500 kW. The current total installed capacity is 5.5 MW across more than 30 individual projects. All are principally debt-financed through sale of “solar” bonds to community members within a geographic radius of the project (Ontario requires at least 50% of bond holders to live within the project’s county in order to qualify it for FIT electricity rates.)

Community wind energy projects are prevalent in Nova Scotia, which to date combines favourable resources and a co-operative-friendly environment. Community RES projects benefit from a community (equity) shareholder investment fund with a community feed-in tariff (COMFIT) along with targeted tax credits. Projects range in size from very small (50 kW) to 6 MW.41 Nova Scotia has recently announced the end of its COMFIT program, because it achieved its initial objectives, but also citing cause for concern in long term electricity price developments “where the program could begin to have a negative impact on power rates”42. In the absence of the COMFIT program, the province retains its renewable energy portfolio target of 40% by 2020, a legislated standard for the fuel mix of an electricity supply.43 The target is designed to create a market for renewable energy projects at large, but does not provide the same price certainty as the COMFIT program for the community-based renewable energy projects.

Other jurisdictions in Canada do not have a sufficiently favourable policy environment to spur significant community RES development, so there have been few community RES projects outside Ontario and Nova Scotia.

2.4 Policy support mechanisms for RES

2.4.1 RES support for commercial projects

Policies at all three levels of government – federal, provincial and municipal/local - can help facilitate renewable energy development. Canadian energy policy, however, particularly in regards to electricity generation, transmission and distribution, is primarily within the jurisdiction of provincial governments.

2.4.1.1 Federal and International

In Canada, the federal government has encouraged renewable energy development through a number of programs, including:

Production incentive programs, such as the Wind Power Production Incentive (WPPI) Program and the ecoENERGY for Renewable Power (ecoRP), both now lapsed, which offered a production incentive of approximately one cent per kWh of wind power produced for WPPI and all renewable energy sources for ecoRP for a period of ten years;

Various income tax incentives for investing in renewables covered under Class 43.2 of the Income Tax Regulations and Section 1219 of the same Regulations44;

39 Canadian Co-operatives Association. Co-operatives Helping Fuel a Green Economy: A Report on Co-ops in Canada’s Renewable Energy Sector. 2011. http://www.coopscanada.coop/public_html/assets/firefly/files/files/Rpt_on_Renewable_Energy_Coops_FINAL_final_2.pdf 40 SolarShare, Live Monitor. 2015. http://www.solarvu.net/green/dealer/listAcc.php?ac=trec&vpw=solarshare 41 Government of Nova Scotia, “COMFIT Project Status”, August 14, 2015. http://energy.novascotia.ca/sites/default/files/files/Comfit%20Status%20as%20of%20August%2015%2C%202015.pdf 42 Government of Nova Scotia, “Minister Announces COMFIT Review Results, End to Program,” media release, August 6, 2015. http://novascotia.ca/news/release/?id=20150806001 43 Nova Scotia Department of Energy, Renewable Electricity Plan. 2010. http://energy.novascotia.ca/renewables 44 Natural Resources Canada. Technical Guide to Class 43.1 and 43.2. 2013 edition. March 2014. https://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/pdf/Class_431-432_Technical_Guide_en.pdf and Ministry of Justice. Income Tax Regulations. CRC. July 2015 http://laws-lois.justice.gc.ca/eng/regulations/c.r.c.,_c._945/

http://www.solarvu.net/green/dealer/listAcc.php?ac=trec&vpw=solarshare

http://energy.novascotia.ca/sites/default/files/files/Comfit%20Status%20as%20of%20August%2015%2C%202015.pdf

http://novascotia.ca/news/release/?id=20150806001

http://energy.novascotia.ca/renewables

https://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/energy/pdf/Class_431-432_Technical_Guide_en.pdf

http://laws-lois.justice.gc.ca/eng/regulations/c.r.c.,_c._945/



Direct funding for renewable energy projects through several departments including Aboriginal Affairs and Northern Development Canada (AANDC) (which manages ecoENERGY support, Community Energy Planning and other climate change programs) and through funds provided by the Federation of Canadian Municipalities for Green Municipal Funds;

Loan support (e.g., the Energy Loan program through Farm Credit Canada) and research and development support through programs like Sustainable Development Technology Canada.

2.4.1.2 Provincial

Provinces have implemented policies to encourage procurement of renewable electricity. Policy tools for green energy procurement implemented by Canadian provinces include:

FITs, which guarantee a price per kilowatt-hour (kWh) for renewable energy generation as well as priority access to the electricity grid. Ontario is the only jurisdiction in Canada with an active FIT program that supports both commercial and community projects. A “micro”-FIT project supports small solar developments up to 10 kW. Ontario’s commercial FIT program does not require local ownership, but a rate adder is available to projects that include some of local ownership. Other past support schemes at the federal level have included a Wind Power Production Incentive Program (lapsed) and ecoENERGY’s Renewable Power program (lapsed) that provided small top-ups per kWh of electricity generated (1 cent per kilowatt-hour);

However, the rapid decline in solar PV module prices means that the cost of solar energy has reduced quickly, and continue to decrease year over year. As a consequence, FIT rates paid to RES generators are reviewed annually. Ontario’s current rate, FIT 4.0, is much lower than its earlier FIT 1.0 rate;

Carbon policy, such as the carbon offset program in Alberta, which allow heavy emitters to finance commercial scale renewable energy projects to meet their reduction obligations. By buying the associated carbon offsets the renewable energy generation, offset programs can top up renewable electricity prices, creating viable investment returns;

Renewable portfolio/electricity standards (RP/ES), which specify that a certain percentage of electricity generation must be obtained from a renewable source. Prince Edward Island, New Brunswick and Nova Scotia all have legislated RP/ES mechanisms (e.g. Nova Scotia has set a target to generate 40% of electricity from renewable energy sources by 2020);

Performance standards, which specify emissions intensities for existing or new electricity sources. In British Columbia, for example, all new electricity generation projects must have net zero greenhouse gas emissions;

Requests for proposals (RFPs) for renewable energy generation, which procure renewable energy through a competitive bidding process. Quebec has issued RFPs to encourage wind energy development. Likewise, British Columbia has issued calls for large clean power projects, and maintains a Standing Offer program that supports smaller projects.

Provinces can also offer funding and financing programs that provide logistical support to renewable energy project developers. Other supporting policies include infrastructure policies such as amendments to building codes to require new buildings to be able to accommodate renewable energy systems, and investments in smart grid infrastructure that can integrate a greater share of distributed energy sources.

2.4.1.3 Renewable energy projects still a challenge

Box 2 gives an example of how in many provinces delivering renewable projects is still very challenging.



Box 2: Impediments to wind resource development in Alberta

Wind energy is an intermittent, non-emitting energy source that has enormous growth potential through much of Canada, but particularly in Alberta. Alberta’s wind potential has been estimated at 150,000 MW,45 130 times Alberta’s current wind capacity and nearly 12 times Alberta’s total installed capacity. Total annual wind energy potential is estimated to be close to 400 TWh using a 30% capacity factor — a realistic assumption given upward trends in turbine efficiency.

However, wind energy in Alberta is proving difficult to finance. This is in part because wind energy is non-dispatchable: it is therefore a price-taker and not a price-setter. As such, wind energy is not able to capture a very high — or even average — electricity price from the provincial power pool. In fact, wind energy is the only source of energy in Alberta’s electricity market that receives less, on average, than the average price ($/MWh) across the power pool. As seen in Figure 7, in 2012, wind energy received about 42% less for each MWh than the average MWh in Alberta’s power pool i.e. the price paid for wind energy captures just 58% of the value reflected in the entire pool price average of $64.32/MWh.

Figure 7. Average annual revenues ($/MWh) of different electricity sources in Alberta's power pool (2012)

Adding to wind energy’s price-taker position in Alberta, much of the wind energy development in the province is locked within the same general geographical area that has high winds so that many wind projects generate power at the same time, driving down costs further. As a result, wind energy is undermining the revenue potential of other wind energy projects,46 a phenomenon that is sometimes called “price parasiting”.47 While some early wind farms relied on California’s purchase of Renewable Energy Certificates for the generated energy, the long-term development of wind resources in Alberta is structurally undermined by revenue weakness (low price) and revenue uncertainty (inability to set prices), so that new wind will likely remain difficult to develop.

2.4.2 RES support for community RES projects

Community RES projects are able to take advantage of many of the support mechanisms available to commercial developers. However, one key difference is availability of affordable and long-term debt financing. With the exception of niche projects reliance on federal support programs, community energy projects have only recently found limited success, predominantly in Ontario with its FIT.

Policy tools seen in provinces that support investment in community projects are:

Grant programs, which help fund the development phase of projects such as feasibility assessments of renewable resources, project management, permitting, application and the

45 Canadian Wind Energy Association, Wind Vision 2025: A Strategy for Alberta, 2012, p.4. 46 Solas Energy Consulting Inc., Alberta WindVision Technical Overview Report (Canadian Wind Energy Association, 2013, p.51. 47 Thibault, Ben and Weis, Tim, Clean Electricity Thought Leader Forum: A Made-in-Alberta Proposal to Green the Grid Pembina Institute, 2013, p.8.

Wind Imports

SK

OtherHydroPeakerCogenGasCoal

$65.44Entire pool

$64.32

Imports

BC

$67.32

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$79.41$69.93

$158.54

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$37.78



costs of establishing contracts. In Canada, some of the grants available include Ontario’s Municipal and Aboriginal Community Energy Plan programs and an ecoENERGY grant program for Aboriginal and Northern communities. The Green Municipal Fund also supports innovative projects through their development phase;

Community-/micro-FITs, which support the economic case for projects through a guaranteed purchase contract for electricity. In Ontario, additional points are awarded to projects with shared community ownership, which helps prioritize community project investment. An example of a FIT program offered by a municipality is Banff’s Municipal Feed-in Tariff where a top-up tariff is used to support local investment by guaranteeing a reasonable seven year payback period48;

Guaranteed financing is available to only some types of projects such as First Nation, agricultural sector, and public projects. These are able to obtain long-term debt financing with long-term fixed interest rates, because the loan’s principal is guaranteed by the government. Interest rates offered are typically equivalent to commercial rates, if not lower. An example rate quoted by the Royal Bank of Canada is the prime business rate plus 3%49 (totalling 5.7% given current rates50). This is quite similar to commercial rates e.g. In Table 3 a commercial interest rate of 5% for wind projects is provided and in Table 4 commercial solar rates of 5.25% to 6% are shown;

Community investment vehicles, such as the Community Economic Development Investment Fund (CEDIF) in Nova Scotia, allows projects to raise up to $3 million in capital from community share offers.51 The CEDIF fund shareholders are subsequently able to apply for an equity tax credit that is used to reduce income taxes by up to 35% of the CEDIF investment, unlocking capital and facilitating a low-risk investment return.

A detailed overview of policy tools for various jurisdictions is provided in Table 2.

Table 2: Community energy project support mechanisms

Support Mechanism Jurisdiction(s) Example(s)

Feed-in tariff Ontario, Nova Scotia’s COMFIT (until recently), Banff (municipality)

Ontario Feed-in Tariff; Nova Scotia COMFIT, Banff Solar Incentive

Grant and funding program Federal, Alberta, Ontario, Northwest Territories

Alternative Energy Technologies Program, ecoENERGY grants

Guaranteed financing Federal and provinces Farm Credit Canada; AANDC financing programs

Community investment vehicle Nova Scotia CEDIF; Equity Tax Credit

Box 3 provides more information about how the CEDIF and Nova Scotia’s COMFIT feed in tariff (that was recently stopped for new projects) was able to generate returns for local investors as much as 14 per cent.52

48 Ellis, Cathy. “Banff harnesses power of the sun” Rocky Mountain Outlook. February 26, 2015. http://www.rmoutlook.com/article/20150226/RMO0801/302269990 49 Royal Bank of Canada, Canada Small Business Financing Loan, 2015. http://www.rbcroyalbank.com/business/financing/small-bus-loan.html 50 Prime business lending rate as of March 30, 2015. http://www.bankofcanada.ca/rates/daily-digest/ 51 Nova Scotia Securities Commission, Notice No. 45-714. Community Economic Development investment Funds. 2014. http://nssc.novascotia.ca/sites/default/files/docs/notice45-714.pdf CEDIF still exists in Nova Scotia, but the COMFIT program that utilizes these investment vehicles is now cancelled. 52 Wind4All Communities IV Inc. Invest in the Power of Wind Energy. 2014. Received via e-mail from Austen Hughes.

http://www.rmoutlook.com/article/20150226/RMO0801/302269990

http://www.rbcroyalbank.com/business/financing/small-bus-loan.html

http://www.bankofcanada.ca/rates/daily-digest/

http://nssc.novascotia.ca/sites/default/files/docs/notice45-714.pdf



Box 3: Example of how Nova Scotia’s COMFIT worked together with CEDIF investment53

Several wind farm projects have been developed in Nova Scotia using the CEDIF investment vehicle in combination with the COMFIT program. One of the developers with a large portfolio of projects is Natural Forces, which has an established number of projects under the Wind4All family label. This example shows how the COMFIT paired with CEDIF created an attractive investment opportunity for community members with interest in local wind energy projects.

Natural Forces established a community economic development company (CEDC) thatwas able to attract the maximum of $3 million in CEDIF investment by selling $1 shares to community members. Natural Forces, the project developer, was named the investment “sponsor”, the CEDC as the share “issuer” and a third party selling agent sold the shares to investors.

To attract investment in CEDIFs, the government allows 35% of the shareholder’s investment to be used as income tax credits; all investments may be registered such that taxes are deferred for retirement and home purchase; and all shares may yield dividends.

Conveniently, the CEDIF meets community ownership requirements mandated by the COMFIT. At $131/MWh, a fixed electricity price contract was established for a 20-year period, which comfortably pays off long-term debt financing used in the construction phase, with the remaining profits distributed as dividends via the CEDIF. Given an example where 45% of the project is owned by the community through a CEDIF, the shareholders are guaranteed a minimum 10% return on investment based on a 5% dividend payments and an additional 35% Equity Tax Credit. An example cash flow is shown below. An initial 35% equity tax credit (ETC) is shown in year 1, a subsequent credit of 20% in year 6, and another 10% credit in year 11 – for retaining the investment for 10 years giving a total ETC of 65%. As can be seen by Year 8 the project is generating a positive cash flow.

One significant opportunity area for growth in RES owned projects in Canada is among (remote) off-grid communities, whose electricity supply relies heavily on fossil fuel imports. Generation from RES tackles high energy prices and reduces local environmental impacts. In Canada there are approximately 300 such communities, representing a population of 200,000 people. Of these communities, some 175 are home to indigenous communities (First Nations, Innu, Inuit or Metis) representing 130,000 residents.54

As per Table 2, several grant and funding programs support renewable energy, either directly or via community energy planning grants such as the Aboriginal Community Energy Plan grant program offered by Ontario’s Independent Electricity System Operator. These programs provide funding based on a competitive review of individual proposals. Grants awarded to T’Sou-Ke First Nation’s solar energy project are a good example of successful funding in a remote community. The project has reduced reliance on energy imports, and developed the local economy.55

53 Ibid. 54 Government of Ontario, “Provincial & Territorial Ministers Working Together to Reduce Use of Diesel for Electricity in Remote Communities,” media release, July 21, 2015. http://news.ontario.ca/mei/en/2015/07/provincial-territorial-ministers-working-together-to-reduce-use-of-diesel-for-electricity-in-remote.html 55 T’Sou-ke First Nation. “Sun keeps shining on T'Sou-ke.” http://www.tsoukenation.com/index.php/services/resources/tsou-ke-solar

http://news.ontario.ca/mei/en/2015/07/provincial-territorial-ministers-working-together-to-reduce-use-of-diesel-for-electricity-in-remote.html


http://www.tsoukenation.com/index.php/services/resources/tsou-ke-solar



As part of the 2015 Canadian Energy Strategy, the provincial premiers committed to “work with Aboriginal and rural and remote communities and other partners to increase the use of cleaner renewable energy projects to reduce off-grid dependency on diesel”.56 A Pan-Canadian Task Force has a mandate to:57

Outline approaches that are currently being used or considered for eliminating the use of diesel in remote communities, including grid connection or alternative energy solutions;

Share information about remote communities (including communities with potential for grid connection) within their respective jurisdictions, including government/ agency involvement as well as potential savings that can be achieved;

Describe efforts that have been or are currently underway to reduce diesel use in remote communities, including the policy frameworks guiding these activities;

Identify opportunities for collaboration between jurisdictions to further explore these ideas, including planning and implementing pilot projects using shared resources.

In a previous analysis of policy tools to support renewable energy development in rural and remote communities, the Pembina Institute proposed a series of guidelines:

Long-term/stable support;

Financial support linked to energy production;

Simple, transparent processes for access to financial support;

Sufficient financial support to help projects in the early/scoping stages;

Tailored support for different systems or applications;

Community ownership of benefits or other agreements to share benefits with the community;

Tailored support for rural and remote communities;

Support for skills development and administration during the transition to renewable energy.58

56 Canada's Premiers, Canadian Energy Strategy. 2015, p.25. http://www.canadaspremiers.ca/phocadownload/publications/canadian_energy_strategy_eng_fnl.pdf; 57 Government of Ontario. “Provincial & Territorial Ministers Working Together to Reduce Use of Diesel for Electricity in Remote Communities.”

media release, July 21, 2015. http://news.ontario.ca/mei/en/2015/07/provincial-territorial-ministers-working-together-to-reduce-use-of-diesel-for-electricity-in-remote.html 58 Bailie, Alison, Doukas, Alex and Weis, Tim, Renewable Energy Policies for Remote and Rural Communities. Prepared by Pembina Institute for Agriculture Canada, 2009. http://www.cafanet.com/LinkClick.aspx?fileticket=E6j2EnfBw8s%3D&tabid=95&mid=481

http://www.canadaspremiers.ca/phocadownload/publications/canadian_energy_strategy_eng_fnl.pdf



http://www.cafanet.com/LinkClick.aspx?fileticket=E6j2EnfBw8s%3D&tabid=95&mid=481



3 Costs faced by renewable energy developers

3.1 Commercial RES projects

Commercial RES project data from IRENA (International Renewable Energy Agency) and other public Canadian sources is presented in Table 3 and Table 4 along with conversions of USD $ into CAD $.

Table 3: Canadian commercial economic data: Wind

International UK International

Canadian data (USD $)

International Canadian data

(CAD $) at USD $1 = CAD $1.25

Additional : Canadian data

(CAD $)

Development costs (Currency/MW) $230,000 ˘ CAD $287,500 ˘ CAD $210,000

Construction costs ($/MW) $2,066,000 ˘ CAD $2,583,000 ˘ CAD $1,890,000

Operational costs (Currency/MW/year) N/A N/A CAD $51,900

Typical debt: equity ratio 80:20 ª * 80:20 ª * 70:30

Cost of debt (%) 6% ª * 6% ª * 5% ꜝ

Length of loan (years) 15 ª * 15 ª * 7 – 20 ꜝ

Cost of equity (%) 7.5% ª * 7.5% ª * 9.6% - 11.7% "

Tax rates (2015) 26.5% ° 26.5% ° 26.5% °

Post-tax weighted average cost of capital N/A N/A 5.8%

Sources:

˘ IRENA. Renewable Power Generation Costs in 2014. January 2015. Table 4.3 which has total installed costs (USD$/MW) for Canada. Further, Figure 4.2 shows that development costs are typically 9%-13% of total project cost. An assumption of 10% is made.

ª IEA Wind. IEA Wind Task 26: Multinational Case Study of the Financial Cost of Wind Energy. March 2011. Table 1.3.

* Debt and equity returns data for Canada was assumed to be the same as the US data in the IEA Wind Task 26 report, as were loan lengths.

° 2015 corporate tax rates are sourced from KPMG’s Corporate Tax Rate Tables available at http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/Pages/corporate-tax-rates-table.aspx Depending on the province, the combined general corporate income tax rate ranges from 25% to 31%. Lower corporate income tax rates are available to Canadian-controlled private corporations (CCPCs) on their first CAD $500,000 (CAD $350,000 / CAD $425,000 for certain provinces). For simplicity the 26.5% is used.

McGarrigle, P. Alberta WindVision Technical Overview Report. 2013. Table 4. Development cost is assumed to be 10% of Capital Cost (see note re figure 4.2 of IRENA report above). Operating costs are CAD $47,300/MW/year plus a variable cost of CAD $1.5/MWh. If a wind turbine operates at a 35% capacity factor that equates to 3,066/MWh/year or CAD $4,600/MWh/year to give a total operating costs of CAD $51,900.

Debt to Equity Ratios vary substantially across developers in Canada. TransAlta Renewables is the largest wind power developer in Canada and reports a debt-to-equity ratio of approximately 70%.

ꜝ KPMG. Wind Energy in Canada: Realizing the Opportunity Issue. 2 July 2013. Available at

http://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/Documents/Clean-Energy-Report-Issue-2-FY13-FINAL.pdf

“ Dalton, J. Financing of Renewable Electricity Projects in Atlantic Canada. PowerAdvisoryLLC, 2012. p.28. http://energy.novascotia.ca/sites/default/files/aeg_financing_of_renewable_electricity_projects_in_atlantic_.pdf

Post-tax weighted average cost of capital is given by the formula:

[ gearing × cost of debt × (1 – tax rate) ] + [ equity return x (1 – gearing) ] =

{70% x 5% x (1- 26.5%)} + [30% x 10.65%] = 5.8%.

http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/Pages/corporate-tax-rates-table.aspx



http://energy.novascotia.ca/sites/default/files/aeg_financing_of_renewable_electricity_projects_in_atlantic_.pdf



Table 4: Canadian commercial economic data: Solar (<1 MW)

International UK

International Canadian data for

solar < 1 MW (USD $)

International Canadian data

(CAD $) at USD $1 = CAD $1.25

Additional : Canadian data

(CAD $)

Development costs (Currency/MW) $245,000 ˘ ª CAD $306,250 ˘ ª CAD $110,000

Construction costs (Currency /MW) $4,655,000 ˘ ª CAD $5,831,250˘ ª CAD $2,090,000

Operational costs (Currency/MW/year) $98,000 ˘ * CAD $122,500 ˘ * CAD $59,000 "

Typical debt: equity ratio N/A N/A 70:30

Cost of debt (%) N/A N/A 5.25% - 6%

Length of loan (years) N/A N/A 7 – 20 ꜝ

Cost of equity (%) N/A N/A 10 – 13%

Tax rates (2015) 26.5% ° 26.5% ° 26.5% °

Post-tax weighted average cost of capital N/A N/A 6.3%

Sources:

˘ IEA. Technology Roadmap. Solar Photovoltaic Energy. 2014 edition. 2015. Total cost of installation by

Country are source from Table 2 and it is assumed US data and Canadian data are similar.

ª Based on Ricardo Energy & Environment studies, development costs make up approximately 5% of total cost of installation. This covers feasibility work, planning permission and other related development costs.

* The international operating costs were sourced from a UK report by DECC. Electricity Generation Costs 2013.

July 2013, p. 66. The DECC report states operation and maintenance costs are approximately 2% (per year) of total cost of installation for large scale solar PV installations. Operation and maintenance costs include inverter replacements (approximately every 7-10 years), ongoing installation project management, insurance, cleaning and basic repairs.

IEA. National Survey Report of PV Power Applications in Canada: 2014. September 2014, p.10. Table 7: Turnkey Prices of Typical Applications – local currency. For a grid connected >250kW commercial rooftop PV a price per watt of CAD $2.20/ watt for 2013-14 is given. It is assumed development costs are 5% of capital cost.

" NREL. Best Practices in PV System Operations and Maintenance. 2015. Available at: http://www.nrel.gov/docs/fy15osti/63235.pdf. Operation and Maintenance costs are assumed to be lower based on cost of maintenance for fixed-mount panels, not tracking panels.

Debt to Equity Ratios vary substantially across developers in Canada. TransAlta Renewables is the largest

wind power developer in Canada and reports a debt-to-equity ratio of approximately 70%, which is assumed for solar.

Canadian Solar Industries Association (CanSIA). 2013 OPA FIT Price Review – Stakeholder Feedback. April

2013. CanSIA reports that for ground-mounted commercial PV, the cost of debt is 5.25-6.0%; The cost of Equity is 10%-13% (leveraged, post-construction); and the cost of equity pre-construction tends to be significantly higher.

ꜝ KPMG. Wind Energy in Canada: Realizing the Opportunity Issue. 2 July 2013. Available at http://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/Documents/Clean-Energy-Report-Issue-2-FY13-FINAL.pdf An assumption is made the solar loans are of a similar length to wind loans.

° 2015 corporate tax rates are sourced from KPMG’s Corporate Tax Rate Tables available at http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/Pages/corporate-tax-rates-table.aspx

Depending on the province, the combined general corporate income tax rate ranges from 25% to 31%. Lower corporate income tax rates are available to Canadian-controlled private corporations (CCPCs) on their first CAD $500,000 (CAD$350,000 / CAD $425,000 for certain provinces). For simplicity the 26.5% is used.

The post-tax WACC is estimated by the formula {gearing x interest rate x ( 1 – tax) } + { (1- gearing) x equity return} = {70% x 5.5% x (1- 26.5%)} + [30% x 11.5%] = 6.3%.

http://www.nrel.gov/docs/fy15osti/63235.pdf






It should be noted that in practice a variety of factors would influence the hurdle rate necessary to achieve a positive investment decision for a commercial project. For example, some of the largest renewable energy project developers in Canada are oil companies, many of whom place great value in positive community relationships in support of their core business needs around resource access. They are sometimes willing to develop projects that a pure play commercial developer would reject as having insufficient return.

3.2 Community led RES projects

As explained in Section 2.1.2 of the Main Report, the cost data for community led RES projects was gathered via stakeholder interviews.

3.3 Interview process results

A number of sector-level organisations were initially contacted to obtain a list of community leads as this was considered the approach that would result in the most accurate cost data being obtained in the short time available. These were the Canadian Wind Energy Association (CanWEA), Canadian Solar Industries Association (CanSIA) as well as the Federation of Community Power Co-operatives representing community energy projects in Ontario. Additional leads were obtained from contacting SkyFire, a solar installation company, and various smaller developers.

Community energy projects included a mix of wind and solar projects, including several solar roof-mounted co-ops in Ontario, a First Nation solar energy project in British Columbia, a wind energy co-op in Nova Scotia, and, a large revenue-shared wind energy co-op in British Columbia. All projects but one are fully operational as of July 2015. The non-operational project was able to provide near-final costs, as it is in the final stages of development with construction and commissioning intended in early 2016.

All interviews were conducted by phone with e-mail follow-up conversations to ensure data accuracy in the questionnaires. A total of six questionnaires were completed, one for each project. While most interviews resulted in the required data, not all projects were able to share complete results, because of confidentiality agreements with partners and contracted parties. In these cases, an educated estimate was made as agreed. In one case, an electricity price is estimated based on a reasonable price estimate obtained by the developer. For other projects, the expected return on equity for the project is used as per Table 3 and Table 4.

Six projects in total are summarised in Table 5.

Table 5: Summary kW capacity of the 6 community projects

Project Scale (kW) Number of projects

Wind – 2

<500 0

500 – 1,500 0

1,500 – 5,000 1

>5,000 1

Solar Roof – 4

<50 0

50 – 500 1

500 – 1,500* 2

>1,500** 1

* Both projects in this size category involved multiple installations (2 or 3 systems)

** Project in this size category involved 4 individual systems

The projects were commissioned at different times, as shown in Table 6. The capital costs for the earlier (2009) projects are not adjusted to account for changes in wind turbine or solar PV market prices and inflation.



Table 6: Commissioning dates of wind and solar projects

2009 2014 2015 2016

Wind 1 0 1 0

Solar 1 1 1 1

3.4 Results from financial modelling

As explained in Section 2.2.2 of the Main Report, the numerical values from the interviews were entered into the bespoke financial model to estimate the profitability of community projects. The profitability of community projects was then compared to the equivalent profitability of commercial projects. Because community projects are structured differently from commercial projects the definition of ‘profitability’ may seem incongruous. Most community energy projects in Canada are structured as non-profit co-operatives or for-profit organizations. To enable project financing, many of the projects require profits to be paid out to bond and equity holders first; and in some cases remaining profits are returned to the community as tax-free gifts. The projects are predominantly funded by loans, except for wind energy projects in Nova Scotia, which are aided by shareholder capital through its CEDIF arrangement (However, while Nova Scotia’s COMFIT program is cancelled, CEDIF remains).

On the other hand, commercial projects are regularly financed by both loans and equity, with the profits paid to the equity holders (after operating costs, taxes and loans have been repaid).

For this reason, the most appropriate comparison metric is the post-tax pre-finance Internal Rate of Return (IRR) — essentially the profits available to repay the various financiers (whether that be banks, community shareholders, equity investors or community dividends used for community benefit activities) after taxes have been paid.

As derived in section 3.1, the comparable commercial solar and wind post-tax pre-finance IRRs are 6.3% and 5.8% respectively. These are used to compare with the results from the community energy project modelling.

Slightly more than half of all wind farms in Canada are smaller than 25 MW, with another 40% between 25 to 150 MW, and the remaining 10% up to 300 MW.59 The two community wind projects were 4 MW, and a share of 102 MW development, which is not dissimilar to the commercial scales seen. Commercial solar data is not available for comparison; however, rooftop scale is not expected to vary much with community projects.

3.4.1 Community results

The community projects we gathered data for were all structured to be exempt from corporation tax with the exception of wind project (1), a large-scale wind development in British Columbia. The results are presented in Figure 8.

59 Canadian Wind Energy Association, Installed Capacity. 2015. http://canwea.ca/wp-content/uploads/2013/12/Installedcap_PublicWebsite-June-2015_dk1.pdf

http://canwea.ca/wp-content/uploads/2013/12/Installedcap_PublicWebsite-June-2015_dk1.pdf




Figure 8: Community wind and solar post-tax pre-finance IRRs versus commercial hurdle rates

It is notable that the post-tax IRRs for both community wind projects studied in depth meet or exceed the commercial hurdle rate, meaning they would be financially attractive to commercial developers. Wind project 1 is interesting in that the community negotiated with a project developer that it would receive about 1.25% of the revenue generated from a very large scale wind farm as development rights for the initial development phase work it undertook (wind data recording and other early stage activities) and cooperative member money injections. It is unknown exactly how much the Member’s Rights Offering raised, but with the assumption the total contribution was about $1 million for the money raised and the costs of initiating the project, initial wind speed data capture, legal costs, etc. a return of about 20% is shown. Some of these profits are spent on education programs related to the wise use of sustainable energy

On the other hand, only two of the four solar projects studied pass the commercial hurdle rate of 6.3%. Three of the four solar projects are located in Ontario, and Solar 1 is in British Columbia. The three projects in Ontario have all relied on the Feed in Tariff (FIT) available in the province. The FIT in Ontario is different to FITs elsewhere in that the FIT in Ontario is an all in price that includes the sale price of electricity, in effect being a single high PPA.

The solar project with a very high IRR (18%) was able to take advantage of a very favourable FIT 2.0 rate of 53.4 ¢/kWh in Ontario. The latest FIT rate in Ontario (FIT 4.0) is 31.6 ¢/kWh, with future rates decided in an annual revision of market prices. While rates change for new projects, the rate remains stable for projects whose FIT applications have already been approved.

Solar 1 is a project 100% owned by a remote First Nation in British Columbia, for which costly road access and skilled labour jointly increased construction costs, pushing returns down. Although there is no FIT available there the community are able to offset the solar generation against the high retail electricity prices. Therefore, even with the higher project costs, the project is still viable, albeit with a low IRR.

Of all the community RES projects studied, the investment environment has been most favourable for projects in Nova Scotia, although no responses were received from solar projects in Nova Scotia. Unfortunately, with the cancellation of the province’s COMFIT, the viability of future community projects is questionable.

3.4.2 Commercial results

The Canada specific commercial cost data as shown in Table 3 and Table 4 were compared to respective development, construction and operation costs for the six community projects examined. Costs are compared per MW of installed capacity, and results are shown in Figure 9, with the details in Figure 10 and Figure 11.

0%

5%

10%

15%

20%

25%

1 2

Community wind post-tax IRR (%) versus commercial wind hurdle rate (%)


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1 2 3 4

Community solar post-tax IRR (%) versus commercial solar hurdle rate (%)


Exact number

unknown but

shown as 20%



Figure 9: Average cost (CAD $/MW) for 6 community projects and typical commercial projects60

Figure 10: Comparison of average costs CAD $/MW for four community solar projects

Average for four community

solar projects Canadian commercial

numbers, shown in Table 4

Capacity (kW) 950 > 250

Development cost ($/MW) 537,000 110,000

▼ 79.5%

Construction cost ($/MW) 4,863,750 1,890,000

▼ 57.0%

Annual operational cost ($/MW/year) 49,000 59,000

▲ 20.7%

Figure 11: Comparison of average costs CAD $/MW for two community wind projects*

Average for two community

wind projects McGarrigle commercial

numbers shown in Table 3

Capacity (kW) 2,640 Unknown

Development cost ($/MW) 179,000 210,000

▲ 17.4%

Construction cost ($/MW) 2,039,250 1,890,000

▼7.3%

Annual operational cost ($/MW/year) 69,000 51,900

▼ 24.8%

* One community project is a revenue share model, where the community receive about 1.25% of the revenue from the wind farm. Therefore they did not have to pay for the development and construction, nor pay the operating costs. All they had to pay was for legal issues, set up and small operational staff costs. Thus the average development, construction and operational costs for the community wind projects is partly based on the development, construction and operating costs of the larger 100 MW+ shared revenue project. However, the average capacity factor for the two wind projects is only based on the wholly community owned project and the communities share of the large 100 MW+ shared revenue project.

60 These charts contain data with many assumptions and the results should not be assumed definitive. Commercial data is fairly accurate, as derived from sources used in Table 3 and Table 4. However, community project data is limited to 6 case studies, which were commissioned over the course of several years. Given rapid developments in the market for solar and wind systems, costs are not necessarily indicative of current costs.

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000




Solar PV Energy Projects


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000




Wind Energy Projects




The messages are that community solar projects appear to be significantly expensive (both for development costs and construction costs), although operating costs are slightly lower. This could be because costs of solar panels have fallen significantly since 2009 (see Table 6 on page 21), and one was built in a very remote area. Likewise, varying exchange rates and import duties, recently introduced and up to 202% of the import price, affect new installation costs.61 Operating costs may be slightly lower as communities themselves can clean panels, some do not have to pay roof rental costs, and the remote project does not have to pay insurance and other costs.

Community energy wind project costs are not dissimilar to commercial projects, but as explained in the footnote to Figure 11 one of the projects was a very large developer led shared revenue model, so the costs for this project will understandably impact on the average costs.

While development costs of the community case studies are comparable to commercial projects it is noteworthy that a lot of free time was donated by community (co-operative) staff. Inclusion of free time could significantly increase development cost.

An overview of all case study projects is shown in Table 7 and Table 8.

Table 7: Community solar projects: overview

Solar projects 1 2 3 4

Ownership 100% owned Joint venture

Size (kW) 75 600 1,080 2,000

Year 2009 2014 2015 2016

Location Rural Urban

Table 8: Community wind projects: overview

Wind projects 1 2

Ownership Shared revenue Joint venture

Size (kW) 102,000 4,000

Year 2009 2015

Location Rural

It is not possible to draw definitive conclusions on the optimal ownership model that offers best rates of return. Solar projects (2) and (3) may be best compared, being two Ontario projects built one year apart. Of the two, a joint venture arrangement yields higher returns. Both wind projects offer similar returns; however, these were commissioned six years apart in jurisdictions with very different RES policy support schemes.

3.5 Results from qualitative questions

As the evidence of higher costs is mixed, Question 20 of the questionnaire shown in Appendix 2 of the Main Report that was sent to community energy organisations asked respondents to estimate how different the costs would have been for a commercial project of exactly the same kW capacity and exactly the same load factor (i.e. generating exactly the same MWh of electricity). The results from the three communities who responded to this question are presented in Table 9. The number of responses for each option is shown in red (non-responses were not particular to one jurisdiction).

61 Blackwell, Richard, “The Imported Chinese solar panels to be subject to stiff duties in Canada”. The Globe and Mail. 05 March, 2015. http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/imported-chinese-solar-panels-to-be-subject-to-stiff-duties-in-canada/article23320323/

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/imported-chinese-solar-panels-to-be-subject-to-stiff-duties-in-canada/article23320323/




Table 9: Community views of comparable costs for commercial projects

No

answer Overall

The time from concept to commissioning would have been

Quicker 2 Similar 1 Slower 0 3 Quicker

Developmental costs would have been Higher 1 Similar 1 Less 1 3 Uncertain

Equipment costs would have been Higher 0 Similar 3 Less 0 3 Similar

Installation/ construction costs would have been Higher 2 Similar 1 Less 0 3 Higher

Substation/ BoP costs would have been Higher 1 Similar 2 Less 0 3 Similar

Grid connection costs would have been Higher 2 Similar 1 Less 0 3 Higher

Loans would have been Cheaper 3 Similar 0 Dearer 0 3 Cheaper

Equity finance would have been Cheaper 1 Similar 0 Dearer 0 5 Cheaper

The amount of the loan would have be More 0 Similar 0 Less 0 6 Uncertain

To summarize, respondents found that commercial projects are generally commissioned more quickly, and equipment costs are similar to community-owned projects — although cost of installation and construction are probably higher. Regarding project financing, the cost of equity and debt is perceived cheaper for commercial projects.

Qualitative messages from the community respondents included the following perspectives:

Respondents found the investment and lending culture in Ontario to be less conducive to doing business with renewable energy co-operatives, e.g. lenders are more willing to talk to commercial developers as they are seen as more professional than co-operative directors. Similarly, co-operative projects funded through Nova Scotia’s CEDIF program have a poor financial reputation, meaning many lenders are hesitant to finance community energy projects. In this case, however, positive financial returns from new CEDIF-funded projects have improved their reputation;

Interviewees gave the impression that loans for community projects are much more expensive than for their commercial counterparts. Therefore, for larger scale projects respondents have had little to no access to affordable financing without partnering with commercial RES developers. One solution is for governments to offer guaranteed loans, which would allow lenders to take on greater investment risks associated with smaller community projects;

Further, most financial institutions are not interested in funding smaller projects (as they are not willing to accept development risk for individual projects); although some co-operatives are able to convince financiers that a portfolio containing many smaller solar projects will reduce exposure to this risk;

(Community) FITs are key drivers for project success, giving investments a predictable return over the project lifetime;

Involving community members in renewable energy projects reduces the risks associated with permitting and applications, which are often blocked by NIMBY factors. In many cases, co-operative boards of directors offer substantial expertise in local economic development — they are involved and experienced with local community business development and stakeholder relations;

Development costs may be significantly higher for community projects, but these are reduced because most respondents to the questionnaire did not want to attempt to quantify the personal time volunteered to project development. For one Ontario project, the development time was substantial due to the steep RES learning curve — equivalent to full time jobs for the entire co-operative board of directors.

The main message seen in the data collected from the six case studies (Table 7 and Table 8) is the two community wind projects offered good returns higher than commercial investors would need.



Interestingly Wind Project 1 where the community receives approximately 1.25% of the revenue is predicted to give the commercial developer a 10% post-tax pre-finance IRR, also higher than the commercial hurdle rate.

The data did not yield conclusive results for solar projects. Access to financing and economies of scale are reflected in development and construction cost differences. Specifically for solar projects, the construction costs are higher in remote areas and for smaller installations. It is also important to note that the support mechanisms available vary widely across provincial jurisdictions.

A caveat to conclusions drawn from the data is not all community projects were commissioned during the same years. As shown in Table 6, the commissioning dates of projects range from 2009 to 2015. Movement in solar panel and wind turbine pricing, currencies, duties, and development of the labour market (capacity and skill) means that comparisons made to commercial projects are not definitive.



4 Responses to research questions

4.1 Cost components for different ownership options (community-led, shared ownership and fully commercial)

All models have the same types of overall costs; see Table 10 below.

Table 10: Costs faced by different ownership models

Community Shared community involvement

Shared commercial involvement

Commercial

Development costs

Initial feasibility

Planning permission preparation *

Project management costs

Other advisory

Community consultation ** **

Construction costs

Operations costs

Taxation costs***

* For some shared projects, the permitting and licensing costs are borne by the commercial entity, while for others the community might have already incurred the costs before partnering with a commercial entity

** Community consultation costs may be small or negligible for community-owned or shared community projects depending on the level of engagement of the community

*** As per the federal Income Tax Act, “Co-operatives are subject to the same taxation regime as any other corporations. The federal Income Tax Act provides for special measures to assist small businesses, such as accelerated capital depreciation and lower corporate tax rates. Those measures also extend to co-operatives.”62 A member’s investment in a co-operative however can qualify for tax savings.

However, there are some differences in the details of the costs:

Development costs include feasibility analysis, project management, securing financing,

planning, and advisory fees. Shared ownership models that required complex agreements or

community-owned projects that did not have previous experience had a greater need for

advisory support by the community. Community consultation costs may be small or negligible

for community-owned or shared community projects depending on the level of engagement of

the community. However, the process may often be protracted. For example, most communities

interviewed had an extensive process to obtain input from their members to help determine the

vision and scope of the project;

Community members often contribute volunteer people-hours towards a project in roles varying

from project management to labour. These hours are often not tracked and the costs not

captured in the financial analysis. Some community member roles may be paid depending on

the structure of the organisation;

In some communities, there might be costs, and benefits, for additional programs such as

energy efficiency initiatives that are combined with a renewable energy project. These costs

are more likely to be incurred when there is a more comprehensive visioning and community

engagement process.

62 Special Committee on Co-operatives, Status of Co-operatives in Canada. 2012. http://www.parl.gc.ca/content/hoc/Committee/411/COOP/Reports/RP5706528/cooprp01/cooprp01-e.pdf

http://www.parl.gc.ca/content/hoc/Committee/411/COOP/Reports/RP5706528/cooprp01/cooprp01-e.pdf



4.2 External factors that can affect the costs of community-led and shared ownership projects

There are five external factors that affect the costs of community projects, namely:

4.2.1 Price stability

Availability of a feed-in tariff and the corresponding price target for electricity sales greatly improves the IRR of community RES projects. As well as the price that Ontario’s Independent Electricity System Operator offers to renewables developed by any type of developer, there are also “adders” top up the standard commercial rates for the purposes of promoting community RES projects, as shown in Table 11. Depending on the level of community participation, ranging from 15% to more than 50%, the adder ranges from $5 to $15 per MWh. Prices are adjusted each year for new projects.63

Table 11: Community or Public Adders for FITs in Ontario in 201464

Aboriginal Participation

Project Community Participation

Project Municipal or Public Sector Equity Participation Project

Participation Level (equity) >50% >15%<50% >50% >15%<50% >50% >15%<50%

Price Adder ($/MWh) $15 $7.50 $10 $5 $10 $5

Note: the above table applies to all FIT project sizes and renewable fuels except solar PV

In jurisdictions outside of Ontario, Power Purchase Agreements (also known as Electricity Purchase Agreements) facilitated by the government could increase the ability of the community to attract additional financing. Depending on market regulations, on their own these agreements may or may not be sufficient to yield a positive IRR.

4.2.2 Grants

There are many grants available for community RES projects in Canada, including the Community Energy Partnerships Program (CEPP) and the Green Municipal Fund. Federal grants such as the EcoENERGY Program have also been useful in securing initial funding for communities, enabling them to do visioning and planning exercises (and later planning stages), as well as to attract additional financing.

There is also a pay-as-you-go scheme in British Columbia (by BC Hydro Vancity Credit Union) that allows the community to take a loan that is paid off with the savings from reduced bills.

Table 12 expands on Table 2 (page Table 2: Community energy project support mechanisms15) to list examples of community RES project grants and funds available by Canadian jurisdiction.

63 Independent Electricity System Operator, Price Schedule. 2014. http://fit.powerauthority.on.ca/program-resources/price-schedule 64 Ibid



Table 12: Examples of available grants and funds in Canada

Grant / Fund Jurisdiction Convener

Climate Change and Emissions Management Fund

Alberta Government of Alberta

Alberta Innovates - Energy and Environment Solutions

Alberta's Industry (arm's length government organization)

Alternative Energy Technologies Program

Northwest Territories

Government of Northwest Territories (Environment & Natural Resources)

Municipal Energy Plan Program Ontario Government of Ontario

Aboriginal Community Energy Plan Independent Electricity System Operator

Various Programs (Innovation, Heritage, Small Business, etc.)

Northern Ontario Heritage Fund Corporation (NOHFC)

Green Municipal Fund All provinces Federation of Canadian Municipalities

ecoENERGY for Aboriginal and Northern Communities

ecoENERGY

4.2.3 Policy incentives that reduce the cost of financing

The cost of financing may be quite high in Canada for small community-owned energy projects, because lenders and investors are unwilling to take on development risks. One way of reducing this cost is through government loan guarantees, where the government takes on the risk of financing. This can significantly lower borrowing costs. No federal loan guarantees exist that specifically target community energy projects. That said, several other programs exist that support specific sectors of the economy. These include loans targeted at farmers via the Canadian Agricultural Loans Act program65, an Eco-Financing program in Quebec66, and the Aboriginal Loan Guarantee Program (ALGP) in Ontario67, which caters specifically to Aboriginal (First Nation, et. al.) projects.

Another way to reduce the cost of financing is through income tax breaks as per Nova Scotia’s CEDIF. (See Box 3).

Other government programs that reduce the cost of financing include government loans, tax refunds and credits, wage subsidies and equity investments.68 There is also a pay-as-you-go scheme in British Colombia (by BC Hydro Vancity Credit Union) that allows the community to take a loan that is paid off with the savings from reduced bills.

4.2.4 Geographical location of projects

For projects located in northern communities, weather and site access may significantly increase the construction phase costs. For example, some communities are only accessible at certain times of the year by road and other small unexpected delays could push projects into the following season and extend costs. This can also impact commercial projects, but commercial delays may have better procedures to deal with this.

4.2.5 Tax treatment

The federal tax law in Canada has certain tax breaks that might be available depending on the size of the renewable energy enterprise, but no special treatment is available federally for community RES projects.

Community projects can elect to be cooperatives, which have a few special tax treatments that benefit cooperative members, namely:

65 Government of Canada, “Canadian Agricultural Loans Act program,” Canada Business Network, 2015. http://www.canadabusiness.ca/eng/program/2482/ 66 Government of Canada, “Eco-Financing,” Canada Business Network, 2015. http://www.canadabusiness.ca/eng/program/2030/ 67 Ontario Financing Authority, “Overview of the Aboriginal Loan Guarantee Program (ALGP),” 2015. http://www.ofina.on.ca/algp/program/overview.htm 68 Government of Canada, “Government Grants and Financing,” Canada Business Network, 2015. http://www.canadabusiness.ca/eng/page/2848/naics-91/

http://www.canadabusiness.ca/eng/program/2482/


http://www.ofina.on.ca/algp/program/overview.htm

http://www.canadabusiness.ca/eng/page/2848/naics-91/



Members holding less than 10% of the shares have their shares eligible for a Retirement Savings Plan, under the Canadian Revenue Agency;

]Members are not taxed on their dividends since the co-operative would already be paying a tax on its revenues.

However, cooperatives are not always chosen as the legal structure, for example, in shared revenue projects tax is still deducted, and in other cases very low profits are projected, so the tax burden will be low anyway.

The province of Manitoba has a Tax Credit Fund69 that gives small grants and technical assistance to new and expanding co-ops; contributions to the fund are made by Manitoba co-ops, who then receive a tax credit for their contribution.

As noted above, community equity investments by way of Nova Scotia’s CEDIF qualify for tax credits for up to 35 per cent of total investments. (See Box 3).

4.3 Constraints and related cost/ financing implications that only apply to community-led and/ or shared ownership projects

There are a number of specific constraints that only apply to community and shared ownership projects, most notably those related to the development costs:

There are issues with availability and cost of debt financing for communities, especially for the planning and development stage of projects. There is little consistency across Canadian provinces in terms of financing mechanisms. Commercial developers will often have a number of projects being planned and developed at any one point, and may be having discussions with other landowners about other projects. Therefore, commercial developers will commonly have available resources to cover these development stage costs. However, cash poor, and general risk averse communities, will have much less cash available. On several occasions this has resulted in communities giving up a large ownership share to a developer who is more able to raise the necessary capital with acceptable conditions. Further, because of the difficulties in finding development phase finance, many communities have to spend a lot of time trying to attract the necessary capital;

Poor reputation of co-operatives (in terms of investment returns), and the corresponding cultural acceptance of community RES projects with lenders and investors, creates barriers to securing financing;

Community FITs are only available (now) in Ontario, and while some other provinces do have renewable energy portfolio standards, these portfolio standards are often not enough of a signal to encourage financiers to investment/lending in the respective projects, especially for smaller scale deals;

In the case of shared ownership and other partnership models, there can be significant costs associated with drawing up detailed and complex contracts.

4.4 Whether some of the cost components are invariably higher for community-led and/or shared ownership projects

While project costs depend on the type of partnerships, the location of the community, the types of funding accessed, and other factors, the following were common high costs seen in community RES projects:

Higher development costs (especially when accounting for in-kind time provided to projects from legal professionals and project managers) are an inevitable element of the current community RES project investment environment. Commercial projects can readily access capital, while community projects may take years to gain access to sufficient funding;

Communities are limited in the geographical region they can operate in, and hence may not have the most effective location for solar or wind installation, unlike commercial developers who

69 Manitoba Cooperative Association, “Tax Credit Fund.” http://manitoba.coop/Page.aspx?MainPageID=co-op-community&MenuPageID=tax-credit-fund

http://manitoba.coop/Page.aspx?MainPageID=co-op-community&MenuPageID=tax-credit-fund




can analyse a larger geographical region to determine the best location. The distance of the location to grid infrastructure will also impact costs;

As stated in Section 4.3, debt is also often more expensive for smaller community RES projects because lenders are not offered a portfolio of many projects to spread their risk. In a larger, more diversified investment portfolio, the risk of default on the entire principal is much lower. Commercial developers are able to spread risk through multiple, and larger, projects; this lowers risks and attracts more affordable financing options.

Overall, small RES projects are unable to leverage economies of scale for construction and developmental costs. This can impact, to some extent, their material pricing and installation costs, leading to higher cost per kW for smaller projects. As community projects tend to be smaller in size, this impediment particularly affects communities.

4.5 Whether some of the cost components are invariably lower for community-led and/ or shared ownership projects

Community RES projects are often able to reduce or offset some of the costs associated with the projects. While these may not always translate to a net reduction in the costs, the characteristics highlighted below at least prevent the cost from being higher than if they were not present:

They inevitably use volunteer time from the member base at different stages of the project. If volunteer labour is used during the construction phase it can help reduce installation costs;

Communities also usually have personal relationships with various local businesses and stakeholders, which can enable them to get good deals, for example on equipment rentals or leases on land;

Community RES projects can sometimes be seen as a demonstration project and can attract discounts on equipment, donations of materials, and funding. This is particularly true of First Nations projects;

Various grants and additional funding are available for the development of community projects, especially for feasibility assessments as a critical component of on-going community energy planning projects in many Canadian and First Nation (remote) communities. Once a government grant or loan is secured, it makes it easier for the project to seek further financing;

In the case of some First Nation projects, operating costs are much lower, because no land/roof rental is required, insurance and legal barriers are lower/non-existent, and the community is directly involved in leading the project;

In addition, since community projects often have buy-in from the community, they normally do not require as much sustained public relations effort as commercial projects might.

4.6 Cost projections to 2020

In general costs are expected to decrease for renewable energy projects:

Construction costs will decrease in line with global panel pricing; however, the current economic environment (e.g. the exchange rate of Canadian dollar and tariffs on Chinese panels) means that these costs may or may not decrease as expected;

The non-material costs of construction and the development costs are also expected to decrease for solar as the solar market matures and the developers, installers, and other actors gain more experience and as competition develops;

Similarly, development costs for communities in particular will gradually decline as community projects acquire more experience and develop contractor networks.

A projection of the levelised cost of electricity (LCOE) by the U.S. Energy Information Administration70 estimates LCOE for projects coming online in 2020 at USD $73.6 /MWh for wind and USD $125.3/MWh for solar. Depending on the region in Canada and the capacity factor at the location of the installation,

70 U.S. Energy Information Administration, Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2015. 2015. http://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf

http://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf



these costs may be lower. As Alberta has a strong wind resource it’s already projected to have an LCOE of USD $63/MWh by 2016 (equivalent to CAD 84$/MWh).

4.7 Opportunities to reduce community-led and/ or shared ownership costs

There exist opportunities for cost reduction both in the development as well as construction costs of the projects:

If multiple communities could coordinate, they may be able to get some savings by leveraging scale, as commercial projects are often able to do;

Capital costs could also be reduced by partnering with manufacturers who would be able to offer their products at a discount to help with further business development opportunities;

As referred to in Section 4.6, the costs faced by community projects in the development phase may be reduced over time, given movement on the learning/experience curve, as more projects are completed;

As the reputation of community investment projects improves and the number of projects grows, development costs will decrease and projects will be developed more quickly according to most project proponents;

Development costs can also be significantly reduced as more data is made publicly available on solar insolation and wind resource assessments. Although there is the Canadian Wind Atlas maintained by Environment Canada the wind speed data is at insufficient granularity71. For example, for one of the projects in the case studies, the state-owned utility had already conducted wind resource assessments in the area before the co-operative obtained its license for the site. Although substantial analysis remained necessary, the publicly available data mitigated some initial costs as well as risks;

Combining energy efficiency programs with renewable power generation programs can result in long-term cost reduction for the community as well as reduction in actual project costs. For example, in one community that was interviewed, it was found that the energy consumption for the public buildings that had been installed with solar PV was reduced significantly after energy efficiency measures were implemented. Had the energy efficiency measures been implemented before the PV installation, the size and cost of the PV panels required would have been lower;

One component of the costs to the community is the paid or unpaid man-hours needed to acquire funding and managing multiple funders. Having more centralized channels (a “one-stop shop” as mentioned by an interviewee who had to manage fifteen different funders) can help with this administrative cost.

71 Canadian Wind Energy Atlas, accessed at http://www.windatlas.ca/en/index.php

http://www.windatlas.ca/en/index.php



5 Conclusions

The objective of this report is to compare the policy incentives, costs and other factors that differentiate community from commercial wind and solar PV renewable energy projects in Canada – drawing out key distinctions in financial performance and issues or opportunities for policy makers.

Canada is an interesting Case Study due to the high variance in context and public incentives between provinces, between aboriginal and non-aboriginal communities, and between remote off-grid communities and those that have access to the grid.

From the contextual research the main message from the case studies and commercial data gathering is that most community wind projects in Canada offer returns similar to commercial counterparts, but the relative performance of community solar projects is inconclusive. Access to financing and economies of scale are reflected in development and construction cost differences. Specifically for solar projects, the construction costs are higher in remote areas and for smaller installations. It is also important to note that the support mechanisms available vary widely across provincial jurisdictions. Interviewees had the impression that loans for community projects are much more expensive than for their commercial counterparts. Data collected in this study suggests this is likely true, and often means community projects partner with commercial developers who have access to more affordable financing.

Other distinctions between purely commercial RES projects and community RES projects are:

Community RES projects may offer host communities a range of wider benefits, including enhanced economic opportunity and benefit sharing related to the project itself, improved public health outcomes72, and strengthened community cohesion in line with the host community’s own vision for its development pathway;

There may be great interest in community RES development, but many communities will be located in places with poorer energy resources (e.g. different wind speeds or solar insolation levels) so projects are not viable, whereas commercial developers have greater freedom where to locate;

It is arguable that community development will most often emerge in regions, communities and/ or project scales that would not be attractive to commercial developers, so that community RES is generally is complementary to, rather than competing with, commercial development;

Community leadership or co-ownership may offer a range of counterbalancing incentives, such as access to grants and lower-cost finance, reduced need to gain political and planning support, possibly reduced barriers to grid access, volunteer support and outright political encouragement, that offset the finance challenges impeding their development. In some of the cases studied, equipment was also provided at below-market price. This suggests that a material portion of project development is provided at lower cost than comparable commercial projects, or is unaccounted for in the presentation of financial performance comparisons.

Partnering makes it easier to secure the necessary funding, but decreases the share owned by the community, as well as imposes new challenges in terms of framing the partnership and engaging on an equitable footing with better-resourced and more-experienced commercial developers and financiers;

Where RES projects were developed as outcomes from broader community development visioning processes, they had more wide-spread community support, and were more readily able to mobilize grants and other public or semi-public (utility/crown corporation) support;

A key barrier to success for community projects is access to finance. In addition to investment risk perceived by lenders, barriers include the learning costs within the project leadership team, the small scale of the project relative to typical commercial financial minimums (typically CAD $50 million), and the lack of experience among Canadian financial investors with community RES projects;

Support mechanisms to reduce cost of finance for community RES projects vary widely across provincial jurisdictions.

72 The local air quality impacts and associated from the use of small-scale diesel generators to meet local power needs in Northern Communities has been recognized as a public health concern, including by: International Joint Commission, Report on Air Quality Issues related to the Northern Boundary Region between Canada and the United States. 2012. http://www.ijc.org/php/publications/pdf/IAQAB-Report-to-IJC-Northern-Air-Quality-April-2012.pdf



5.1 Policy recommendations

The policy recommendations can be split into three types:

5.1.1 General

Targeted public support oriented to Community RES projects could make a key difference between business-as-usual and successful RES development. At present, there is a range of support for community RES across Canada varying from high-level targeted support in Ontario and the CEDIF programme in Nova Scotia, to limited support in other jurisdictions. Recently announced in June 2015, the Pan-Canadian Task Force to reduce diesel use in remote communities opens a unique window of opportunity for systematically deploying targeted support for community RES projects in remote communities. The task force will share experiences to understand success and barriers to reducing diesel fuel use, cumulating in a report and policy recommendations73;

Based on the Nova Scotia experience with its Community Feed in Tariff (COMFIT) which has now been closed, it is critical to think about the sustainability of the program over time, including clearly-defined thresholds for reducing levels of support. The Ontario FIT offers a helpful model, whereby electricity rates are reviewed annually against RES market conditions;

By identifying the high degree of variance between provinces, between on- and off-grid projects, and between aboriginal and non-aboriginal land, this study exposes the need for more-detailed, wider assessment of community RES experience across these diverse domains.

5.1.2 Financing

Grant support towards the early risky development (feasibility) phase appears a very important enabler, along with volunteer commitment, to get community projects off the ground. Some RES project grant and funding programs are available in select provinces and territories.74 The Green Municipal Fund also provides assistance to brownfield projects. These grants prove successful in providing seed funding for early project development phases. To enable and mature community-owned project development, these programs should be expanded to include RES projects in all jurisdictions, prioritizing most favourable RES sites;

Due to the limited investor experience with community RES in Canada, public-backed loan guarantees are a useful mechanism for lowering the cost of capital. No federal loan guarantees exist that specifically target community energy projects. That said, several other programs exist that support specific sectors of the economy. These include loans targeted at farmers via the Canadian Agricultural Loans Act program75, an Eco-Financing program in Quebec76, and the ALGP in Ontario77, which caters specifically to Aboriginal (First Nation, et. al.) projects;

One particularly compelling opportunity for wider distribution of benefits across communities, while lowering their cost of capital, is the Community Economic Development vehicle, which enables community members to directly invest in RES projects through favourable tax treatment (such as e.g. Tax-Free Savings Accounts and Registered Retirement Savings Plans);

Community projects tend to be of modest size and therefore have poor economies of scale. Joint funding of multiple projects during the development phase is an effective means of obtaining lower cost financial support.

5.1.3 Wider support

We find a significant gap in Canada terms of the tracking of community RES experience and sharing of lessons learned — including failures — for future community RES project development. As a first step, creating a national inventory of community RES projects would

73 Government of Ontario. “Provincial & Territorial Ministers Working Together to Reduce Use of Diesel for Electricity in Remote Communities.” media release, July 21, 2015. http://news.ontario.ca/mei/en/2015/07/provincial-territorial-ministers-working-together-to-reduce-use-of-diesel-for-electricity-in-remote.html 74 Examples of grant programs include Northwest Territory’s Alternative Energy Technologies Program, ecoENERGY for Aboriginal and Northern Communities, Ontario’s Municipal Energy Plan Program, and IESO’s Aboriginal Community Energy Plan 75 Government of Canada, “Canadian Agricultural Loans Act program,” Canada Business Network, 2015. http://www.canadabusiness.ca/eng/program/2482/ 76 Government of Canada, “Eco-Financing,” Canada Business Network, 2015. http://www.canadabusiness.ca/eng/program/2030/ 77 Ontario Financing Authority, “Overview of the Aboriginal Loan Guarantee Program (ALGP),” 2015. http://www.ofina.on.ca/algp/program/overview.htm






be helpful in tracking the scale, structures and distribution of these projects across the country, as well as for reducing barriers to entry;

A national clearinghouse or series of regional clearinghouses would be helpful in distributing not only ‘how to guides’, standardized developer-community agreements and fundraising guides, but also in providing a single access point to obtain an up-to-date summary of all the public funding mechanisms in place, as well as guidance on navigating regional differences. They could also further offer training towards development of a cadre of community RES project facilitators, who could bring experience and contacts from other projects;

Community opportunity identification and project screening could be better facilitated in Canada, as compared to other jurisdictions. For example, in Canada, public wind RES resource maps are available that provide an initial high level indication of average wind speeds in various locations. Geothermal RES resource is available for British Columbia and Alberta. However, public tools for assessing solar potential/ resource lack sufficient resolution for proper assessment of local solar resources. Specific support for community opportunity scanning and initial project scoping is needed;

A key opportunity for advancing community RES projects in Canada would be through professional facilitation and aggregation of production across multiple communities. An important cost component is the paid or unpaid man-hours needed to acquire funding and manage multiple funders. Aggregating projects to a scale would attract lower cost financial support, and better long-term purchase agreements may be negotiated, including for Renewable Energy Credits. Both functions could be helpfully professionalised;

Due to projects being commissioned over different periods of time, accurate cost trends cannot be extracted from our data, but we anticipate continued interest and growth as experience accumulates within Canada in both the development of community-led RES projects and amongst investors in terms of the performance of these projects.



Appendices

Appendix 1: Glossary





Appendix 1 – Glossary

AANDC

ALGP

BC

CanSIA

CanWEA

CCEP

CCPC

CEDC

CEDIF

COMFIT

EDC

FIT

IEA

IRENA

Aboriginal Affairs & Northern Development Canada

Aboriginal Loan Guarantee Program

British Columbia

Canadian Solar Industries Association

Canadian Wild Energy Association

Community Energy Partnership Program

Canadian-Controlled Private Corporation

Community Economic Development Company

Community Economic Development Investment Fund

Community Feed in Tariff

Economic Development Corporation

Feed in Tariff

International Energy Agency

International Renewable Energy Agency

IRR

JV

LCOE

NIMBY

Internal Rate of Return

Joint Venture

Levelised Cost of Energy

Not In My Back Yard

PPA Power Purchase Agreement

PV

OSEA

RES

RFP

RP/ES

TFSA

RRSP

Photovoltaic

Ontario Sustainable Energy Association

Renewable Energy Source

Request For Proposal

Renewable Portfolio/Electricity Standards

Tax Free Savings Account

Registered Retirement Savings Plan




The results from the modelling for the 100% community owned projects show that community returns were expected in each case (with differences in how the returns were used, whether for community benefit activities or to repay investors), shown in the purple areas ( ) in the charts. Section 2.2.2 of the Main Report explains how to interpret the results.

Tables surrounded by light blue shading ( ) show those projects which give a projected return above the commercial hurdle rate.

Table 13: Anticipated post-tax pre-financing returns (IRR) of the 2 community wind projects

Wind 1 – IRR 20% Wind 2 – IRR 13%

Table 14: Anticipated post-tax pre-financing returns (IRR) of the 4 community solar projects

Solar 1 – IRR 3% Solar 2 – IRR 8%

0

50,000

100,000

150,000

200,000

250,000

01/0

9/2

008

01/0

2/2

010

01/0

7/2

011

01/1

2/2

012

01/0

5/2

014

01/1

0/2

015

01/0

3/2

017

01/0

8/2

018

01/0

1/2

020

01/0

6/2

021

01/1

1/2

022

01/0

4/2

024

01/0

9/2

025

01/0

2/2

027

01/0

7/2

028

01/1

2/2

029

01/0

5/2

031

01/1

0/2

032

01/0

3/2

034

01/0

8/2

035

01/0

1/2

037

01/0

6/2

038

01/1

1/2

039

01/0

4/2

041

01/0

9/2

042

01/0

2/2

044

Semi-annual cash flow in operations period

Spare cash

Dividends (which could be community benefit)

Community own money/ equity repayment

Community shareholder repayment

Loan 2 repayment

Loan 1 repayment

Taxation

Land rental (if linked to percentage of total revenue)

Fixed operating costs

CAD $

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

01/0

9/2

015

01/0

3/2

017

01/0

9/2

018

01/0

3/2

020

01/0

9/2

021

01/0

3/2

023

01/0

9/2

024

01/0

3/2

026

01/0

9/2

027

01/0

3/2

029

01/0

9/2

030

01/0

3/2

032

01/0

9/2

033

01/0

3/2

035

01/0

9/2

036

01/0

3/2

038

01/0

9/2

039

01/0

3/2

041

01/0

9/2

042

01/0

3/2

044

01/0

9/2

045

01/0

3/2

047

01/0

9/2

048

01/0

3/2

050


Spare cash

Dividends (which could be community benefit)

Community own money/ equity repayment

Community shareholder repayment

Loan 2 repayment

Loan 1 repayment

Taxation

Land rental (if linked to percentage of total revenue)


CAD $

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

09-0

9-0

1

11-0

1-0

1

12-0

5-0

1

13-0

9-0

1

15-0

1-0

1

16-0

5-0

1

17-0

9-0

1

19-0

1-0

1

20-0

5-0

1

21-0

9-0

1

23-0

1-0

1

24-0

5-0

1

25-0

9-0

1

27-0

1-0

1

28-0

5-0

1

29-0

9-0

1

31-0

1-0

1

32-0

5-0

1

33-0

9-0

1

35-0

1-0

1

36-0

5-0

1

37-0

9-0

1

39-0

1-0

1

40-0

5-0

1

41-0

9-0

1

43-0

1-0

1

44-0

5-0

1


Spare cash Dividends (which could be community benefit)

Community own money/ equity repayment Community shareholder repayment Loan 2 repayment

Loan 1 repayment Taxation Land rental (if linked to percentage of total revenue)


CAD $

0

50,000

100,000

150,000

200,000

250,000

300,000

14-0

9-0

1

16-0

1-0

1

17-0

5-0

1

18-0

9-0

1

20-0

1-0

1

21-0

5-0

1

22-0

9-0

1

24-0

1-0

1

25-0

5-0

1

26-0

9-0

1

28-0

1-0

1

29-0

5-0

1

30-0

9-0

1

32-0

1-0

1

33-0

5-0

1

34-0

9-0

1

36-0

1-0

1

37-0

5-0

1

38-0

9-0

1

40-0

1-0

1

41-0

5-0

1

42-0

9-0

1

44-0

1-0

1

45-0

5-0

1

46-0

9-0

1

48-0

1-0

1

49-0

5-0

1






CAD $

Exact number unknown but shown as

approximately 20%

Solar 3 – IRR 18% Solar 4 – IRR 5%

0

100,000

200,000

300,000

400,000

500,000

600,000

14-0

9-0

1

16-0

1-0

1

17-0

5-0

1

18-0

9-0

1

20-0

1-0

1

21-0

5-0

1

22-0

9-0

1

24-0

1-0

1

25-0

5-0

1

26-0

9-0

1

28-0

1-0

1

29-0

5-0

1

30-0

9-0

1

32-0

1-0

1

33-0

5-0

1

34-0

9-0

1

36-0

1-0

1

37-0

5-0

1

38-0

9-0

1

40-0

1-0

1

41-0

5-0

1

42-0

9-0

1

44-0

1-0

1

45-0

5-0

1

46-0

9-0

1

48-0

1-0

1

49-0

5-0

1






CAD $

0

50,000

100,000

150,000

200,000

250,000

16-0

9-0

1

18-0

1-0

1

19-0

5-0

1

20-0

9-0

1

22-0

1-0

1

23-0

5-0

1

24-0

9-0

1

26-0

1-0

1

27-0

5-0

1

28-0

9-0

1

30-0

1-0

1

31-0

5-0

1

32-0

9-0

1

34-0

1-0

1

35-0

5-0

1

36-0

9-0

1

38-0

1-0

1

39-0

5-0

1

40-0

9-0

1

42-0

1-0

1

43-0

5-0

1

44-0

9-0

1

46-0

1-0

1

47-0

5-0

1

48-0

9-0

1

50-0

1-0

1

51-0

5-0

1






CAD $


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http://www.bankofcanada.ca/rates/exchange/

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MEMBER COUNTRIES OF RETD

The International Energy Agency’s Implementing Agreement for Renewable Energy Technology Deployment (IEA-RETD) provides a platform for enhancing international cooperation on policies, measures and market instruments to accelerate the global deployment of renewable energy technologies.

IEA-RETD aims to empower policy makers and energy market actors to make informed decisions by: (1) providing innovative policy options; (2) disseminating best practices related to policy measures and market instruments to increase deployment of renewable energy, and (3) increasing awareness of the short-, medium- and long-term impacts of renewable energy action and inaction.

Current member countries of the RETD Implementing Agreement are Canada, Denmark, European Commission, France, Germany, Ireland, Japan, Norway, and United Kingdom.

More information on the RETD can be found at

www.iea-retd.org

http://www.iea-retd.org/