Recommendations for Public Policy

To Ensure that Wind Development in the Province Reflects the Long-Term Best Interests of Manitoba Residents

A link to this document is available (indirectly) through the Wind section of the Manitoba Sustainable Energy Association web site: http://www.ManSEA.org.

1 Give special consideration to community capital. There is a significant difference between community capital and conventional capital. Specifically, it takes a much longer time period to secure capital from community sources than it does to secure capital from conventional sources. Conventional capital is formed when a small group of key people who have access to concentrated wealth meet and make a decision. Thus large amounts of capital can be made available very quickly, sometimes in a single meeting. Community capital, on the other hand, is inherently disparate and distributed, and thus requires much time to gather and manage. If the objective is to create greater community economic development, as is explicitly stated in the Expression of Interest, then raising more of the “slower-to-acquire-but-greater-overall-benefit” community capital is important. The following are some suggestions for how the Province and Manitoba Hydro can encourage the timely flow of community capital so that it can compete with conventional capital:

1.1 Support and encourage establishment of an appropriate community-based energy development model. Our cooperative model is just such a model, presented to the Province and Manitoba Hydro through a grassroots organizing effort. Our cooperative model facilitates participation in community wind energy projects by providing a structured venue for the formation of community capital. We believe that our cooperative should be separate from and independent of both Manitoba Hydro and the Province. In other words, we seek to avoid a controlling interest by either Manitoba Hydro or the Province, and we seek no special status compared to other potential cooperatives that could form in the province at a later date. No action should be taken that could preclude the development of an alternative, additional or competing cooperative, and all benefits afforded to our initial cooperative should be made available to all subsequently formed cooperatives. In that way, we become a pilot project for the cooperative model committed to leveraging the benefits of large wind installations. We would welcome the opportunity to become a province-wide cooperative but we have no expectation of becoming such an entity. On the other hand, we believe that a single cooperative should be allowed to build multiple individual projects—hundreds of megawatts over time—without being challenged based on size alone. Support for the establishment of our cooperative can come in the following ways:

1.1.1 Provide legal assistance. Ensure that the cooperative can legally exist in a form that meets the goals of the Province’s community-based energy program. Also, ensure that the cooperative can pass through tax benefits and is able to acquire appropriate certificates to go public with the preferred share offering, using other cooperatives as models. If changes to provincial law are required, assign appropriate provincial resources to act as a trusted advocate for the cooperative’s needs in this formative stage.

1.1.2 Provide financial assistance. Cover the cost of gathering information about other successful (and unsuccessful) cooperative models and apply that information to the formation of our pilot cooperative model. We would welcome the expertise of trusted persons in the field of community-based energy development and we seek the Province’s and/or Manitoba Hydro’s financial assistance to sponsor appropriate information gathering workshops and/or other mechanisms to “do it right”. We expect to seek assistance from the following organizations: the Manitoba Sustainable Energy Association (http://www.mansea.org), the Ontario Sustainable Energy Association (http://www.ontario-sea.org), Community-Based Energy Development (http://www.c-bed.org) and various cooperatives, such as WindShare (http://www.windshare.ca), Positive Power Cooperative (http://www.positivepowerco-op.com) and the GREEN Cooperative (http://www.greencoop.ca). There are likely other organizations that could assist in the development of a community model, and we would welcome additional input from other sources as we go forward. We believe that such funding should be limited to organizational assistance, and should not be used to cover the management costs of implementing any specific development work (i.e. subsidizing specific wind tower or organizational development exclusive to a single project). We will move forward with or without financial assistance, but will do so at a much slower pace without external financial support.

1.2 Create and fund an Ombudsperson position in the Provincial government whose role is to ensure that community energy projects have the necessary technical, legal, political, and financial resources to succeed. The Ombudsperson would represent the community perspective in discussions with the Province and with Manitoba Hydro, and would provide outreach to prospective community groups seeking to participate in energy development projects in the province. The Ombudsperson should have access to relatively high levels of government.

1.3 Encourage Manitoba Hydro to become the equity partner in community-based energy development projects. Community groups would be required to obtain some percentage (for example, 20%) of funding from local banks and/or credit unions in order to ensure financial integrity and transparency of the project (and to further encourage local investment in rural communities). Manitoba Hydro, as the equity partner, would receive a fair rate of return on its investment, and would ensure that the project implements appropriate preventive maintenance activities to assure long-term viability of the energy source.

1.4 Develop a standard offer contract (SOC) that is based on an established net present value (NPV) rate with front-loading as described on the C-BED web site (http://www.c-bed.org). This mechanism preserves the known value of a 20 year power purchase agreement for Manitoba Hydro while assisting the community-based project owners with appropriate cash flow during the first ten years when debt costs are higher. The front-loading has the added advantage of providing Manitoba Hydro with declining cost electricity over the life of the contract (for example, at a discount rate of 8%, a 20-year price of $64.70/kWh can be converted to $86.50 for the first 10 years, falling to $17.64 for the last 10 years, as described by the C-BED Calculator on the C-BED web site, thus allowing an otherwise cash flow constrained project to proceed). This front-loading model is being successfully implemented in Minnesota.

2 Encourage democratic principles in the emerging wind industry. The profit motive is a powerful force for efficient delivery of service in a competitive marketplace, and should be preserved where possible. At the same time, there are concerns that the wind energy market in Manitoba has begun to feed on a culture of speculation, proprietary activities and secrecy which, if left unchecked, could become counter to democratic principles. A strong focus on community projects can mitigate the negative aspects of an unregulated market. Policies that explicitly encourage a high degree of transparency and accountability should be encouraged (not just for community-based projects, but throughout the wind industry in Manitoba). Some suggestions for how to encourage democratic principles include the following:

2.1 Complete a study of the long-term (40 years or more—which is the length of landowner leases being signed) economic and other benefits of community-based wind energy projects compared to conventional wind energy projects as described in this document. We believe that such as study will demonstrate significant overall long-term advantage to community-based energy development. Manitoba has a golden opportunity not available in most other jurisdictions as a result of the unique nature of the relationship between the Province and Manitoba Hydro. We hereby request that the Province and Manitoba Hydro honour that opportunity and unique relationship by ensuring maximum accrual of long-term economic benefits to the people of Manitoba. If not managed properly, short-term pressure to act quickly in today’s fast-moving wind energy market could jeopardize important long-term economic considerations.

2.2 Assist us in developing and distributing a “landowner’s information kit”. We have found that because rural landowners are geographically isolated, there is a significant chance that we are not getting adequate information about the options available to us when we are asked to sign commitments for wind rights. A landowner’s information kit would provide information that will inform landowners about the options they have available to them, including a description of community models compared to conventional models of wind development. Information we hope to see includes expected lease rates; good and bad language in legal documents that landowners might be asked to sign; costs and benefits for different general scenarios (how much money would have to be put up and at what stages for a representative community-based project along with expected returns compared to a simple lease arrangement); an estimate of the time commitment to manage and complete a project initiated by landowners for community-based projects; a contact list or directory for professional development assistance, such as community-oriented project developers and other technical and engineering support resources; and a description of general expected costs and timeline for key elements of projects, such as interconnection studies, for which community groups may be challenged to adequately address. Without such knowledge, landowners will not be able to make informed decisions about how to manage their wind resource rights.

2.3 Ensure a high degree of transparency by mandating that certain information is made public for all wind projects. We believe this could include the terms of the sale of electricity to Manitoba Hydro, interconnection costs, the ownership structure, and the land lease rates and known dollar benefits accruing to beneficiaries of projects. This action would encourage accountability by limiting secrecy and proprietary actions, and would encourage cooperation by ensuring the free flow of information.

2.4 Encourage the use of community-based energy development models not just for wind projects, but for other renewable energy sources such as biogas, biomass, biodiesel, solar and ethanol projects. This will encourage community-based energy development projects in a wide variety of geographic areas, including those that may not experience adequate wind regimes but may have other local economic development potential that is environmentally desirable.

2.5 Provide objective technical assistance to communities at various points in the life cycle of a project. Communities require objective information when deciding between competing models for resource development, such as between a cooperative model or conventional model, or in choosing other equipment and services, such as a Project Developer, wind turbines, cranes, etc. The purpose of this service would be to assist community groups in avoiding costly mistakes.

2.6 Formally assist the networking of community groups by publishing or making available upon request inquiries associated with energy development projects from all parties that approach the Province and/or Manitoba Hydro. The ability of the Elton group, for instance, to know that a group of farmers in Letellier is interested in a community-based wind project would enable both groups to aggregate and leverage each other’s technical and legal knowledge.

2.7 Leverage the buying power of the Province or Manitoba Hydro. This could be achieved if Manitoba Hydro is an equity partner as described elsewhere in this document, or through a formal assistance program for community-based projects to negotiate purchases of hardware, services and/or equipment.

2.8 Schedule wind energy project implementations to maximize local benefits. For instance, assist with deployment speed of specific projects in order to match to the rate of speed that a group or groups of Manitoba contractors and/or resources are available and able to work.

2.9 Make commitments to assist in the purchase of Manitoba-based components, but in a manner that doesn’t eliminate the profit motive and healthy competition that ensures market-driven quality. Manitoba manufacturing can be strongly supported through many tools the Province may have at its disposal. The Province should be careful not to encourage incentives for the inefficient delivery of goods and services through such mechanisms.

2.10 Encourage direct community income. For instance, the Province could explicitly state a desired amount of income dollars per MW of installed capacity to go to the rural municipality in which the capacity resides, to be spent as the RM chooses—democratically. Stating this would encourage projects, whether conventional or community-based, to invest in the local communities. This gives the local community a say in how to spend a portion of the dollars derived from the resource that has been extracted from the local community.

2.11 Develop public policy goals for geographic distribution of renewable energy dollars across the province. Because of the transparency of community-based models such as the cooperative model, the widespread use of community-based models can be leveraged to accomplish these goals. Some ways of doing this include the following:

2.11.1 Facilitate an increased NPV rate (which translates to a higher rate per kWh) for specific desired geographic areas in order to encourage those communities to develop community-based projects that meet the geographic distribution goals.

2.11.2 Divert a portion of the income from projects in high wind regime areas to economically disadvantaged communities that also happen to be in poor wind resource areas. In this model, Manitoba Hydro would be directed to adjust the NPV rate for the high-wind area projects so that the high-wind area projects retain an equitable rate of return, but a portion of the income is redirected to economically disadvantaged communities.

2.11.3 Induce projects to “adopt” economically disadvantaged communities by offering a higher NPV rate for high yield projects in exchange for committing a portion of the financial benefits to the disadvantaged community.

2.11.4 Encourage the purchase of shares in community-based projects by people in economically disadvantaged regions. This could be done through a variety of public policy mechanisms, including direct one-time subsidies to individuals for the purchase of cooperative shares. The net result will be the receipt to the economically disadvantaged community of long-term returns from the investment.

2.12 Ensure that carbon credits accrue to the community. Carbon credits are expected to represent significant value in the future, and public policy should ensure that both community-based projects and conventional projects are structured to ensure that carbon credits accrue to the community that has invested in and/or purchased the renewable energy source.

2.13 Encourage community ownership of all generation infrastructure at the end of the negotiated power purchase agreement contracts. Because the capital cost of the infrastructure (towers, substations, underground cables, etc.) is paid for by Manitoba residents in the rate structure negotiated in the power purchase agreement (usually in the first 10 years), and because the installed infrastructure represents a “natural monopoly”, ratepayers, through local communities, should own that infrastructure at the end of the contract period. By establishing this model for all projects, whether community-based or conventional, the wind energy producers will negotiate a sales price that allows an acceptable profit for the duration of the contract with the assumption that the infrastructure belongs to the ratepayers and/or the community at the end of the contract.

3 Allow community-based projects to be large. There is no reason that large projects can’t be structured as community-based projects and, conversely, there is no reason that community-based projects can’t be large. Since the stated objective is to maximize economic development throughout the province, expansion of the cooperative model, or other truly community-based models, maximizes the net benefits to the public and to the Province. In Manitoba, because of the topology of the land (very large, flat, open spaces), efficiently delivered wind energy development favours large implementations. In order to be able to compete, community-based projects must be allowed to leverage the economies of scale that large conventional projects enjoy.

3.1 Eliminate the real or implied 50 MW upper limit on community-based energy development. The 50 MW of community-based capacity of the overall 1000 MW being recommended by the Province should be considered a floor and not a ceiling.

3.2 Commit to deployment of 50 MW in the first wave of the Province’s overall wind development program. Early deployment of community-based capacity will reflect a visible commitment to community-based energy development, and improves the chances that more community-based energy development can occur over the long term.

Conclusion

Manitoba Hydro and the Province have a unique opportunity to partner with communities across Manitoba. Such an initiative would allow the utility and communities to be able to build an infrastructure that matches the utility requirements well, while at the same time allowing direct, equitable investment for every Manitoban. We feel that with such an initiative, a much larger portion of the 1000 MW being developed over the coming 10 years can and should be community-based. The result is a win-win situation for Manitoba Hydro, the Province, and Manitoba residents.