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Hepburn Community Wind Farm, DIY protagonist

Economies of scale are no friend of community infrastructure
The Better Infrastructure Initiative have created five case studies based on DIY infrastructure protagonists who have little tolerance in waiting for government. Hepburn Community Wind Farm is one of those examples.
Protagonist:     Hepburn Community Wind Park Co-operative Ltd 
Domain:  Renewable energy
Where:  Daylesford, 125km north-west of Melbourne, Victoria 
When:  2011 

The residents of Daylesford, Victoria developed their own wind farm as a public statement of their support for progressive climate change energy policies.

By adapting a localised, co-op style project, Daylesford came hard up against one of the real difficulties in economic infrastructure planning and development: the extremely high fixed project development costs required to complete the regulatory approvals process before construction and operation even starts.

Fortunately the Daylesford community found a commercial partner to fund the project development costs and provide technical expertise. This project was completed because a market existed for a commercial partner to provide its services for a profit even though it was a smaller project than was typically developed by private infrastructure investors.

The opportunity

Hepburn Wind is Australia’s first community-owned wind farm. More than 1,900 people pooled $9.7 million to build a two turbine, 4.1 MW wind farm at Leonards Hill, producing more energy on average than the houses in nearby Daylesford and much of the surrounding area use.

The wind farm was established as a cooperative based on the cooperative principle of one member, one vote and was incorporated under the Cooperatives Act 1996 (Vic). The community received support from a small wind farm developer, Future Energy, which underwrote a significant portion of the early stage development costs. Major construction was completed in March 2011 with generation starting in June 2011. In 2012, the wind farm generated 9.8GWh, in 2013, 10.8GWh and in 2014, 11.2GWh.

Motivation

Following the rejection of a wind farm proposal due to local campaigning, a group of Daylesford residents committed themselves to building a small and local wind farm based on the model of community ownership of wind farms in Denmark that would benefit the entire community. The objective of establishing a community wind farm was to provide for the community’s energy needs as well as sending a signal that the Daylesford community wanted to see a rapid and meaningful response to the threat of climate change.

Source of capital

Hepburn Wind raised $9,900,000 from members of the cooperative.

Future Energy underwrote a significant portion of the early stage development costs. In recognition of financial risks incurred, Future Energy received a development fee with a nominal value of $400,000, partly payable in shares from the cooperative.

By securing an external loan guarantee of $1 million, Hepburn Wind was able to finance the development of the wind farm without a Power Purchase Agreement.

Hepburn Wind is fully subscribed but continues to accept applications for new membership.

Impediments

Hepburn Wind has noted the challenges it has faced in getting the project to market, which are summarised below. 

Hepburn Wind was unable to secure investment from institutional investors. The cooperative states, “while the project’s novelty and the unproven track-record of the proponents and the business model presented significant barriers, the first insurmountable barrier was that of project scale. While Hepburn Wind was seeking $2–4 million in institutional investment, the project was consistently advised that projects under $25–50 million were too small to justify investment due to the relatively high fixed costs of the required due-diligence processes”.

Without a Power Purchase Agreement in place Hepburn Wind found it difficult to secure debt financing.

The Renewable Energy Target has, according to Hepburn Wind, “too-frequent reviews and policy uncertainty. Market exposed participants, such as Hepburn Wind, are receiving ‘all-in’ energy prices below long-run costs, and are relying on future corrections in the certificates market”.

Hepburn Wind was subject of ongoing community campaigning against the development of the Leonards Hill wind farm, which included defending its planning permit at the Victorian Civil and Administrative Tribunal (VCA) in 2007.

Success

Hepburn Wind has been able to produce a project with over $13.5 million invested and an anticipated working life of over 25 years. The project’s construction created employment, with Hepburn Wind currently employing three part-time local staff to operate the wind farm and manage the cooperative. Profits from the wind farm return to local investors as well as supporting local community projects through a community fund.

Unexpected outcomes

The success of Hepburn Wind has directly contributed to the establishment of community renewable energy in Australia through the so-called ‘Hepburn Model’, with leaders from the Hepburn Wind project supporting the development of community energy projects through Embark Australia, a non-profit organisation focused on the uptake of community renewable energy projects.

Read more case studies. 

DIY infrastructure protagonists empower communities to be centred on customers and services.
Garry Bowditch