Community-Based Energy Development

Key Elements of a C-BED Framework

The following are key elements that define community-based energy development. These elements were included in Minnesota's successful 2005 C-BED legislation, and are present to varying degrees in other community-based energy development initiatives in other jurisdictions.

Qualifying owners must be local. The C-BED framework must specify local ownership of C-BED projects. C-BED project owners should be limited to individual residents of the jurisdiction, non-profit organizations, cooperatives, local government entities (such as school districts, towns, cities, associations, etc.), and tribal councils. This structure encourages community participation and ensures that ordinary residents of local communities are the primary financial beneficiaries of C-BED projects.

No single owner may be allowed to own more than 15 percent of a project. This encourages the distribution of benefits broadly rather than to a small number of individuals. For small projects, an exception is made for practical reasons. For instance, the Minnesota law allows a single individual to own up to 2 wind turbines.

Each C-BED project must have a local resolution of support. This resolution of support, which is to be adopted by the local governing body (e.g. county board) of each local jurisdiction in which the project is to be located, ensures that C-BED projects are not in conflict with local public interest. This element also provides an important level of transparency to C-BED projects in order to better ensure community benefit from the resource.

The power purchase agreement must ensure levelized cash flow to the project owners. Levelized cash flow is much more important to community-based projects than to conventional projects, due to the inherent difficulty faced by communities in quickly manipulating large amounts of capital. Levelized cash flow can be achieved through use of a two-step process, the first of which is to apply a invention called "NPV rate", which establishes a net present value (NPV) in today's dollars for the value of every kWh of electricity that is expected to be sold over the 20-year life of the power purchase agreement. Once the NPV rate is established, it becomes possible to apply the second of this two-step process: "front-loading" the cash flow so that the rate per kWh that the buyer of the electricity pays the C-BED owners is higher during the first 10 years of the contract when large loans must be repaid, and lower during the remaining years when the loans have been paid and therefore cash flow requirements are lower. Because wind energy projects are capital intensive, and because the fuel is free, C-BED owners are cash-strapped during the early years of a project, and cash-rich during the later years. By adjusting the payments over time to more closely match revenues and costs, a community-based project that otherwise would be impossible to finance due to cash flow challenges becomes viable.

Aggregation of projects should be encouraged. Aggregation leverages interconnection and other costs of C-BED projects in geographic proximity, thus more efficiently bringing wind energy to market.

Utilities should be encouraged to look to C-BED sources of energy first. Utilities should be encouraged to gain additional capacity from C-BED projects before seeking additional renewable energy capacity from non-C-BED sources. This ensures that the community-building and rural economic development benefits of C-BED projects that may otherwise be externalized are given due consideration when utilities seek additional energy supply.

Utilities should be encouraged to assess C-BED interconnection issues. A technical study should analyze the capacity enhancements that may need to be implemented in order to enable interconnection of community-based energy development projects. Community stakeholders must be involved in the study groups.