Community Energy Cases

The Housing Association Vilde 70 in Tallinn, Estonia carries out an energy efficiency renovation including a solar PV installation

Highlights

  • The housing association Vilde 70 carried out a renovation project to ensure a healthy indoor climate and better energy efficiency.
  • Although the project received approximately one third of the total financial investment from a state grant, it was difficult to bring all the house owners together.
  • In Estonia, there are good incentives for small-scale energy production and energy efficiency. However, there is a general distrust towards collective solutions.
  • Renovation projects have indirect yet important benefits in terms of job created and tax returns to the state budget.

Background information

In Estonia, approximately 65% of the population lives in apartment associations. These are non-profit organizations established by apartment owners for the management of the common spaces of a building and to represent the interests of the association members. To date there are 10,100 active associations throughout Estonia.

The housing sector in Estonia was privatized after the fall of the Soviet Union in the beginning of the 90’s. The privatization movement was primarily driven by the citizens’ rejection of the Soviet system based on collective solutions and state control in favour of individual solutions, responsibility, and liberty. As a result of the privatization a very small share of the today’s housing stock is rental housing. In addition, the dwelling units built during the soviet era have high energy costs.

The Housing Association Vilde 70 is located in Mustamäe neighborhood in Tallinn. It has 54 apartments housing approximately 120 people. Over the past year, the Estonian government has offered reconstruction grants and loan guarantees to promote the renovation of the building stock and to increase energy efficiency.

Brief description of what was done

In 2014 a large renovation project to ensure a healthy indoor climate and achieve energy class C was carried out in the Housing Association Vilde 70. The renovation project included the following tasks: insulation of the facade and the roof, closing of the open entryways running on the ground floors, installation of triple glazed windows, replacement of the heating system, building of a ventilation heat recovery system with heat pumps, and replacement of elevators. In addition, a 15 kW PV system was installed on the roof to increase the level of energy efficiency. The solar PV was designed to supply electricity for the communal spaces and sell the surplus electricity to the grid. The total sum invested was 1,424,637 €.

Project champions and motivations

The main project champions were the board members of the association. They wanted to renovate their building to reduce energy consumption, save money, and ensure a better indoor climate. The board members were not interested in the payback period of the investment since the building was in dire need of renovation. They talked individually to the other apartment owners to explain the benefits of the project. A technical consultant from Kredex who acted as the project manager played an important role as he provided all the technical knowhow and supported the housing association in the grant application.

Decision making process

All the decisions were made by the members of the housing association. In the first meeting they decided to order an energy audit, which was the first step in the funding procedure of Kredex. The results of the auditing showed the type of possible interventions and benefits that could have been achieved through an energy efficiency renovation.

Following the audit, members of the association decided on which technical design would be adopted and subsequently which construction company to carry out the work. In these meetings, a majority vote by attendees was required to pass a decision. Subsequently, when a decision regarding a bank loan was discussed, a majority vote of the apartment owners was required to pass the decision. According to the apartment association law in Estonia, each apartment owner is entitled to one vote.

Ownership model adopted

The apartment association not only owns the renovated building, but also the solar PV system which has been installed on its roof. Both the energy savings achieved through the renovation project and the income generated from the surplus electricity generated by the solar PV system are redistributed to the apartment owners based on the number of square meters they own.

Financing and economic viability

The investment was financed 60% with a 20-year bank loan and 40% (564,445 €) by the Kredex renovation grant. The bank did not require any seed money nor collateral since the housing association had started the application for the Kredex renovation grant. The monthly payments to repay the loan is 1,25 €/m² which represent a very small increase in monthly payments that each apartment owner pays to the housing association. The project is economically viable because it generates savings on the building’s heating costs.

Project implementation

Project implementation started in 2015 when following an investigation into the design documents by a third-party expert from Kredex the funding decision was made. The first step was the tendering with contractors followed by the construction and commissioning. The actual grant payment by Kredex was made after the renovation work was completed.

Project benefits

The renovation project has had numerous benefits. First, it has increased the quality of indoor climate and contributed to a reduction in energy costs. The energy costs following the renovation project, including monthly loan payments and interest, are lower or about the same as the energy costs prior to the renovation. The project has also resulted in a 10% increase in the price per square meter for the renovated apartments.

Renovation projects such as the one at the Housing Association Vilde 70 have had a positive impact on the Estonian economy by indirectly creating jobs and tax returns to the state budget. According to some estimations, renovation projects directly generate 10 jobs on the construction site and 1-6 jobs in the consultancy and manufacturing industry combined. On the other hand, tax revenues associated with renovation projects are at 28% but when considering the revenues from the consultancy and manufacturing firms, this percentage increases to 32–33%.

Barriers

Some of the main obstacles faced by the renovation project were  fear to renovate, declining costs of district heating, old age of the apartment owners, diffidence in the Russian-speaking minority towards the subsidies offered by the Estonian government, bureaucracy, difficulty in understanding the importance of the project to all the apartment owners, and people’s unease with collective solutions. The scale of the renovation project created concerns by some of the building’s inhabitants. For example, the senior apartment owners were not motivated by the opportunity to increase their apartment value since they had no interest in selling them. To address the apartment owners concerns, the board members went door-to-door talking to them and explaining the benefits of the project. As a result, the project did not face any major opposition apart from the case of one apartment owner who blocked the construction work for some time.

In Estonia, the booming of CHP power plants is reducing the heat prices resulting in a longer payback period for energy efficiency projects. Furthermore, the attitude of the Russian-speaking minority towards government subsidies causes some problems. This is due to the fear that the state may take back what they have given the people. As a result, Russians living in Estonia often prefer to renovate their apartments without state grants or bank loans. The negative experiences of collectivism under the Soviet Union also made some residents feel uncomfortable with the idea of carrying out an energy efficiency and generation project with their neighbors.

Main lessons learned

  • Being able to work together and have trust, especially between the board members and the project manager is crucial.
  • Paper work, planning, as well as the quality standards of the construction companies must be good to produce the desired results.
  • Going door-to-door to all the apartment owners and explaining the benefits of the project proved to be important to reduce opposition to the renovation project.

Project champions’ recommendations to policy makers

  • Renovation grants for energy efficiency projects should not be removed because they generate economic benefits both for the beneficiaries and society as a whole.
  • Uncertainties regarding support measures for renovation projects should be reduced otherwise the market cannot continue to grow and projects are stalled.

Author

Salvatore Ruggiero

Aalto University School of Business, Helsinki, Finland

Sources

Kagu commercial association pioneering community solar in the Seto region, Estonia

Highlights

  • A commercial association was established to pilot the first community solar project in Estonia.
  • Current legislation in Estonia mainly supports on-site energy consumption and energy efficiency initiatives.
  • Energy cooperatives and other forms of associations are not granted access to grants and therefore rely on a relatively low feed-in tariff.
  • Although a feed-in tariff for small-scale renewable energy production exists, cultural barriers in Estonia have resulted in very few community energy projects.
  • The Seto region is home to a diverse cultural background in comparison to the rest of Estonia, making it a more favorable context for community energy projects.

Background information

The Kagu energy association is located in Värska in the southeastern region of Estonia known as Setomaa. This is a culturally distinct and rich region inhabited by the Seto people who are an ethnic and linguistic minority living on the border between Russia and Estonia. People in this region have stronger social ties and sense of community due to their distinct cultural background. In 1994, four of the municipalities in this region established a non-profit organization called Setomaa Valdade Liit (SVL). This is an umbrella organization promoting local development and cooperation between Setomaa communities. Under SVL, a NGO called Borderzone Energy Development was created in 2007 to promote regional energy self-sufficiency through the use of local renewable energy sources and energy efficiency. The town of Värska has been considering various options with one option being community energy production to increase its share of renewable energy. At the moment, the municipality is running a small solar PV system that provides electricity to a school.

Brief description of what was done

The Kagu energy association is a project that is still in its initial phase with the intention to establish a solar PV farm. The produced electricity would be sold  to the grid. The association wants to start the first project in Estonia to test a community solar PV model. The plan is to first test the model with a few members and then expand the membership to the entire region. Kagu Energiaühist is a legal entity that has been registered to carry out the project.

At the moment the energy association includes 9 members. They are a municipal company for energy and waste water management, Borderzone Energy Development, and 7 private citizens. The first accomplished task by the association was determining the most suitable location for the future solar PV power plant. The project leaders choose a location in Värska due to its  convenience in terms of grid connectivity. Currently the association is concluding the feasibility study to determine the economic benefits of the project.

Project champions and motivations

The main project champions are the mayor of Värska and a small group of private citizens who share common interests and have experience in the energy industry. They have several motivations for starting this initiative. Their first motivation is ideology. A community energy initiative is a good match to the values and traditions which they share such as community initiatives for food production or handcrafted goods. Second, although very ambitious at the moment, is the region’s aim in becoming energy independent. Third, is to create jobs, economic development, and reduce depopulation. Fourth is to reduce energy costs.     

Decision making process

All the decisions are made by the members of the energy association. They currently do not have any fixed long term goals as they are focusing on short term decision-making processes. These decision-making processes are based on knowledge they have gathered throughout the project development. For the project leaders it is important that when the shares of the association are available to other community members, every member can equally contribute to collective decisions. Therefore, each participant has one vote, independent from the number of shares which they own. In addition, the distribution of profits is based on the level of investment.

Ownership model adopted

The legal entity chosen for the initiative is known in Estonia as a commercial association (tulundusühistu). This is a type of for-profit association that aims at supporting and advancing the economic interests of its members through collective entrepreneurial activities. Typically, the members of a commercial association join either as a consumer or supplier. One of the main advantages of this legal form is that members are not personally liable for the association’s obligations. However, to establish a commercial association there is a minimum capital requirement of 2,500 € and there must be two founders. Moreover, if the annual turnover exceeds 40,000 €, the association must register as a VAT payer with the Tax and Customs Board.

Financing and economic viability

The financing model has not yet been created but the association is expected to offer shares in the project to the local people who want to invest in the solar PV plant. The power plant will sell its electricity to the grid as the current Estonian law does not make it possible to sell directly to the members of the association. Another alternative that has been considered is finding a company that could buy the generated electricity. In this case, the solar PV system should be installed on the property of the company because under Estonian law the electricity produced can be either consumed on-site or injected into the grid.

The project is already economically viable thanks to a 5,37 ¢/kwh feed-in tariff offered by the Estonian government. However, the payback time (11 years) is still considered relatively long and might not be able to attract a large number of investors. One of the options which has been considered is to wait for a further decline in the costs of PV technology or for an investment grant to make the investment more convenient. However, project leaders are willing to move on with their initiative even with such a long payback period as they want to be an example for other people in their country.   

Barriers

One of the first barriers to the project is the fact that the electricity produced by the association cannot be directly sold to its members. It needs to go through the grid and when is bought from the grid distribution fees and other taxes apply making it no longer convenient for the members of the association. Therefore, the current electricity law that prevents small energy producers to sell their electricity directly to their neighbors is one of the main obstacles. In Estonia there are investment grants up to 30,000 € but they are only available for companies and other organizations that self-consume the generated electricity. As the association does not have any on-site energy demand the incentive is not applicable. Therefore, the only funding instrument for the association is the feed-in tariff. Unfortunately compared to other countries, Estonia has a low feed-in tariff and therefore the project leaders fear that people may not be willing to invest in the project.

Another issue is related to grid connectivity. The costs for connecting to the grid is entirely in the hands of the power plant owner. Furthermore, there are certain areas where the grid needs to be upgraded before connecting a solar PV installation, resulting in additional costs. This implies that there is currently a limited number of places where a solar power plant can be installed.

Main lessons learned

  • It is important to be together and start something collectively even if is not related to renewable energy production (e.g. food or cultural activities).
  • One should start with very small things like communally installing a few PV panels on the village center. Learn from that experience and then grow bigger if it seems feasible.
  • Setting very high goals can be counterproductive and transform something that should be done for the community in a business.
  • It is crucial to have access to people with technical knowledge and experience in energy projects.

Project champions’ recommendations to policy makers

  • Investment grants should also be available for those organizations that do not generate power for self-consumption
  • Energy laws should be amended in a way that is possible for the members of energy associations to use the electricity produced even if they do not physically live on the same site where the power is generated.

Author

Salvatore Ruggiero

Aalto University School of Business, Helsinki, Finland

Sources

  • Margus, T. 2018. Setomaa head praktikad kohaliku heaolu suurendamisel, PP presentation

https://intra.tai.ee/images/eventlist/events/10-11-15_Narva_konverents_Margus_Timmo.pdf

http://www.pea.ee/

Alpua village: a pioneer in energy community through the installation of a CHP plant in Northern Ostrobothnia, Finland

Highlights

  • The Alpua village established a village development association to buy the village school that had been closed.
  • A small CHP pant was installed to provide affordable heating and electricity to the school buildings.
  • The village sells the excess electricity to the local energy company under the Farmivirta brand, which allows small energy producers to have control over their retail price.
  • Key success factors were determination, collaboration with the technology supply, and local action group for the LEADER programme
  • Without a feed-in tariff or investment support for small-scale energy production and with very low energy prices is hard to reach profitability

Background information

Alpua is a small village in Northern Ostrobothnia, Finland, located 85 Km from the city of Oulu. The village has approximately 450 inhabitants and as witnessed by many other rural communities in Northern Finland, there has been a depopulation and withdrawal of public services. For example, in 2011 the city council decided to shut down the village school. Despite hardships, Alpua villagers have always had a strong community spirit and an entrepreneurial mentality. Moreover, they have been pioneers in local energy production for over a century as their village is one of the first established electric cooperatives in Finland. The cooperative operated until 1947 when it merged into the newly established municipal company Revon Sähkö, which it was sold to Vattenfall at the end of the 90’s.

Brief description of what was done

Following the closure of the school, the villagers decided to establish a village development association to purchase the village school. In order to provide heating to the school buildings the villagers invested in a small Combined Heat and Power (CHP) plant to produce energy. The CHP plant was supplied by Volter Oy and has a thermal power of 100 kW and electrical power 40 kW. The power plant generates 200 MWh of heat and 70,000-80,000 Kwh of electricity. In order to run it requires about 600 m³ of woodchips per year. In the summer, the extra heat produced is used to dry the woodchips.

Project champions and motivations

The main project champions were three villagers who wanted to provide a new heating system to the school building in a way that would allow them to save costs and to generate some income for the local community. One of the three champions had a background in heat entrepreneurship, another had some experience with project management, and the other had been working as a controller in a local company. Even though the project champions were motivated by environmental concerns, their main motivation was to save money on heating costs of the school buildings.

Decision making process

The decision to invest in the CHP plant was taken by the village development association. The association gave the mandate to the board of directors to carry out the project. When they identified Volter Oy as a suitable provider for the CHP plant, the members of the association were invited to vote on whether or not to purchase the equipment from said company. The decision was in favour. The decision to invest in the power plant was influenced by two important factors: the decision of the town of Raahe to grant the building permit and the consent to build from the people living near the power plant.

Ownership model adopted

The CHP power plant is owned by the village development association which consists of approximately 100 villagers who payed a membership fee of 20 € to join the association. The Finnish legislation considers The Alpua village development association as a nonprofit organization (Yleishyödyllinen yhdistys) and is subject to pay taxes at least for its commercial activities.

Financing and economic viability

The CHP plant was financed by two different income streams. The initial 60% by a grant received from the LEADER programme which is a European Union funding initiative promoting rural development projects initiated by local actors, and the remaining 40% by a 15-year loan. The loan will be paid back after 10 years. A key financial player for the project was the local action group for the LEADER programme, Nouseva Rannikkoseutu.

The main goal of the project was not for profit generation, but was to keep the school buildings running and reduce the heating costs as much as possible. However, profitability has become somewhat of an issue especially in light of the costs for future maintenance of the CHP plant. Currently, the project generates income by feeding the excess electricity into the network of the local municipal energy company, Olun Energia.

The company sells electricity from small-scale energy producers under the Farmivirta (Farmer power) brand. In the Farmivirta scheme, each small-scale producer gets to decide the retail price of the electricity supplied. In the case of the Alpua village the retail price is 7,4 ¢/kwh minus a 10% commission fee. If a small energy producer is not able to sell its surplus electricity through the Farmivirta scheme, Oulun Energia buys back the surplus electricity at the normal market price (about 5 ¢/Kwh in Finland). The people in the village buy most of the electricity sold by the Alpua village to Oulun Energia through the Farmivirta scheme because it is produced in their neighborhood. However, the participation in the Farmivirta scheme does not represent a big source of income for the project. Therefore, the project was not generating profits but only covering the running costs. For this reason, the village development association was seeking alternative ways to generate extra income such as renting the school buildings or promoting events to attract local people.

Project implementation

The project implementation was relatively straightforward as Volter provided the CHP plant as a turnkey solution and without any delay. The only hurdle during the project implementation was the fact that the electricity cables needed to be much longer than what was initially anticipated. The power plant had originally one woodchip supplier but due to the high rate of moisture in woodchip fuel, the project leaders soon decided to work with more suppliers. Currently, there are approximately 10 woodchip suppliers who harvest the wood within a 10 Km radium of the village.

Project benefits

The project has generated numerous benefits. Firstly, it has reduced the energy costs of the school buildings because their CHP plant produces energy at a much more affordable price compared to purchasing electricity directly from the grid. Secondly, by purchasing the school the villagers were able to keep the local daycare running and keep families with children in the community. Thirdly, the project created two new jobs and a few more indirectly along the woodchip supply chain. Thanks to the CHP initiative, the Alpua village was awarded two times as the village of the year in Finland. This gave the village a lot of attention in the mass media and helped generate a sense of proudness that reduced the depopulation of the village.

Barriers

The main barriers that the project faced included a lack of information/skills and profitability. When the project started there were very few small-scale CHP plants in Finland and therefore made it difficult for the project champions to obtain sufficient information on the technical and administrative aspects of the project. For instance, the project leaders did not know that the energy efficiency of the CHP plant would be strongly affected by the moisture content in the woodchip fuel and that a separate equipment for drying the woodchips would be needed. They had to build a woodchip drier themselves and learn how to deal with the moisture content to optimize energy efficiency. On the administrative side, a lack of clarity in the tax regulation for nonprofit organizations made them unable to determine how much of the expenses related to the purchase of the equipment were tax-deductible. It was only at a later stage where they found out that only part of the investment costs was tax-deductible and therefore were forced to take out a bigger loan. Although the main aim of the project was not to maximize the profits for the owners of the CHP power plant, the lack of a national support scheme for small-scale distributed energy production such as a feed-in tariff made the investment more uncertain. This was especially true regarding expected revenue. Profitability was also hindered by the relatively low energy price in Finland.

Main lessons learned

  • Determination and a pinch of “creative madness” (i.e. do not be afraid to pursue ambitious visions) are key elements for success.
  • An open and transparent dialogue with the rest of the community generates trust and support.
  • Giving an opportunity to numerous woodchip suppliers to provide the woodchip fuel needed proved to be an effective way to increase the quality of the woodchips and reduce opposition in the local community.
  • The collaboration with the technology provider and the local action group for the LEADER programme helped the project champions in overcoming numerous obstacles.

Project champions’ recommendations to policy makers

  • Create a support scheme to promote small-scale distributed energy generation, e.g. a feed-in tariff for small scale CHP power plant, loan guarantee program or low-interest loans.
  • Modify the current electricity law that prevent small-scale energy producers to share their surplus energy with their neighbors.
  • Create a level playing field between small energy producers and large energy companies.

Author

Salvatore Ruggiero

Aalto University School of Business, Helsinki, Finland

Sources

The housing company Haapalahdenkatu 11 in Helsinki, Finland tests a new solar community IT service

Photo credits ©: HSSR Oy

Highlights

  • Under current Finnish regulation, grid fees and electricity taxes apply to the electricity generated by housing companies within their property grid.
  • The housing company Haapalahdenkatu 11 is testing a smart metering IT service that enables residents to share the generated solar electricity.
  • In deciding whether to invest in the solar PV system, environmental motives of the housing company members dominated the decision-making process.
  • Key success factors were project leaders’ enthusiasm and determination.
  • The test model is promising but regulatory changes are required to make it more economically attractive for real life conditions.

Background information

In Finland, there are approximately 2.6 million citizens living in 90,000 housing companies and 142,000 apartment buildings or terraced houses. Currently, renewable energy incentives such as investment grants, feed-in-tariffs or tax deductions are not available for housing companies or for any kind of residential buildings. Investment grants in Finland are only available for companies and municipalities.

The Limited Liability Housing Company Haapalahdenkatu 11 is located in Pikku-Huopalahti neighborhood in Helsinki. The two building complex consists in total of 24 apartments and 56 residents. It is taking part in the FinSolar pilot project lead by Aalto University to test a solar community IT service that enables its residents to share the electricity produced by a PV system through their property grid. FinSolar obtained a special permission from the Finnish Energy Authority, Ministry of Economy and the Employment and Financial Ministry. This permission was to test the solar community IT-service from 2017 to 2019 in cooperation with two Finnish Distribution System Operators (DSOs), some housing companies, and other stakeholders.

Brief description of what was done

In 2017, the housing company made an investment in a solar PV system in connection with the roof renovation. The solar power system has an output of 8,7 kWp and includes 33 panels and a 12,5 kWp inverter. The size of the inverter is larger than the power output for the future scalability of the solar PV system. Initially, the solar PV plant was intended to produce electricity only for the common parts of the building, e.g. yard lights, elevator, laundry room, etc. The opportunity to join FinSolar as a pilot case for community energy production emerged after the apartment owners had started discussions about the possibility to install a solar PV system.

Project champions and motivations

The main project champions were two residents who were part of the housing company’s board. They had a strong motivation to reduce the environmental impact of their residence. In addition, they had become familiar with solar PV technology at their place of work. Before starting the project, the two champions were also inspired and encouraged by a local solar energy advocate and expert. During the implementation phase, a project manager from HSSR Oy played a key role in providing them with the needed expertise.

Project supporters’ were motivated to join the FinSolar project as they had a desire to set a good example for other housing companies in Finland and to help remove legislative obstacles for similar community energy initiatives. Even without the opportunity to join FinSolar, the majority of the housing company’s residents would have still decided to make the solar PV investment. Therefore, the opportunity to join FinSolar influenced only the investment decision, which was to purchase a larger PV system. By doing so, the generated electricity could go beyond communal spaces, allowing residents to also benefit from it in their own apartment.

Decision making process

The shareholders needed to decide in the housing company’s general meeting regarding the solar PV investment and the participation in the FinSolar pilot project. Shareholders had different views and therefore it was difficult to reach a consensus. Furthermore, project opponents raised arguments against the profitability of the investment. The project opponents also considered the testing of a new model too risky, as it could have been non-compliant with the Finnish legislation after the end of the FinSolar project. On the other hand, the project leaders and supporters inside the housing company emphasized the importance of acting for the environment. Eventually, the decision was made by a vote.

Since the project was expected to reduce the general costs and the amount of needed capital was not so big, most of the residents did not see the low profitability of the investment as an obstacle so they voted in favor of the solar PV investment.

Ownership model adopted

The solar PV plant is owned by the residents through the Limited Liability Housing Company. In these companies, the number of shares that apartment owners hold depends on the apartment size and their payments to the common investments which are proportional to the shares. The solar PV plant is paid and owned by the residents in relation to their number of shares in the housing company. Therefore, the smart metering IT-service has a calculation algorithm that distributes hour by hour the solar electricity production to the apartments according to their size and percentage of shares.

Financing and economic viability

The cost of the system was approximately 13,000 € including 24% value added tax (VAT). The net present value (NPV) of the investment is approximately 5,000 €, the payback period of 21 years and the solar electricity production cost is about 8,7 ¢/kWh with an expected system lifetime of 30 years. The investment was financed with a bank loan.

Project implementation

Commissioned by the housing company, the roof renovation and solar PV system purchase was carried out by HSSR Oy company who specialize in renovation projects. All phases of the project implementation including permitting, tendering, supervising the installation works, etc. was covered by HSSR Oy. The IT service needed to allocate the solar power shares that were provided by the local Distribution System Operator (DSO) Helen Sähköverkko Oy. The housing management company Talohallinta Oy took care of all the contracts and paperwork. As a result, the project was very easy for the residents – they only had to make the decision on whether or not to invest in the solar PV system.

Project benefits

After the first year having solar panels in place, the housing company had made savings in the common electricity bills. This was felt as an encouraging result leading some of the residents to use the savings to purchase more plants for the gardens.

Barriers

Currently residents of the housing companies throughout Finland cannot produce solar electricity for self-consumption in an economically feasible way. The electricity market regulation does not enable the sharing of the solar electricity inside the property grid. Distribution grid fees and electricity taxes apply even when solar electricity circulates inside the apartment building through DSO’s smart meters. Consequently, once the FinSolar project is concluded residents of the housing company are at risk of not being able to use 20% of their solar PV production for self-consumption.

The Measurement Instrument Directive (MID) is another barrier for community energy IT services. According to the directive, consumers should be able to monitor directly from the smart meter’s display measurement values that are used as a basis of their electricity billing. Currently smart meters in Finland do not display hour-by-hour electricity consumption or production values.

In addition, the value added tax (VAT) procedures present a challenge as housing companies are required to report any surplus solar electricity sales (even 1 €/year) to VAT register. This bureaucracy increases housing companies’ financial administration expenses by a minimum 500 €/year, hampering the profitability of the solar investment. Housing company Haapalahdenkatu 11 is currently looking into alternatives to VAT registration such as selling their surplus solar electricity for free (0 ¢/kWh) to their electricity provider.

Main lessons learned

  • It is important to have determination and remain motivated to carry out a project and not be afraid if some vocal community members oppose it.
  • The majority of the community members can still support a project even though they are silent during the meetings in which the investment is discussed.
  • One should find the right partners that can help in completing a project, e.g. local DSO, project managers, companies specializing in roof-renovation, energy experts, and local community energy champions.

Project champions’ recommendations to policy makers

  • It is important to remove regulatory barriers so that housing company residents can produce solar energy for self-consumption.
  • Incentives, such as investment grants or low-interest loans could make investment decisions easier.

Authors

Karoliina Auvinen and Salvatore Ruggiero

Aalto University School of Business, Helsinki, Finland

Sources

Unsuccessfull community wind project in Lithuania by the Smalininkai village association

Highlights

  • The first community wind project in Lithuania was carried out by the Smalininkai village association.
  • Although the project had high expectations, it turned out to be unsuccessful due to the project’s low production of electricity and difficulties regarding project funding.
  • Companies have a significant advantage over community-based organizations regarding money borrowing for renewable energy projects.
  • A level playing field between firms and community-based organizations should be created.

Background information

In Lithuania, the smallest administrative division is called seniūnija, which translates to ward or eldership. Especially in rural areas, city wards are often organized in village associations which are often nonprofit organizations promoting economic development and representing the interests of local people.

Smalininkai is one of the 12 wards in the municipality of Jurbarkas in the Tauragė County. It is a small village but with highly educated people due to the fact that the village is home to a technical school. Similar to other rural communities in Lithuania, the city of Jurbarkas does not have enough resources to provide street lighting for the village. For instance, the main road in the Smalininkai village is about 3 km long but there are only 13 street luminaries. Furthermore, many of the roads are unpaved. Consequently, with no outdoor lighting and limited daylight hours throughout the winter months has led to no outdoor activities (such as markets). Furthermore, villagers feel that the lack of street lighting has contributed to the rise of acts of vandalism in public places.

Wind power development in the region started between 2007 and 2009 when wind power developers were looking for new areas of implementation. At that time, the state had an ambitious goal to go from approximately 50 MW to 200 MW of wind power capacity in two years thanks to a generous feed-in tariff. 

Brief description of what was done

In 2009, the Smalininkai’s village association opened the first wind power plant ever owned by a local community in Lithuania. When the project started it was considered as an example of good practice and received praise from the Minister of the Interior. The power plant consisted of a 250 kW wind turbine that was expected to generate power for the grid. The wind turbine was purchased from a German company that had its manufacturing plant based in India. Over the years, the wind turbine had various problems that could not be fixed and, therefore, only produced half of the expected electricity. Consequently, in 2017 the village association decided to sell the power plant to a private investor.

Project champions and motivations

The main project champions were the chairperson of the village association and another villager who was inspired by some of the wind farms that had been constructed in the region. The project champions wanted to invest in the wind power plant to generate revenues for improving street lighting, building pavements and public spaces, and funding youth projects in their village. They did not have any experience or skills in renewable energy projects but had sought the help from many consultants and other well-known experts in Lithuania.

Decision making process

The members of the village association, which mostly consisted of people living in the village, made all the decisions. All the members of the association were interested in the wind power plant and they were asked to vote on one out of several investment options. This resulted in the project leaders having support from all association members.

Ownership model adopted

The people living in Smalininkai had already established a village association back in 2003. The wind power project was carried out by this organization. A village association in Lithuania is an NGO and non-for-profit organization model aimed at promoting rural development. The Smalininkai association is very active and it has currently many projects in different fields including environment, health and economic development even though it only consists of approximately 40 members.

Financing and economic viability

The required funding for the wind project was 1,312,885 Lt (400,000 €). The original idea was to fund 40% of the project through a bank loan and the remaining  60% by a grant. The project had approximately 60,000 € of available funds and received pre-funding from the Jurbarkas District Municipality (6,000 €) and LEADER program (7,000 €). The project leaders had also applied for a grant from the Lithuanian Environmental Investment Fund. The project was eventually granted approximately 180,000 € but since the power plant did not reach its production goals, the money was never allocated. Therefore, the project was almost entirely funded with a bank loan from the Jurbarkas credit union totaling close to 300,000 €. The project was considered to be economically viable because of the high feed-in tariff. According to the project leaders’ expectations, it should have generated about 40,000 € a year and with the grant from the Lithuanian Environmental Investment Fund it should have had a payback period of 5-7 years. However, since the power plant produced only half of the expected electricity it did not generate enough revenues to cover the loan. By the end of 2013, the village association had managed to pay close to 30,000 € of the loan and finished the year with a loss of about 8,000 €.

Project benefits

Due to the low productivity, the project did not bring the expected benefits to the local community. Moreover, since the mass media gave a lot of attention to the story of the Smalininkai community power plant, it contributed to reduce people trust in community energy projects in Lithuania. For the project leaders, however, their experience was a valuable learning opportunity regarding community energy development in Lithuania. 

Barriers

The project faced numerous barriers with low productivity of the power plant being one of the projects key concerns. The project leaders did everything in their power to understand why their power plant did not perform as expected. They even invited the owner of the wind turbine manufacturing company to check the system, and found that everything was in order. Therefore, some people pointed out that the problem might have been with the wind speed. However, after checking the performance of other wind power plants in the area the project leaders realized that the wind speed was not the problem. On the market, there would have been better performing wind turbines with Vestas or Enercon, but the project leaders felt that they would have costed too much.

A number of other unfavorable circumstances also contributed to the projects defeat. Some of them include the fact that the manufacturing company had a change of ownership and the company that installed the power plant went bankrupted. As a result, it was extremely difficult to receive the maintenance service when the wind turbine stopped working.

Another barrier faced by the village association was difficulty in finding a bank that would provide them with a loan. This was due to the fact that, as they were the first community wind project in Lithuania, banks were not accustomed with the funding procedures for community-led projects. In addition, since the village association did not have any assets, the project leaders had to give their own houses as a guarantee for the loan. The interest rate on the loan was originally 6%, however due to the financial crisis that was striking Europe at that time, kept increasing until it reached 16%.

The established company that purchased the Smalininkai power plant in 2017 could easily borrow capital to refurbish the power plant. They were able to purchase a new wind turbine and also received funding for an estimated 200,000 € to cover the interests on the loan. This is in stark contrast to the difficulties which the village association had for borrowing money. Moreover, the private investor could also enjoy the original feed-in tariff granted to the Smalininkai power plant until 2021.

Main lessons learned

  • Buying a second-hand wind turbine from a well-known company is better than investing in a new one from an unknown manufacturer.
  • To promote renewable energy, a community does not necessarily need to invest in very expensive projects, but it can invest in smaller initiatives such as the installation of solar PV on a communal building.
  • There is too high of a risk to an individual to take out a loan for a high investment project.

Project champions’ recommendations to policy makers

  • Community groups and associations that want to invest in renewable energy projects should be given more favorable conditions for borrowing money. At the moment, only companies’ investments are supported.
  • A fund guaranteed by the state should be created for community energy projects. Community groups can borrow the money they need and pay it back as a project progresses so that the fund is not deplete over time.

Author

Salvatore Ruggiero

Aalto University School of Business, Helsinki, Finland

Sources