Community wind projects are relatively rare, but allow numerous investors to share in the financial benefits of owning wind power. After the 2008 financial crisis, several projects were successful, tapping limited-time-only federal tax incentives.
In April 2013, John Farrell spoke to Brian Minish, CEO of South Dakota Wind Partners about a community wind project that attracted over 600 local investors. The project was the brainchild of four state organizations rooted in rural South Dakota–the East River Electric Cooperative, South Dakota Farm Bureau, South Dakota Farmers Union and South Dakota Corn Growers. Hoping to broaden ownership in a wind farm project proposed by Basin Electric in Crow Lake, these groups worked with Brian to figure out how to add local investors to the mix.
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Episode Transcript
| Wade Underwood: | Welcome to Local Energy Rules, a podcast about people putting together great community renewable energy projects and examining how energy policies help or hurt the development of clean local power. My name is Wade Underwood. This week John Farrell speaks to Brian Minish, CEO of South Dakota Wind Partners, a limited liability company formed to provide an opportunity for investment by South Dakota residents in the growing wind industry. Brian talks about his experience working with local groups to increase ownership in a South Dakota wind farm. Here’s John and Brian now. |
| John Farrell: | Welcome to the program, Brian. |
| Brian Minish: | I’m glad to be here. |
| John Farrell: | Now, one of the things that I thought was so interesting about this project, when I first heard about it is that it was kind of a piggybacking on a larger wind project. And then, you know, sort of take taking a few of those turbans, and finding a lot of different owners in South Dakota that could take part of them. Could you tell us a little bit about how that came together? |
| Brian Minish: | Yeah, it was, it was a nice partnership that came about when bass and electric was building the crow like wind farm, which is on your White Lake, South Dakota. And there was an interest amongst several groups here within the state of trying to find ways to get a broader investment group involved in wind ownership. And so the four groups the East River Power Cooperative, South Dakota corn growers, and be able to get these outside investors in Project intro, the gave us a call at a company called Valid Service Corp. And we did an analysis of whether we thought they would be feasible to structured in a way that we can attract, I would call ordinary investors from across the state of South Dakota. And we determined we could, especially since we were still eligible for the federal grant at that point in time. And so we structured it accordingly. And it took a few months or worked out the agreements with basins. And then went out and started raising capital in summer of 2010. |
| John Farrell: | Now, one of the things I think that’s particularly impressive about this project is the number of folks that you got involved. I believe there’s over 600 different farmers and other South Dakota residents that are owners of the seven turbines that are part of your project. |
| Brian Minish: | Yeah, that’s correct. We have about 614 investors, we structured the offering in a way that we hopefully would make it attractive to different groups of investors. We didn’t just go out to raise equity, we also raise the debt through the offering. And so it allowed us to have a couple of the different classes of shares, such that it was predominantly a debt instrument paying a fixed interest. And we were paying six and three quarters and 7% interest on those. And then we had one class that was predominantly an equity investments. So people that could utilize the earlier tax losses from the project. You know, the best intro they can they would make primarily equity investments, and work well, we we raise all the funds in about six weeks for meetings we held here across the state. |
| John Farrell: | Now there’s a lot of interest in figuring out how to replicate projects like this. And I wanted to highlight what you mentioned earlier that it was brought about in large part because of the availability of the cash grant. And for those who aren’t familiar, normally, wind project can use a tax credit called the production tax credit. That’s a payment of about two, I think it’s 2.2 cents per kilowatt hour of energy production. But for a limited time after the federal government passed its stimulus legislation, you could take a cash grant instead, can you explain a little bit about how that made it easier to do this project? |
| Brian Minish: | Yeah, there are basically were three options, you can take the production tax credit, or you can take the investment tax credit, which is a 30% tax credit, again, you need to have income that would be able to offset with a credit to make it useful. And then the third option was the tax rate. Or basically you could take that 30% investment tax credit as a cash payment instead of as a tax credit. And in doing that, that would make everybody eligible in our project to receive the benefit of the federal incentive that way because it would just lower the cost of the project and allow a lower equity level to come into the project and therefore have ownership worked very nicely for that and I would really encourage any legislators are looking at programs or renewal of the PTC to try and include that, again, it’s easier to aim for a community based ownership structure to be put together. |
| John Farrell: | Now, you know when we’ve spoken before, you’ve mentioned that there were a number of other groups and other states haven’t heard of your project that we’re interested in moving ahead. But now that the cash grant program has expired, sounds like that might not be as easy to do as it was for you to put your project together? |
| Brian Minish: | Well, yeah, I think it does make it a little bit more difficult, I think you can, you can still do it. We’re working on projects in New York, in Texas currently, where we’re still are having to go out in assuming that we have a production tax credit available after the first a year, where we would still have to find the cash equity investors that would come in, they can utilize the tax credit, and give, give them some ownership based off of their investment, utilizing the tax credits. And so it makes it more difficult to do, who’s usually you’re dealing with some major corporations can utilize those tax credits, the best versus other ways, one of the things we would like to see is if we could have some of the same benefits that govern oil and gas industry with limited partnerships, that would give the ordinary investor, the ability to use a taxpayer and get ordinary income. That would be a real help for community based programs. And we can extend past that incentive back down to the ordinary investor. |
| John Farrell: | Now, for those folks who aren’t familiar with it, this issue of ordinary income and, and other kinds of income, the problem that’s facing a lot of renewable energy projects that want to use the tax credits is that investors have to apply those tax credits against tax liability that comes from so called passive income, which is generally from certain types of investments, not from things like, you know, wages or salaries, etc. Is that correct? |
| Brian Minish: | Yeah, exactly. That’s that’s that’s the problem is that, you know, there’s not nearly the population of people that have the passive income from their investments is, obviously have ordinary income from their, their labor. |
| John Farrell: | And so like, the either the limited partnership arrangement that you were talking about, or a cash grant program, both are ways to get around that problem. |
| Brian Minish: | Yeah, very, both have been very helpful in helping us get that broader base of investment. |
| John Farrell: | Now, you had mentioned that you are working with some folks, you know, maybe in New York about putting this together, do you have hopes of doing projects in other states? Are there other folks that are trying to replicate your model that seemed like they’re going to be able to move ahead do? |
| Brian Minish: | Yeah, we’ve had, again, from some of the publicity that are perfect here in South Dakota, that we had several people contacting us and wondering what kind of replicated in their markets. And then, in the New York project, we’ve been able to go out and raise seed capital through a private placement and have that in place. And then we would have hoped to, to go out in a more broader, maybe interesting offering, like we did here in South Dakota, for the investment capital. But again, it’s going to take some identifying some people that can come in and utilize the tax credit to kind of put that whole piece together. |
| John Farrell: | One question, I wanted to ask you, since you mentioned, an interest rate offering this is kind of the key to one of the big pieces of putting together a community project is how do you raise that capital? There are a lot of interesting ways sort of under the Securities and Exchange Commission that you are able to put that kind of program together and that put limits on what kind of investor you can seek out whether or not they have to have a certain amount of income or assets. Be a wealthy investor, really, or there are some exceptions to that rule. And what you mentioned in terms of the intrastate offering, the limitation, as I understand is that you can only seek out people within a particular state, then that means there’s sort of a lower threshold in terms of filing with the SEC, etc. But for a community project doesn’t seem like that’s a terribly big barrier. |
| Brian Minish: | Well, yeah, what it does, is it gives you the ability to sell within any one particular state we many states have those provisions, not all the many do that allow you to have an offering within the state. Much like you’d have a federal securities offering in that you can advertise it, promote it, bring people and just limited to people in your state and then you are obligated to abide by the securities laws of whatever state you’re in. The other alternatives are to do private placements, where you’re only able to contact and sell to accredited investors. And there are certain income or net worth limitations on that, now that the rules of that are changing as we speak, and it appears that we’re going to be able to do a walk a wider level of promotion and advertising using the private placements than we have in the past, which might make it a better tool, have in the past for these types of offerings and leafleting rod and promoted and advertised, still needs to do with accredited investors. But you don’t necessarily have to have a pre existing relationship with him as we have in the past. And then the third option is to do a federally registered security where you offer it to anybody making live. But that has a lot more stringent time barriers and takes a lot more upfront capital and expenses with attorneys to get that through. So that’s kind of the last option. You can’t make one or the other to fit your needs. |
| John Farrell: | So this may not be entirely related to the private placement that you were discussing, although I’m glad to hear that might be getting a little bit easier to do. I know the federal government also passed what was called the Jobs Act earlier this year that is going to enable what they called crowdfunding, which would make it as I understand it a little bit easier to raise capital for community based projects. Now, I believe there’s $1 limit on that that will make it not particularly useful for community based wind projects, which are going to be more expensive than, say, a solar project. But it does seem like the regulations may be moving in the direction of making it easier to do community based projects. |
| Brian Minish: | Well, I think that’s that was the attempt to you right, the crowd funding is another another option. But you’re right, it does have limited, I think it’s a million dollars, is all that you could raise that way, which would be a pretty small project as far as a community wind project. So don’t look at that to be real helpful to us, I think the the private placement changes will probably have a more beneficial effect for community based projects. |
| John Farrell: | When you think back on what you did with the South Dakota wind partners, and getting all those investors together, what remains, in your mind is sort of one of the biggest barriers that you had to overcome to make that project successful. |
| Brian Minish: | Well, you know, you first have to find that that partner that would like to work with you, like we did in there, that was that’s something that might be difficult to replicate. But I think if you’re talking to Basin electric, I think you’d find that they found in the long term be very beneficial to them. One of the things that they did is they sold their renewable energy credits off to General Motors, and they’re able to build on General Motors was on your website, a really nice piece talking about the project and how they were able to tie the community into it. So I think it was very beneficial to them. And that’s what I liked about the project and why they wanted to buy those credits was because it was a community based project. So I think there’s a lot of reasons for some of the major wind builders to look at partnering with some local groups, because I think it makes the upfront process usually a little bit easier, as far as local buy in. And then I think there’s some real public relations of benefit for the organizations coming in and not just taking all the assets and moving the money out of state, but in ways to leave it with some of the currency so that local investors in the project and neighbors and community folks. So I think that that is one of the more difficult things to do find some somebody that’s willing to look deeply into what the dangers are be with working with a local group and have pride in the project locally. |
| John Farrell: | I’m always optimistic that people will pick up on that a little bit more. One thing you mentioned, when I interviewed you, in 2011, about your project was that you said that local ownership like with the South Dakota wind partners can help produce opposition to wind power projects. And so that’s been kind of a growing problem for some of the utility based or larger corporate finance projects. So it seems like there might be an opportunity there as well, where you know, that tie in to the community is what can help those projects continue to move forward? |
| Brian Minish: | Well, I think absolutely. I know, in New York, it’s been very helpful for us to be able to have the opportunity for everybody in the community to be invested in the project. And as a result, we’ve had very little opposition. And that project continues to move in nicely and I think in large part due to the fact that we have currently 75 investors are still in the community that are invested in the project. |
| John Farrell: | Well, Brian, if folks want to learn more about your project or about the services that you provide putting together committee based projects, where should they go? |
| Brian Minish: | Well, the South Dakota Wind Partners, we have a website SD Wind Partners dot com and then our company Valit Service Corporation just well as services comm is where you can find us. Or you could call it 605-366-2373. |
| John Farrell: | Brian, we really appreciate you spending time with us this morning and great work out there. We hope to see some more project soon. |
| Brian Minish: | Yes, hopefully we’ll be able to be talking about a couple other projects in a year so that we’ve been able to get that in, in that same fashion. |
| John Farrell: | Terrific. Well, we’ll hopefully have you back then to talk about those as well. Thanks again, Brian. |
| Brian Minish: | Thank you. |
| Wade Underwood: | That was John Farrell and Brian Minish. Brian is the CEO of South Dakota Wind Partners. For questions or comments, please email [email protected] with Local Energy Rules podcast in the subject. John’s Twitter handle is John F. Farrell. This podcast was published on April 18 2013. Thanks for tuning in. |
The project took shape in the shadow of Basin Electric‘s proposed wind farm near Crow Lake, with local farmers and other South Dakotans interested in taking part in the wind project. The result was a community-based carve out of the 100+ megawatt facility: 7 turbines owned by over 600 farmers and local residents. The turbines were constructed as part of the larger wind farm, and the Wind Partners organization contracted with the cooperative electric utility for operations, maintenance, and purchase of the electricity.
Brian Minish helped structure the offer to investors, using the now-expired federal cash grant (in lieu of the Investment Tax Credit) to broaden the opportunity for more local investment. Each of the four organizations kick-started the fundraising with $20,000 and shares were sold in increments of $15,000 to other investors.
As Brian notes during the interview, South Dakota Wind Partners (SDWP) structured the offering in a way that would make the program available to different groups of investors. Some were able to invest as equity partners and share in the tax losses generated in the early years, while others just wanted a fixed return on the debt (basically making a fixed interest loan to the project).
Brian attributes much of his success with SDWP to the willingness of Basin Electric to partner with local groups, making the process easier for everyone involved. He continues to work with a number of groups in different states hoping to replicate the success of SDWP.
Unfortunately, the federal cash grant has since expired, making it more difficult to make investment open to normal investors. In a previous interview, Brian notes that federal renewable energy policy matters a lot for community-based projects like South Dakota Wind Partners.
“There’s a lot of political benefit in letting local people become investors in the project,” Minish said, “local ownership can help reduce opposition to wind power projects.”
Brian keeps searching for ways to open up opportunity for community-based energy projects and overcome barriers, and he may be having some success. The SDWP website (now defunct) highlighted two other community-based projects, one in New York (Black Oak Wind) and one in Texas (operated by Tri Global). It’s a good sign that, despite the challenges, SDWP may be a model for community wind around the country.
This is the 7th edition of Local Energy Rules, a new ILSR podcast that is published twice monthly, on 1st and 3rd Thursday. In this podcast series, ILSR Senior Researcher John Farrell talks with people putting together great community renewable energy projects and examining how energy policies help or hurt the development of clean, local power. Click to subscribe to the podcast: iTunes or RSS/XML, sign up for new podcast notifications and weekly email updates from the energy program!
Photo credit: Flickr user tinney
