Natural Forces / Wind4All
The use of wind power to generate energy supply has grown by leaps and bounds on an international scale in recent years with more than 80 countries now using it as a source of electricity production, including Canada. Wind power continues to be one of the fastest-growing sources of energy in the world. It is an innovative industry creates new jobs, offsets emissions from fossil fuel-fired power plants and enhances security of electricity supply. It also generates billions of dollars in revenue every year.
Canada’s vast landmass serves as an endless hosting resource and currently powers one million homes.
Natural Forces Wind Inc., in association with Wind4All, is an innovative Halifax-based wind development company that manages the construction of wind turbines on wind farms, with a bulk of their current projects taking place in Nova Scotia. Natural Forces has expert engineers and scientists who are amongst the finest in the world at developing these types of energy projects. It is the responsibility of Wind4All to facilitate funding for the various projects. Each company within the Wind4All family is established by Natural Forces Wind Inc. The highly skilled team of nine professionals includes an executive branch consisting of Austen Hughes, John Brereton, Kelly Browne and Andy McCallum.
Natural Forces Inc. had its origins in Ontario in 2007, but it became apparent a plethora of opportunities were awaiting in Nova Scotia, and thus the move to the Maritimes. There are also projects taking place in New Brunswick and British Columbia. The Canadian Business Journal recently spoke with Austen Hughes, Vice President Operations, Natural Forces and President, Wind4All about the company’s expansion.
“We decided to focus our endeavours in the Maritime provinces and particularly Nova Scotia based on the COMFIT tariff (Community Feed-in Tariff),” he begins. “It was just starting to evolve through provincial policy. We identified an opportunity in Nova Scotia and as a consequence we moved the balance of our team from Ontario and established the office in Halifax and we just continued on to what have become our six sites in Nova Scotia.”
Wind Energy throughout the world is driven by government policy and Canada is no different. In this country it is regulated by the various provinces to which some have shown more interest than others.
The Community Feed-in Tariff, which is unique to Nova Scotia, is viewed around the world as a very efficient way of deploying community-owned wind energy development and Nova Scotia has certainly led the way here in Canada.
Through the Wind4All entities, Natural Forces has created a Wind4All company every year for the past three years with the express purpose of providing Nova Scotians an opportunity to invest in wind farms.
“So, I would invest in a Wind4All company and in turn that company would invest in one of our projects,” Hughes explains. “By that rationale the residents of Nova Scotia are given the opportunity to invest in a local wind energy project. Because of that investment we’ve certainly seen the public acceptance.”
Since 2006 the number of wind energy projects that have sprouted up across the country has been astronomical, and the numbers will only continue to rise.
“When I started working in this industry there was 413MW of large wind energy on the grid nationally. That figure is now approaching 7,000Mw,” Hughes mentions.
“We’re probably one of the only companies in the Maritimes with the breadth and the depth within our team; it’s about 45 years of aggregated experience across the team.”
The Community Economic Development Investment Fund is a pool of capital that is raised in the province of Nova Scotia for deployment into businesses. If deployed properly the companies can support local products and services while creating employment and by extension stimulate the economy.
“It’s been around since 1999,” Hughes confirms. “In the province to date, there’s been about 50 CEDIFs that have been established. They would raise capital by going through an offering, so they would go out to the market and sell shares. There have been about 125 offerings in those 15 years and about $65 million raised.”
As an incentive, the province of Nova Scotia offers up to 65% in non-refundable provincial equity tax credits to encourage local investors to participate. The CEDIF program helps to stimulate and keep investment dollars in the province and enables Nova Scotians to invest in wind energy projects that stimulate local economies throughout rural areas. The shares that an individual would be acquiring of the company bought into may also yield dividends over the years depending on the business plan of the CEDIF and the investment is also RRSP eligible.
“By way of example, the Wind4All family of CEDIFs that Natural Forces have established over the last number of years, we closed out our first CEDIF offering two-turbine project in Antigonish, which was closed in 2012,” Hughes shares. “We raised $2.3 million. Wind4All then took that $2.3 million and invested the net proceeds into the Fairmont Wind Farm.”
The Wind4All CEDIF owns 35% of the Fairmont Wind Farm and shareholders are already seeing tremendous returns on the project. Hughes and the rest of the team just paid their third dividend in the past several months to which they are extremely pleased.
In 2013, Hughes and Natural Forces team closed out their second CEDIF, raising $5.5 million. The net proceeds of that second raise were subsequently used to invest in two more wind farms in Nova Scotia. The company’s success continued in 2014 with the closing of a third CEDIF, with the funds being invested in a fourth wind farm. At the time of our interview with Hughes, the team was working on completion of a fourth CEDIF.
As Hughes points out, it’s not so much that other provinces are lagging behind Nova Scotia, as opposed to their policies being different. The CEDIF is unique to Nova Scotia. New Brunswick does have an equity tax credit, which allows the investor to receive a tax credit based on their principal investment, which is somewhat similar to the CEDIF program, with a few differences.
The CEDIF program allows for a 35% credit in year one, a 20% credit in year five and a 10% credit in year 10. In other words, if an individual were to invest $10,000, they would receive a tax credit in the first year of $3,500 – a provincial, non-refundable tax credit. In total, the investor would receive $6,500 returned by tax credits. The balance of the return would be made up by dividends, which in the case of the Wind4All companies would be generated through the sale of power to Nova Scotia Power.
Each time a new project receives the green light, another Wind4All company is formed and there is logic to having each one of them separated out individually it as Hughes explains it.
“Wind4All Inc. invested only in our Fairmont Wind Farm, which has been operating now for about two years,” he begins. “Wind4All Communities only invested in two wind farms, that being Hillside – Gaetz Brook, which is a two turbine project up in Cape Breton and a single turbine project, about a 20 minutes drive from Halifax.
Wind4All Communities Two is responsible for the Old Mountain Wind Farm, which is currently under construction. Our current offering, Wind4All Communities Four is looking to invest proceeds into one wind farm up in Cape Breton.”
The reason for taking this approach in having one CEDIF raised and then taking the proceeds and investing in a single project may seem like a complicated way of conducting business on the surface, but in reality it makes perfect sense. What Hughes and the team have noticed in the CEDIF world is that the vast majority of the money raised has been used almost like venture capital where the money is invested in extremely early-stage companies where the risk is at its highest and there is very little definition on where an investor’s money is ultimately going to go and how meaningful returns will be recognized. Each project therefore has a different level of risk involved.
“What we have done is almost switched this from venture capital to almost project finance where each of our Wind4All companies will not invest in a wind farm until certain milestones have been achieved.”
A number of important steps must be completed in order for any project to move forward. Take the company’s first CEDIF as example. Hughes and his team had to have: the wind farm as a development asset; a power purchase agreement signed with Nova Scotia Power; they had to have an environmental assessment and the wind resource assessment for the proposed project completed; the land had to be secured; and they had to have all of their permits in place. Until those five key milestones are accomplished the Wind4All CEDIF will not invest in a project. In doing that they are shielded from many of the development risks that one may expect if an individual were to invest in the very early-stage project. In Day One, the project coming to fruition is very high risk. In year three, when all the development work is completed, then the project is perceived as very low risk in terms of the eventual success.
“When we go to our investment community we can say to our investors that the eternal rate of return on your project is anticipated to be 13%,” Hughes says. “We can say that because we know the wind resources on-site because it’s already been measured, we know what we’re going to be paid for the power because we have a signed power contract, we know what the development and operational costs are going to be, so when you have all of that information generating a financial model that can look at the returns to the CEDIF is relatively straightforward and makes the investment opportunity very attractive.”
Costs over the lifespan of the turbines and a drastic cut in carbon dioxide stemming from some traditional power sources are two obvious advantages of this technology for energy generation. A European Union report on energy has revealed that onshore wind power generation is an inexpensive source of electricity, competitive with and in fact often cheaper than traditional sources such as coal, gas or fossil fuel plants. Wind energy production accounts for about 4% of total worldwide electricity usage, and that percentage is growing each year. It produces no greenhouse gas emissions during operation and uses very little land when compared with other forms of energy generation.
“From our standpoint, the nine turbines that our Wind4All family will have invested over the last couple of years we’re looking to offset about one million tonnes carbon dioxide or about 42,000 tonnes each and every year during the 20-year operational life of the wind farms, which I think is quite impressive,” Hughes proudly says.
Wind4All will be looking to power approximately 6,000 homes and the COMFIT program mandates that 100% of the power produced is consumed locally.
Without doubt, success is directly intertwined with the amount of average wind on any given farm, but a good rule of thumb is a 2MW turbine will be able to provide power to about 500 homes. Each of the turbines put up in the Wind4All family ranges from a power base of 2-2.3Mw but are now looking at turbines up to 3MW. The towers can be as tall as 98 metres and the blades as long as 45 metres.
Natural Forces and the Wind4All family of companies selected German manufacturer Enercon for its turbines. Some of the components of the turbine are manufactured in Quebec and Ontario and the other components are manufactured in Europe. Enercon has been in the business since the 1980s and are very trusted within the industry with a presence in Nova Scotia.
“One of the things we like about the Enercon turbine is that we have a very long warranty,” Hughes notes. “We can tie in with a 15-year warranty where other manufacturers don’t offer quite the same length. If you’re an investor in one of our wind farms it provides a lot of comfort to know that the turbine is under warranty for 15 years.”
The noise of the blades has been a source of criticism in some circles, with a percentage of the population complaining about possible side effects regarding health.
“The regulations should more than protect the people living in and around the wind farms,” Hughes responds. “For all of our wind farms that we have in Nova Scotia, they are all at least 1,000 metres away from the nearest residence. We have computer software that can emulate and predict what the noise will be at any given residency within a couple of kilometres. There are Health Canada guidelines that the province holds us to, which more than protects the residencies from some of the perceived negative impacts on the environment.”
With all the power being consumed locally as per the provincial legislation, all of the wind farms tie in to the lower voltage distribution system for Nova Scotia Power, meaning the largest project likely would not get beyond 10Mw in size, which would mean four or five turbines in one location at most.
Distance from the electrical grid, homes and businesses as well as a natural wind resource and environmental considerations are obviously some of the fundamental key factors in the geographic location of a wind farm. Aided by sophisticated computer software, the Wind4All team first began its site-finding process back in 2009, identifying the optimal locations for wind farm developments throughout Nova Scotia.
“What we end up with is a very strange looking map of the province that allows us to remove vast areas where know will not be a good location and what we’re left with is a much reduced area that may be suitable,” Hughes says. “From there we would start travelling around the province talking to local communities and landowners. Over the course of about 18 months we went from 140 sites down to the best 10 potential locations. From that list of 10 we have six approvals.”
Hughes and his team have partnered with a company that represents all Aboriginal bands in Nova Scotia. The Mi’kmaq are the founding people of Nova Scotia and remain the predominant Aboriginal group in the province. In total, there are 16,000 registered Indians in Nova Scotia and of these, about 6,000 live off reserve. The registered Indian population in Nova Scotia is represented through two tribal councils – the Confederacy of Mainland Mi’kmaq and the Union of Nova Scotia Indians – along with 13 band councils.
“We are going to be building a project with our First Nations partners towards the end of 2015,” he reveals. “There are another five or six projects that have got First Nations ownership. They’ve been very active in this program which is great to see.”
The Nova Scotia Community Feed-in Tariff (COMFIT) Program has provided encouragement to community-based, local renewable energy projects by guaranteeing a rate per kilowatt-hour for the energy the project feeds into the province’s distribution electrical grid. Through COMFIT, smaller producers have been able to supply renewable energy to their specific community. But the COMFIT program is winding down after first being deployed five years ago. In terms of policy, they’ve attracted the amount of new large wind energy that they were hoping to achieve.
“I would like to think that we, as a company, would be very much involved in the evolution of the next program that we hope will be unveiled in the next year and certainly we’ve been actively working in New Brunswick and starting the whole development process there,” Hughes states. “I would love to see Nova Scotia roll out a new program that would see more renewables projects come about.”
From an economic development standpoint one of the things Natural Forces Inc. is always trying to present are the benefits of wind energy, not only from an environmental perspective but also from a financial standpoint. The investments people have made in their Wind4All CEDIF and the money availed through the tax credits means investors are not paying as much tax as they would have done had they not invested in the CEDIF.
“We’ve raised, to date, approximately $11 million,” Hughes remarks. “Of that, about $3.7 million has been taken out of the economy via tax credits. That’s a lot of money for the province of Nova Scotia.”
The tax credit has allowed Hughes and his team to build their wind farms across the province. If they were to look at the entire 20-year operation of all their wind turbines, about $50 million has been spent to the point of energization and a further $50 million will have been spent through the 20-year operation.
“While we may have taken away from the provincial coffers to the sum of about $4 million, we’ve actually facilitated $100 million through the development of nine wind turbines.”
That is a nice rate of return no matter what the industry.