What’s Different About WCE?

WCE structures our wind projects like many other developers do, as Tax Equity Flip Projects. Basically the structure boils down to bringing in a tax motivated investor to realize the tax benefits that flow from wind projects, and after the investor has achieved their desired return on investment, the project ends up being owned by the developer. We will get into further details in a moment, but the key takeaway is that the developer ends up owning the project.

Landowners own land. It is their job to utilize the land to yield a revenue stream. The land might contain a farm or ranch, a business, a school yard, a gravel pit, a stand of timber, or prime hunting ground. Landowners have grown fairly comfortable over the years leasing their land to various users. For instance, a lease could be written that allows ranchers to run cattle, farmers to farm wheat, loggers to log timber, cell tower companies to transmit cell signals, miners to mine, or hunters to hunt. A land lease has become the standard way by which landowners allow interested individuals or companies to have access to the land for purposes of conducting a stated activity for an agreed upon time period and price. Each land lease has its own set of rules, outlining such things as access, who’s responsible for what (e.g. are you salting your cattle or am I?), and what to do if something goes wrong.

Wind developers need land. It is their job to find windy pieces of earth that have a viable way of getting energy to market so a willing buyer will pay them for the produced energy. Wind developers have gotten pretty good at negotiating land leases with landowners for the right to install turbines. These leases contain the terms and conditions by which the developer is allowed to install turbines, spell out the period of time the wind project is allowed to operate on the land, and state the agreed upon price the developer will pay the landowner. In addition to up-front signing bonuses and construction payments, traditional wind energy land leases typically compensate landowners by paying a fixed percentage of the project’s gross annual revenues and/or a fixed $/turbine fee.

WCE is a developer. It is our job to take care of a given project’s legal, finance, permitting, engineering and design, construction, and operations and maintenance. However the key difference between WCE and nearly every other wind developer out there is how we compensate landowners for the right to build a wind farm on their ground.

Prior to forming WCE, the founders had traditionally operated on the side of the landowner. They helped landowners prove their wind resource, study their transmission, figure out the permitting strategy, and understand how a wind project came together. They liked working on the landowner side of the equation because they came from rural America and identified with landowners. Plus they just wanted to make sure that the landowners got a fair shake. They didn’t want to see landowners taken advantage of and wanted to make sure that landowners struck the best deal possible. However, they were increasingly frustrated because many of the landowners they tried to help could never quite get their projects across the finish line. Typically this was due to a lack of time and money, but another key reason was their lack of knowledge about how wind projects are regulated, designed, financed, structured, built, and operated. Landowners are typically very good at raising cattle, growing wheat, harvesting timber, or mining ore, but they were simply out-gunned when it came time to putting wind turbines up.

So in October of 2007 when WCE was formed, it was agreed that if our goal was to leave as much value with the landowners as possible, we were going to need to assume the role of developer. However we quickly surmised that the typical land lease approach to working with landowners was not going to get us there. The founders agreed that offering landowners ownership in the projects that were built on their ground was going to be the foundation upon which WCE grew.

Subsequently, offering ownership has become the distinguishing feature of how WCE works with landowners—we partner with the landowners we work with instead of just leasing their ground to put wind turbines in the air. We still have a 35-year land lease that establishes the terms and conditions by which we will be allowed to build a wind farm. However instead of offering our landowner partners a given percentage of gross revenues or a stated $/turbine, we provide our landowners with a 20-50% equity ownership stake in our projects. By being a co-owner in the wind farm, our landowners move from being a line item expense in a wind project’s annual operating expenses, to a partner that receives 20-50% of the project’s net annual cash flows. The key takeaway is when landowners move from being an annual operating expense to a partner who shares in the project’s success, WCE’s landowners end up earning 3-10 times more cash than a standard developer’s land lease payment.

So it is our approach to working with landowners that sets WCE apart from other developers. We still do the same exact same things other wind developers do, we just leave more value with our landowners by providing equity in the projects we develop. If we didn’t offer equity in our projects to our landowners, we could have named the company “Western Energy”. But by allowing our landowners to participate as owners of the wind farm that is sited on their ground, we by definition are community wind developers—and that is why we choose the name “Western Community Energy”.