Memorandum of Understanding for community shared ownership of Sallachy Wind Farm

 

Project name: Memorandum of Understanding for community shared ownership of Sallachy Wind Farm
Technology: On-shore wind (pre-planning consent)
Location: Loch Shin, Sallachy Estate by Lairg, Sutherland
CARES funding: Enablement grant
Date installed/operational: Memorandum of Understanding completed March 2021. Planning is subject to approval. If approved, it is estimated that construction will begin in Q2 of 2023.

Background

WKN GmbH is a German wind energy company and has been a project developer in Europe for almost 30 years. It is developing a wind farm of approximately nine wind turbines totalling up to a maximum of 50MW on the Sallachy Estate near Lairg, in Sutherland.

WKN approached the local community early in the design process with a Memorandum of Understanding, offering it the opportunity for 5-10% community shared ownership in Sallachy Wind Farm.

This shared ownership opportunity is in addition to £5,000 per MW per annum of community benefit payments, which is in accordance with the Scottish Government’s good practice principles. WKN also produced a separate draft Memorandum of Understanding for community benefit payments for consideration by the community.

The local community

The communities involved are six community council areas in central and north-west Sutherland:

  • Ardgay and District
  • Creich
  • Durness
  • Kinlochbervie
  • Lairg

These are covered by five local community development groups:

  • Durness Development Group Ltd
  • Kinlochbervie Community Company
  • Kyle of Sutherland Development Trust
  • Lairg and District Community Initiative
  • Scourie Community Development Company.

WKN asked that Local Energy Scotland give its community partners impartial advice and support in discussions about the shared ownership opportunity.

Local Energy Scotland held an information event about the Scottish Government’s Community and Renewable Energy Scheme (CARES) and community shared ownership in Ardgay in October 2018. At this event it was agreed that the Kyle of Sutherland Development Trust (KoSDT) could apply to CARES. It also had the best staff resources and business premises to lead the project on behalf of all of the 5 communities.

KoSDT applied for a CARES enablement grant to pay for professional legal and financial advice, including advice on the draft shared ownership Memorandum of Understanding and project management support. The grant was awarded in March 2019.

Project aims and objectives

Because the wind farm does not yet have planning consent, the community was unsure if it would ultimately be able to achieve shared ownership of the wind farm.

However, the community was very keen to get an idea of the potential income it could expect if the project goes ahead, as well as the overall feasibility of the project. This would enable it to prioritise the project appropriately in their existing community development plans. The exercise would also inform Local Energy Scotland and stakeholders in other similar projects what could be achieved during the pre-consent stage of a project.

KoSDT conducted an invitation to tender exercise on behalf of the community in June 2019. The process was supported by Local Energy Scotland’s shared ownership manager and its local development officer for the Highlands, using its online framework of contractors, invitation to tender templates, and guidance documents.

KoSDT appointed legal and financial advisors to advise the community, with KoSDT providing further project management and administrative support.

Outcomes and achievements

The community received financial advice which confirmed that there was insufficient financial information available at the project’s pre-consent stage to advise them on the income it could expect from the project. Reliable financial information would not become available until the post-consent stage, at around the time of a final investment decision by the project owner.

However, the community received the legal advice it needed which enabled it to complete the Memorandum of Understanding with WKN, the project owner. This was completed in March 2021.

The Memorandum of Understanding represents a statement of intent and is not intended to be legally binding, but it includes the following key information.

  • The definition of the project owner and community organisations involved in the shared ownership opportunity.
  • The community company structure required to make the community shared ownership investment – for example, through a single special purpose vehicle company involving all of the communities.
  • The preferred community shared ownership model (eg revenue sharing), in accordance with the Scottish Government’s good practice principles.
  • Any other financial opportunities on offer – for example, alternative financial benefits.
  • A timeline to finalise the community shared ownership model and produce a financial term sheet (eg post-consent, around the time of a final investment decision by the project owner).
  • A timeline to produce an investment memorandum (eg as soon as reasonably possible after the final investment decision).
  • A timeline for the community to make its final investment decision based on the investment memorandum (eg as soon as reasonably possible, post-receipt).
  • A timeline to produce and complete a community shared ownership agreement (eg as soon as is reasonably possible after the decision by the community to proceed).

Lessons learned 

Mark Brennan, Shared Ownership Manager at Local Energy Scotland, said:

“The greatest difficulty we encountered during this project was trying to estimate the financial benefits that the community could expect from the shared ownership project. There was no way of knowing what scale of project might receive planning consent (if at all), when this might be, or what the commercial situation in detail would be at that time.”

Mark adds: “The process of negotiating and agreeing a detailed Memorandum of Understanding is a significant milestone; it has enabled both the communities and the project owner to formalise the shared ownership opportunity. It also helped the communities to better understand what is involved, and what is to be expected in terms of financial information.

“It was agreed by all involved in the process that consulting with the community early on was very worthwhile for all concerned.”

A template memorandum of understanding/heads of terms document and guidance notes are available from Mark Brennan, Shared Ownership Manager.

Next steps

A planning application for Sallachy Wind Farm has been submitted to The Highland Council and is under consideration.

Visit the Sallachy Wind Farm website.