Business Plan For Cymdeithas Cwm Arian Association “To establish the Silver Valley area of North Pembrokeshire as an area of best practice for energy efficiency by providing a clean, renewable energy source.” Presented by Michael Parcell Business plan date 19th September 2009 Contact details Michael Parcell Llwynhelyg, Hermon, Glogue, Pembs. SA36 0DT Tel: 01239 831458 Email: mrjparcell@aol.com Contacts Client Michael Parcell Cymdeithas Cwm Arian Association Llwynhelyg, Hermon, Glogue, Pembs. SA36 0DT Tel: Email: 01239 831458 mrjparcell@aol.com Accountant Currently Cris Tomos is carrying out all accounting requirements of the renewable energy working group. CCAA will appoint accountants when the necessity for this arises. Bank The working group will set up a bank account specifically for the renewable energy project. This will be with the Charity Bank who will also help fund the project via a loan. Business Consultant West Wales Consulting Ltd PO Box 99 Haverfordwest SA61 9AR Tel: Email: 01550 777040. westwalesconsult@aol.com Renewable Energy Consultant (Feasibility Study) Dulas Ltd Unit 1 Dyfi Eco Park Machynlleth Powys SY20 8AX Tel. 01654 705000 Business Plan for Cymdeithas Cwm Arian Association Page 1 Table of Contents 1. Executive Summary 2. Business Background 4 8 2.1 Projected Business Activity 2.2 Legal Business Description 2.3 VAT Status 2.4 Owner’s Experience 2.5 Support Team 2.6 External Support 8 9 9 10 10 10 3. Aims and Objectives 11 3.1 Mission Statement 3.2 Business Objectives 3.3 Critical Success Factors 3.4 Key Performance Indicators 11 11 12 12 4. Delivery of Products and Services 13 4.1 Products and/or Services 4.2 Customer Service 4.3 Terms of Business 4.4 Technology, Processes and Equipment 4.5 Suppliers and Terms of Trade 4.6 Premises 4.7 Distribution 4.8 Legislation 4.9 Insurances 4.10 Future Staff Requirements 4.11 Employment Policy 4.12 Training Policy and Plan 4.13 Equal Opportunities Policy 4.14 Health and Safety Policy 4.15 Welsh Language Policy 4.16 Environmental Policy 4.17 IT and eBusiness Policy 4.18 Confidentiality Policy 13 14 15 15 15 15 19 19 19 20 20 20 20 21 21 21 21 22 5. The Market 23 5.1 Market Overview 5.2 Customer Profile 5.3 Competition 5.5 Competitive Advantage 5.6 External Influences 23 26 27 27 27 6. Marketing 30 6.1 Message 6.2 Positioning 6.3 Branding 6.4 Pricing Objectives 6.5 Price Determination 6.6 Price Adjustment Strategies 6.7 Marketing Methods 30 30 30 30 30 31 31 7. Sales 33 7.1 Sales Channels 7.2 Sales Personnel 7.3 Managing Enquiries 7.4 Invoicing and/or Payment Collection 33 33 33 33 8. Finance 34 8.1 Financial Accounts of Existing or Acquired Business 8.2 Financial Projections 8.3 Sensitivity Analysis 8.4 Existing Assets 8.5 Funding Requirement 34 34 34 34 34 Business Plan for Cymdeithas Cwm Arian Association Page 2 8.6 Sources of Funding 8.7 Assumptions 8.8 Case for Grant 8.9 Benefits of Grant 35 36 39 40 Appendices 40 Business Plan for Cymdeithas Cwm Arian Association Page 3 1. Executive Summary Purpose of Plan The purpose of this plan is to present a written document indicating how Cymdeithas Cwm Arian Association (CCAA) proposes to trade. This plan will be used to (1) ensure the renewable energy project is successfully developed and (2) thereafter, that its performance is monitored according to the plan. The plan may also be used to engage the support of appropriate third parties (banks, accountants, grant providers). Projected Business Activity The Ynni Cwm Arian Energy working group was formed to enable background research to be carried out into utilising Renewable Energy resources and to investigate Lowering Carbon Footprint by 50% and Energy Efficiency for local households in the Silver Valley area, and the Neighouring 4 wards of Clydau, Crymych, Trelech and Llanboidy in West Carmarthenshire and North Pembrokeshire. A study carried out by Dulas Ltd (with funding from PLANED and a small Sustainable Development Fund grant) identified a site that looked promising for the siting of two wind turbines on the hills behind Llanfyrnach. These wind turbines would provide income from selling the generated electricity to the National Grid; this would generate money that can be put back into the community for the benefit of its residents. On satisfactory completion of wind speed tests and gaining planning permission work will begin to build 1.2 million Megawatt turbines. It is estimated that from selling electricity generated to the National Grid, Cwm Arian will bring in an income of over £300,000 pa. Once costs are covered the surplus would be used for local community development. The purchase and installation costs of two turbines is circa £1,100,000 Committee Experience The key members of the Community Association who are going to take responsibility for this project are as follows: Mike Parcell – Design Engineer Cris Tomos – Chairman of community Bill Davies – Vice Chairman Aidan Langdon – Secretary Products and/or Services The wind turbines will be formatted as two 1200 kW turbines to give a total of 2400 kW. This will produce an estimated Annual output of 5,256,000 kWh based on the plant working at 25% of capacity. These wind turbines would provide income from selling the generated electricity to the National Grid. Once costs are covered the surplus would be Business Plan for Cymdeithas Cwm Arian Association Page 4 used for local community development and in the education of the local population in further energy saving techniques. Market The Renewable Obligation (RO) is the mechanism by which the Government is intending to achieve its target of 10% Renewable Electricity (RE) supply by 2010. It is a requirement on all licensed electricity suppliers in England and Wales to supply a proportion of their electricity from RE generation. The obligation on each supplier will rise to 10.4% by the year ending 31st March 2010. The RO will run until 2026 providing a guaranteed market for renewable energy. The expected market for eligible renewables is expected to expand three fold from the present level of 10TWh to 25TWh in 2010. Government estimates that by 2010 the Renewables Obligation and Climate Change Levy will be worth £1bn a year to the renewables sector. The Welsh Assembly Government has committed to achieving 800 megawatts (MW) onshore wind by 2010. This target was published in TAN8, their national planning policy statement on renewable energy. Financial Projections As a result of our findings we are very confident that a market exists for provision of renewable energy for sale to the National Grid and for the services that CCAA offer to the local community. As such, in the next five years we are confidently forecasting income and profits of: Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Projected Turnover £0 £9,616 £325,039 £336,939 £349,191 Profit Before Drawings/Tax -£83 -£15,184 £198,844 £208,231 £221,834 Funding Requirement The success of CCAA’s renewable energy initiative is dependent on an investment of £1,210,000 to cover essential start up and ongoing maintenance costs as detailed below: Development Costs Land Cost Wind Testing Cost Planning Cost £0 £0 £40,000 Business Plan for Cymdeithas Cwm Arian Association Page 5 Plant & Equipment Cost Building Cost Financial Service Cost Legal Cost Insurance Cost Project Management Other Project Start Up Costs £600,000 £386,600 £18,000 £4,500 £9,000 £25,000 £66,000 £1,149,100 Cash Flow Requirements Total Funding Requirement £60,900 £1,210,000 This investment will help ensure the successful launch and long-term prosperity of the wind turbine project. In addition, a restoration fund will be set up in order to establish an account that can be used to either restore the site at the end of the life of the project (15 – 20 years) or be used to re-instate a new turbine on the site. This will commence after five years of turbine revenue generation in order that ongoing costs can be reduced by repayment of much of the loans that are financing the project and a fund for the support of local initiatives and education can commence immediately revenue is generated. Sources of Funding CCAA hopes to raise the finance as detailed below: Source of Funding Unity Bank Low Carbon Communities Fund Community Share Offer (Credit Union Support) Other Funding* Total * Other Funding - Amount £300,000 £500,000 £300,000 £110,000 £1,210,000 is required in order to finance the Planning process (£40,000) and the repayments of the Finance Wales and Charity Bank Loans prior to revenue generation (£70,000). This additional funding will be via a combination of sponsorship, grant funding and other loan schemes which are to be identified. Case for Grant Due it’s environmental and community development nature, the CCAA wind turbine project will be eligible for some grant. The scheme will generate a significant new income stream into the local community and create both direct and indirect local employment. An example of an eligible grant scheme is Environmental Goods and Services for £20,000 of grant funding. Business Plan for Cymdeithas Cwm Arian Association Page 6 Benefits of Grant By supporting this scheme the Welsh Assembly Government (WAG) would demonstrate support of a community based environmental project. This project will also help WAG to achieve its commitments to their Renewable Obligation and to achieving targets set by TAN8. In addition permanent jobs and revenue will be generated within a rural community and there are no displacement issues. Business Plan for Cymdeithas Cwm Arian Association Page 7 2. Business Background 2.1 Projected Business Activity Achievements To Date The Ynni Cwm Arian Energy working group was formed to enable background research to be carried out into utilising Renewable Energy resources and to investigate Energy Efficiency for local households in the Silver Valley area, of North Pembrokeshire. Part of the work being carried out in the Heritage work identified various historical means of using water power on farms, mills and in Glogue Quarry. An investigation into the use of local streams for modern micro-hydro systems was carried out. This investigation identified one existing unused water turbine and three potential micro-hydro sites. A Preliminary Feasibility Study was produced which included calculations of potential energy production and example diagrams of installations. Using this study as an example of the Energy Group’s credentials, an application was made to the Pembrokeshire Coastal National Park Authority for a Sustainable Development Fund (SDF) grant to carry out a wider study into all forms of sustainable energy within the Silver valley area. In December 2005, the group was awarded a small SDF grant to employ a specialist company to undertake this study. PLANED also came forward with some match-funding to cover the ancillary costs of the work. After tendering, the work was awarded to Dulas Ltd of Machynlleth to carry out a feasibility study into the possibilities of using wind, water and biomass sources to generate electricity locally and to advise in the implementing of Energy Efficiency in the home. Over January, February and March of 2006, Dulas carried out site visits to investigate wind and water sites, met with the Energy Group and carried deskbased work using specialised computer packages. The finalised Renewable Energy Feasibility Study Report was presented to the Silver Valley association in late March and public meetings were held to broadcast the findings. In addition, a questionnaire was delivered by hand to all the households within the area to invite comment upon various aspects of Energy Efficiency and Renewable Energy. The study identified a site that looked promising for the siting of two wind turbines on the hills behind Llanfyrnach. These wind turbines would provide income from selling the generated electricity to the National Grid; this would generate money that can be put back into the community for the benefit of its residents. The micro-hydro and biomass options appeared less viable and have been put on hold for the time being. Business Plan for Cymdeithas Cwm Arian Association Page 8 A pre-planning application including the findings of the Dulas Report was submitted in May 2007 and the committee are awaiting a response from the planning department in response to this. Projected Activity The group is now considering the next phase of undertaking a detailed study of the identified wind-power site to take measurements over a period of 3-6 months. CCAA are investigating the possibility of using readings from another nearby site to satisfy this for planning application and financial forecasting purposes and it is assumed that this is possible within this plan. If this is not acceptable it is estimated that the study will cost circa £3,000 to complete and the committee are currently identifying possible funding options in order to proceed with this. At the same time CCAA will be identifying possibilities for funding the full project on the assumption that full planning permissions are gained and that the wind tests confirm the projections made within the Dulas report. On completion the two 1.2 million Megawatt turbines, it is estimated that from selling electricity generated to the National Grid, Cwm Arian will bring in an income of £300,000 pa. Once costs are covered the surplus would be used for local community development. The purchase and installation costs of two turbines is circa £1,100,000 2.2 Legal Business Description The proposed renewable energy project is currently being organised by Cwmdeithas Cwm Arian Community Association. However due to the significant investment and revenue potential involved it is proposed that a separate business entity is set up. The community Association will take legal, accountancy and business advice (including from the Wales Co-Operative Network) as to the best trading format for the new business. It is intended that the business will operate as a social enterprise. 2.3 VAT Status Having spoken to an independent energy consultant CCAA have been advised that they will have to become VAT registered on commencing the project and that energy sold to the national grid will be charged at 17.5%. The price per kWh quoted in the financial plan is inclusive of all Renewable Obligation Ceritificates (ROCs) and Climate Change Levy Exemption Certificates (LECs). Business Plan for Cymdeithas Cwm Arian Association Page 9 2.4 Committee Experience The key members of the Community Association who are going to take responsibility for this project are as follows: Mike Parcell – Design Engineer. Worked as an energy manager with local authority. Cris Tomos – Chairman of community Bill Davies – Vice Chairman Aidan Langdon – Secretary. 2.5 Support Team Dulas Ltd – Renewable Energy Consultants Welsh Assembly Government Pembrokeshire County Council Planning Department and Pembrokeshire National Parks Sustainable Development Fund Members of the Community Association The local population to Hermon and surrounding areas Land Owner, on whose property the turbines will be built. 2.6 External Support Source(s) of Funding: Accountant: Bank: Business Consultant: Finance Wales Unity Bank Sponsorship Earned Revenue Cris Tomos LloydsTSB Bank West Wales Consulting, Haverfordwest. Business Plan for Cymdeithas Cwm Arian Association Page 10 3. Aims and Objectives 3.1 Mission Statement To establish the Silver Valley area of North Pembrokeshire as an area of best practice for energy efficiency by providing a clean renewable energy source. 3.2 Business Objectives Year One Key Objectives Complete wind testing by January 2009 Obtain full planning approval by June 2010 Secure Funding required. Year Two Key Objectives Apply won funding to capital works Complete All building works and turbine erection by June 2011. Year Three Key Objectives Commence electricity generation in July 2011 Generate turnover of over £300,000 Employ a maintenance/monitoring employee in July 2010 Employ a community energy liaison officer in January 2010 Commence reducing Household Carbon Footprint by 50% Establish a profit level of over £190,000 for investment into local community schemes. Year Four Key Objectives Maintain all staffing in line with the plan Generate turnover of over £300,000 Set 10 year goals for a total annual Carbon Tonnage Reduction of 12,500 tonnes across 2834 house holds (population of 6,827) Establish a profit level of over £200,000 for investment into local community schemes. Year Five Key Objectives Maintain all staffing in line with the plan Generate turnover of over £320,000 Monitor Carbon usage to and average of 4.4 tonnes per household down from 8.8 tonnes Establish a profit level of over £200,000 for investment into local community schemes. Business Plan for Cymdeithas Cwm Arian Association Page 11 3.3 Critical Success Factors Gaining Planning Permission in a timely fashion and to budget Wind Tests support evidence from existing research to erect the turbines Support of Landowner Securing full funding to complete work Maintaining local resident support for the project Arranging or being able to provide facilities/services that local people want and are willing to support Monitoring each household Carbon Tonnage usage Maintaining the continued support of main stakeholders during the planning and building process Maintaining continuity and ongoing commitment of the existing Committee 3.4 Key Performance Indicators Results from the wind tests as compared with projections made within this plan. Price paid by the National Grid in comparison to projected pricing Actual kWh output level generated once in operation Revenue generated that can be used to support local initiatives The number of local initiatives promoted as a result of the project Reduction of 12,500 Carbon Tonnes per annum from 2834 households. The number of local residents directly affected by initiatives introduced as a result of the project Business Plan for Cymdeithas Cwm Arian Association Page 12 4. Delivery of Products and Services 4.1 Products and/or Services The potential technologies have been assessed by the ReSolutions team at Dulas and are summarised in the table below as the potential for implementation in Cwm Arian. This illustrates that other than general promotion of energy efficiency the Wind Turbine is the only suitable technology available for a large scale development in this area. For the full analysis of all the options available please see the ReSolutions Report. Wind Turbine The wind turbines will be formatted as two 1200 kW turbines to give a total of 2400 kW. This will produce an estimated Annual output of 5,256,000 kWh based on the plant working at 25% of capacity. These wind turbines would provide income from selling the generated electricity to the National Grid; this would generate money that can be put back into the community for the benefit of its residents. Once costs are covered the surplus would be used for local community development and in the education of the local population in further energy saving techniques. Carbon Foot Print Reduction & Energy Efficiency This community based education will focus on how sustainable energy can help to tackle many of the problems that confront individuals and communities in the following areas: Save money and reduce debts Reduce waste and improve the environment Improve housing conditions Create jobs and training opportunities Improve health Contribute to community regeneration This will be achieved via community initiatives and education that will focus on the following areas: Business Plan for Cymdeithas Cwm Arian Association Page 13 Using energy more efficiently Behavioural changes Measures (e.g. loft and cavity wall insulation) Appliances Reducing lighting costs Reducing water usage Low carbon technologies Using technologies which produce less or no carbon dioxide when generating energy Identification of grants available to community associations and individuals to help implement strategies Other Association Activity As well as the promotion of better energy efficiency to the local community, CCAA will also carry out work through a number of working groups in support of the local community in the following areas: The Environment Local Heritage Recycling Promotion of Tourism Promotion Business / Local Employment Development of Community Facilities/Resources Transport Traffic and Rights of Way. We have plans to utilise the revenues from the sale of wind energy assits with household revenue to be spent as follows 40% of revenue - capital cost grants to households for the installation of insulation/ draught-proofing, solar hot water systems, biomass heating systems and energy efficiency measures. 20% of revenue - refurbishment of community buildings followed by support for local affordable housing. 10% - information leaflets/ house to house training about carbon footprinting. 10% - initiatives that support a reduction in travel through the establishment of car-share schemes and timetabled bus services. 10% - support for local initiatives that assist with community carbon reduction (such as community composting initiatives, mobile shop/service provision) 10% - administrative fees Cwm Arian 4.2 Customer Service CCAA understand that they need the support of the local community if they are to achieve their mission. They encourage two way communications with local residents and hold regular meetings to show transparency and inclusion. A questionnaire has also been distributed to every household in the local area to encourage further feedback. Business Plan for Cymdeithas Cwm Arian Association Page 14 4.3 Terms of Business CCAA will offer standard trade terms with the National Grid for payment of electricity produced from the win turbines. 4.4 Technology, Processes and Equipment CCAA, in association with their support network, will make excellent use of technology and equipment to establish the feasibility of the site for wind power and the impact this will have on the local environment. This includes the software and equipment used to produce the Dulas Report as well as future use of anemometers to establish wind speeds at the site. On construction the site will offer two 1.2MW wind turbines. 4.5 Suppliers and Terms of Trade Post development there will be little requirement for formal suppliers. Where regular transactions are envisaged with a supplier trade account, terms of 30 days credit would be arranged. 4.6 Premises The map below shows the area in which the turbines are to be situated and the local area to be served: Business Plan for Cymdeithas Cwm Arian Association Page 15 Initial site identification was undertaken via a desk based study scoping the area for suitable sites for electricity generation using large scale wind turbines. Two sites were identified - these being at the cross roads above Rhos-y-llyn at grid reference 239 320, and along the ridge above Pantygwyddel at grid reference 230 300, as follows: Business Plan for Cymdeithas Cwm Arian Association Page 16 Preferred site due to good access thus requiring minimal roadway investment An idea of the sizes of such plant can be gained from the illustration below, as well as an indication of the level of electricity output. Using Windfarmer software and the GIS information which provides topographical information it is possible to assess the field of visual impact on the surrounding area. The map below shows the zones from where any installed turbines may be seen, based on the proposed 1.2MW machines, known as a Zone of Visual Impact (ZVI). Smaller machines will have shorter towers and a smaller blade diameter and hence will have less of a visual impact than the largest machines modeled. The ZVI generated is considered by Dulas’ experts to be favourable for the site, especially as there is little impact to the National Park. Business Plan for Cymdeithas Cwm Arian Association Page 17 Grid Connection It is known that the Dyffryn Brodyn windfarm connects to the grid at a substation in Llanfrynach. There should be potential to connect to the grid for the community wind power scheme at this point with the proximity to the potential site helping to minimise the capital cost of connection. Should the scheme proceed at the site a full investigation and negotiation with the network operator will be required. Ecological Impact Issues The impact of large turbines on the ecology of the surrounding area is relatively benign. The main impacts are during construction and installation when foundations must be dug and concreted; access roads and crane standings must also be built. The impact of these operations will be assessed, and mitigated, as with any construction works. On completion of the construction phase, foundations will be overfilled and made good allowing uninterrupted use of the land right up to the foot of the turbine tower. Access roads and crane standings will see a degree of vegetation overgrow reducing their visibility. Business Plan for Cymdeithas Cwm Arian Association Page 18 A full noise assessment, including background noise monitoring, would need to be carried out to assess whether it is feasible to have turbines of a particular size located on this site. 4.7 Distribution The energy produced by the wind turbines will be sold to the National Grid. It is however the revenue from this sale that will offer the real benefit to the local community. A more detailed analysis of the local population can be viewed in section 5.1. 4.8 Legislation CCAA will have to comply with Planning Permission rules and regulations including an Environmental Survey. Once the legal business type has been established the business will have to run within the appropriate legal framework. If details of committee members, member or donators are kept then the CCAA must comply with the Data Protection Act 1998, which covers confidentiality issues surrounding the retention of personal information. When CCAA provide employment they must comply with health and safety and employment law legislation. Key regulations include the: Health and Safety at Work etc. Act 1974 and the Health and Safety (Miscellaneous Amendments) Regulations 2002, which set out general obligations towards staff, clients and members of the public in terms of health and safety. Fire Precautions (Workplace) Regulations 1997 and the Regulatory Reform (Fire Safety) Order 2005. Other employment considerations include National Minimum Wage legislation, arranging employer's liability insurance and ensuring equality of treatment in recruitment. 4.9 Insurances It is estimated that insurance costs at the development stage will be circa £6,000 and that ongoing annual insurances during the life of the operational period will be in the region of £6,000. The insurer chosen will specialise in this type of installation. Business Plan for Cymdeithas Cwm Arian Association Page 19 4.10 Future Staff Requirements On completion of the project, CCAA would like to train a new employee to be responsible for the running of the project in the form of the ongoing monitoring and maintenance of the wind turbines. In addition, CCAA would like to employ a liaison officer whose responsibility will be to help educate the local community in relation to energy efficiency. This officer would also help with formal bids and awards of grants for energy efficiency initiatives within the community. A budget of £15,000 per annum has been set aside for employment. This will be £7,500 for the monitor/maintenance engineer and £7,500 for the community liaison officer. As well as direct employment CCAA will also generate significant indirect work such as installation of energy saving devices etc. 4.11 Employment Policy In all matters relating to future staff employment, CCAA will give utmost consideration to the preservation of good staff relations, training, development and employment best practice. 4.12 Training Policy and Plan CCAA will ensure that training requirements of the committee, volunteers and staff are monitored on a regular basis and that relevant training/development is provided where necessary or beneficial. 4.13 Equal Opportunities Policy All job applicants and staff in post will be treated equally regardless of ethnic or national origins, race, gender, age, disability, language ability, literacy, religious belief, sexual orientation or any other improper grounds. All employees are to be recruited, maintained in employment, trained and promoted on the basis of ability to fulfil the requirements of the role. The aim is to allow individuals fair and equal opportunities to develop abilities and realise potential. Also, to actively promote tolerance and understanding amongst staff based on an awareness of inherent attitudes, customs and beliefs of others. Business Plan for Cymdeithas Cwm Arian Association Page 20 4.14 Health and Safety Policy CCAA is committed to ensuring the health, safety and welfare of the public, its Committee, volunteers and any employees. CCAA will ensure that its statutory duties are met at all times. Each Committee member and employee will be given such information, instruction and training as is necessary to enable the safe performance of activities. It is the duty of the Committee to ensure that all processes and systems are designed to take account of health and safety. 4.15 Welsh Language Policy CCAA is committed to the promotion of the Welsh language. Signage and promotion will carry both Welsh and English. Also, new employees who are bilingual would be advantageous but not essential. 4.16 Environmental Policy This project is intended to become a model for an environmentally friendly community. It is also intended to be seen as a centre of best practice and education with regards to environmental and energy reduction issues. CCAA’s environmental and energy policies will include the following: Undertaking activities that are respectful of the natural environment and which seek to protect it Imparting knowledge indicating a caring, environmental stance Developing customers, suppliers and other stakeholders own responsibility and knowledge for protection of the environment Advising customers, suppliers and other stakeholders where possible on processes or options which help preserve the environment Choosing the most environmentally friendly route where requirements and economics allow Promotion of recycling and/or reusing materials used Promotion of safe disposal of any waste products which may be harmful to the environment Saving energy where possible and educating others of how to do this. 4.17 IT and eBusiness Policy CCAA is committed to the appropriate use of IT in delivering services and will seek advice as to best practice within this field. A review of IT usage and improvements to delivery would take place annually. Business Plan for Cymdeithas Cwm Arian Association Page 21 4.18 Confidentiality Policy CCAA will adhere to the Data Protection Act (1994) in all matters relating to customer, visitor, stakeholder and employee information that may be held. No information will be disclosed to third parties without the prior knowledge and consent of the persons concerned. Business Plan for Cymdeithas Cwm Arian Association Page 22 5. The Market 5.1 Market Overview Market Background Renewable energy sources have been known for many years, but it is only during the past 20 years that modern technology and investment has been applied to produce viable alternatives to fossil fuel that can produce energy on a useful scale. The stimulus to develop renewables is being driven by several factors: Carbon emissions from fossil fuels are causing global warming and there is pressure to reduce the amount of carbon dioxide produced in energy production. The UK is soon to become a net importer of gas and later of oil, as North Sea reserves are depleted. By 2020, the country could be dependent on imported energy for 75% of its primary energy needs. Rising gas prices. As a result renewable energy is now formally part of the government energy policy to reduce carbon emissions and to diversify the UK's energy supply. Alternative methods have to be found for: The Renewable Obligation The Renewable Obligation (RO) is the mechanism by which the Government is intending to achieve its target of 10% Renewable Electricity (RE) supply by 2010. It is a requirement on all licensed electricity suppliers in England and Wales to supply a proportion of their electricity from RE generation. The obligation on each supplier will rise to 10.4% by the year ending 31st March 2010. The RO will run until 2026 providing a guaranteed market for renewable energy. The expected market for eligible renewables is expected to expand three fold from the present level of 10TWh to 25TWh in 2010. Government estimates that by 2010 the Renewables Obligation and Climate Change Levy will be worth £1bn a year to the renewables sector. Industry Growth In 2005, the UK became one of only eight countries in the world to break the 1 gigawatt installed capacity barrier and the following graphs show that this period of growth is set to continue. Business Plan for Cymdeithas Cwm Arian Association Page 23 Source: The British Wind Energy Association (BWEA) Annual Report for 2005 Welsh Assembly Commitment The Welsh Assembly Government's has committed to achieving 800 megawatts (MW) onshore wind by 2010. This target was published in TAN8, their national planning policy statement on renewable energy. Energy Efficiency at a Local Level Via the program of community based initiatives and education, CCAA will aim to tackle some of the issues relating to domestic energy use as highlighted below: Domestic Households are responsible for 25% of CO2 emissions. This could be reduced to 18% through better energy efficiency. The average UK household spends £620 on fuel and power every year and could save £250 through better efficiency Households spending more than 10% of their income on fuel are in fuel poverty 1.2 million UK households are in fuel poverty Low income pensioners and single parents are at higher risk from fuel poverty 2 million gas customers are in debt (OFGEM) Business Plan for Cymdeithas Cwm Arian Association Page 24 30,000 people die of cold-related illnesses every year A third of all housing falls below the decent home standard Non decent housing leads to cold and damp-related illnesses such as hypothermia and respiratory problems Local Population Analysis - Census 2001 At the time of the Census in April 2001, the resident population of LSOA Pembrokeshire 001D (the LSOA in which the project is to be placed) was 1,124 of whom 49 per cent were male and 51 per cent were female. This compared with a resident population in Pembrokeshire of 114,131 people, of whom 48 per cent were male and 52 per cent were female. The average age of the population in LSOA Pembrokeshire 001D was 37.7 years. This compared with an average age for England and Wales of 38.7 years. Resident population: percentage in each age band, April 2001: The populations with settlements in the Crymych Electoral Division is shown below. Business Plan for Cymdeithas Cwm Arian Association Page 25 Settlement Population BRYNBERIAN 30 BRYNBWA 25 CROSSWELL 30 CRYMYCH 610 EGLWYSWRW 180 GLANDWR 55 GLOGUE 50 HERMON 185 LLANFYRNACH 60 PENYGROES 10 POSTGWYN 20 RHYDWENFACH 10 It is important to note that the settlements listed opposite are located within the Crymych Electoral Division (total population of 2,340) which covers a wider area than the LSOA on which the previous figures are based. The population in settlements within the Electoral division clearly shows that nearly half of the population live in rural locations outside these main settlements. It is estimated that through Analysis of these figures together with local knowledge and distribution and return of the questionnaires that the total local population in the three main areas directly affected by this project is roughly: Focus Population to kick off Low Carbon Reduction. GLOGUE 120 HERMON 385 LLANFYRNACH 110 Total Local Inhabitants 615 Wider 4 Wards Population and Households (2007 stats) Population Households Crymych 1,170 502 Clydau 1,494 640 Trelech 2,075 861 Llanboidy 2,088 831 Total 6,827 2,834 5.2 Customer Profile The customer for the generated power is clearly identified as the National Grid who are under pressure to increase energy from renewable sources in Wales in light of the TAN8 policy statement by the Welsh Assembly Government. In addition to the sale of energy CCAA’s customers can also be identified as the local residents of the area. Although these residents will not make a financial transaction they are the ones that will benefit from the direct action that CCAA will implement in the form of further environmental education as well as support of local causes that will aim to improve the standard of living for residents. Business Plan for Cymdeithas Cwm Arian Association Page 26 5.3 Competition Although there are other sites offering wind generated (and other renewable forms such as solar, hydro etc) power due to the commitments to the TAN8 policy it is estimated that demand for renewable power will continue to be greater than available supply for some time into the future. The lifespan of the CCAA project is 20 years and although the market place may have changed dramatically within this time (for instance the proposed wave power development in the Milford Haven estuary) it is still expected that there will be demand for as much energy that can be produced throughout the life of the project and certainly for the number of years until CCAA achieve breakeven. 5.5 Competitive Advantage CCAA will achieve competitive advantage through a combination of the following factors: Strong foundation of committee members who are committed to developing the project and helping the local community on a voluntary basis. Support of the land owners on which the wind turbines are to be sited. Support of the local community The ability to call upon other community based projects to establish best practice 5.6 External Influences The external influences relating to CCAA are shown below: Business Plan for Cymdeithas Cwm Arian Association Page 27 SOCIOLOGICAL TECHNOLOGICAL Pembrokeshire made up of 97% micro SME’s, very few large businesses. Internet allows quick, interactive and low cost communication. Pembrokeshire economy. service WWW and web site presence can aid business profile and generate business Population in rural and coastal areas is increasing, which means higher service sector requirement. Renewable energy sources such as wind power are capable of producing useful energy at local level. This feature could lead to a redistribution of energy with less reliance on a transmission network and more locally generated power. is primarily a Society is recognising the dangers of continued global warming and many are committed to reducing carbon emissions and supportive of Eco policies. Due to the visual nature of Wind Farms there will be the inevitable ‘Not In My Back Yard’ (NIMBY’s) response from areas within the local community. Wind Power is currently the cheapest form of renewable energy that can be produced on a large scale. ENVIRONMENTAL ECONOMICAL Planning sensitivities, especially in Pembs. National park area. Recycling and minimum wastage policies. Current significant central funds available dependent on project/business need for SME’s/social enterprises.(e.g. Objective 1/matched funding etc) Use of materials with high insulation/energy saving characteristics Subsidised consultancy fees for through central funding schemes. Environmental businesses commercial Grant funding available from various public bodies. Carbon emissions from fossil fuels are causing global warming and there is pressure to reduce the amount of carbon dioxide produced in energy production. Integration of the Euro into the UK over the next 5-10 years. grants for SME’s Salary/earnings levels in rural areas are below the Welsh average. National minimum wage The UK is now facing a situation in which it will soon become a net importer of energy, first for gas and second for oil. Although renewable energy will only make a small contribution to import substitution, its contribution will grow. POLITICAL LEGAL Welsh Assembly committed to development of SME’s in Wales Insurance implications such as vehicle insurances, public/ employer’s liability and PI. Stable political climate in Wales encouraging significant inward investment. National Minimum wage EU legislation regarding new entrants to EU. This could reduce the amount of fund available to support Welsh businesses. Ongoing commitment to regeneration in key areas in Wales. There will be continued pressure from the Government reduce carbon emissions Business Plan fortoCymdeithas Cwm Arian Associationand renewable energy will continue to be an important part of this strategy. Commitment to the Renewable Obligation (RO) is evidence of this. Data Protection Act Employment contracts statutory rights and employees Planning Regulations Page 28 Business Plan for Cymdeithas Cwm Arian Association Page 29 6. Marketing 6.1 Message To establish the Silver Valley area of North Pembrokeshire as an area of best practice with regards to energy efficiency and by provision of a clean renewable energy source. 6.2 Positioning CCAA will position themselves as a provider of a renewable energy source for sale to the National Grid. CCAA will position themselves within the community as a source of information and education in relation to energy efficiency and in the support of local good causes. 6.3 Branding The branding for CCAA as displayed on the Association’s web site is illustrated below: This branding is simple yet effective at portraying the environment in which the Association works. This, together with other marketing material and information published, will help to explain the particular challenges that the local area faces and strengthen CCAA’s message in facing these challenges. 6.4 Pricing Objectives CCAA will look to maximise the pricing received from the National Grid from the renewable energy production. Depending on the activity CCAA aims to provide other local services at a nominal rate or free of charge. 6.5 Price Determination Renewable energy price will be determined by the current price offered by the National Grid. Due to the size of the operation it is expected that there will be little room to negotiate pricing. Business Plan for Cymdeithas Cwm Arian Association Page 30 Where a nominal price is charged for CCAA’s other services/events this will be to cover costs incurred by the Association and to fund other projects or support local charities. 6.6 Price Adjustment Strategies Pricing for local services/events will be determined on a case by case basis and all pricing will be justified by a clear statement of how these funds are to be used by the Association. 6.7 Marketing Methods Direct Liaison with the National Grid Due to the government targets for renewable energy sources CCAA will not have to market their services to the National Grid but rather establish a communication structure to negotiate and liaise with the National Grid. This contact will be made via telephone, e-mail, letter, fax and face to face meetings where appropriate. Marketing of Other Services The revenue generated from the sale of energy to the National Grid is designed to make a difference to the local community in the form of education to reduce in energy usage and costs including awarding a number of grants to help make the changes required. In addition this revenue will help other community based schemes and local charities. It is this message that needs to be portrayed in order to help to establish local support for the scheme. After the scheme has been implemented and revenue is being received it is important that all events and initiatives are well publicised so that the largest proportion of the local community can be reached. In order to market these messages to the local community the following media will be utilised: Questionnaires – to establish the type of services wanted by the local community Newsletter – to maintain regular contact with the community and to notify of progress and future initiatives Leaflets – for promoting specific events Web Site with updates on the scheme progress and to notify of future initiatives Local Meetings – to act as a forum in which the community can voice their views Word of Mouth – CCAA should encourage the local community to discuss the initiatives being proposed Business Plan for Cymdeithas Cwm Arian Association Page 31 Local Signage – The Association will place local signs in strategic places around the local community in order to raise awareness of events. Press Releases - CCAA will make regular press releases to the local media such as the Western Telegraph and Radio Pembrokeshire to try and gain free exposure. Meetings/Events - The events organised by CCAA should be used as a platform in which to promote future events and initiatives. Business Plan for Cymdeithas Cwm Arian Association Page 32 7. Sales Current research indicates that the following turnover for CCAA is realistically achievable: Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Projected Turnover £0 £9,616 £325,039 £336,939 £349,191 It is important to note that further wind tests are to be conducted which will offer further evidence to projected turnover. 7.1 Sales Channels Any enquiries would be handled by the nominated committee member responsible for the activity in question. 7.2 Sales Personnel The chair of the management committee and other committee members will take responsibility for promoting the services and facilities provided. In addition other voluntary members of the local community may help to promote CCAA’s work through organised activity or word of mouth. 7.3 Managing Enquiries Enquiries about CCAA will be dealt with by a member of the management committee. All enquires would be dealt with within 48 hours. Enquiries would be dealt with via telephone, email and at organised events. 7.4 Invoicing and/or Payment Collection For the purposes of this plan it is assumed that payment from the National Grid will be on a monthly basis in arrears. Business Plan for Cymdeithas Cwm Arian Association Page 33 8. Finance 8.1 Financial Accounts of Existing or Acquired Business As the Renwable Energy project is being run by a new Working Group there are no existing Financial Accounts available. 8.2 Financial Projections As a result of our findings we are very confident that a market exists for provision of renewable energy for sale to the National Grid and for the services that CCAA offer to the local community. As such, in the next five years we are confidently forecasting sales and profits of: Year 2008-2009 2009-2010 2010-2011 2011-2012 2012-2013 Projected Turnover £0 £9,616 £325,039 £336,939 £349,191 Profit Before Drawings/Tax -£83 -£15,184 £198,844 £208,231 £221,834 8.3 Sensitivity Analysis The breakeven point of the business is shown below: Year 1 Year 2 Year 3 Income £0 £9,616 £325,039 Fixed Costs £83 £24,800 £114,945 Variable costs £0 £0 £11,250 Profit -£83 -£15,184 £198,844 Breakeven income n/a £24,800 £119,066 Year 4 £336,939 £113,708 £15,000 £208,231 Year 5 £349,191 £112,357 £15,000 £221,834 £119,006 £117,400 8.4 Existing Assets CCAA do not currently have any owned assets. The land on which the turbines will be built will be leased. 8.5 Funding Requirement The success of CCAA’s renewable energy initiative is dependent on an investment of £1,210,000 to cover essential start up and ongoing maintenance costs as detailed below: Development Costs Land Cost Wind Testing Cost Planning Cost £0 £0 £40,000 Business Plan for Cymdeithas Cwm Arian Association Page 34 Plant & Equipment Cost Building Cost Financial Service Cost Legal Cost Insurance Cost Project Management Other Project Start Up Costs £600,000 £386,600 £18,000 £4,500 £9,000 £25,000 £66,000 £1,149,100 Cash Flow Requirements Total Funding Requirement £60,900 £1,210,000 This investment will help ensure the successful launch and long-term prosperity of the wind turbine project. In addition a restoration fund will be set up to establish an account that can be used to either restore the site at the end of the life of the project (15 – 20 years) or be used to re-instate a new turbine on the site. This will commence after five years of turbine revenue generation so that ongoing costs can be reduced by repayment of much of the loans that are financing the project and a fund for the support of local initiatives and education can commence immediately revenue is generated. 8.6 Sources of Funding CCAA hopes to raise the finance as detailed below: Source of Funding Unity Bank Low Carbon Communities Fund Community Share Offer (Credit Union Support) Other Funding* Total * Other Funding - Amount £300,000 £500,000 £300,000 £110,000 £1,210,000 is required in order to finance the Planning process (£40,000) and the repayments of the Finance Wales and Charity Bank Loans prior to revenue generation (£70,000). This additional funding will be via a combination of sponsorship, grant funding (such as £20,000 from Environmental Goods and Services) and other loan schemes (such as Pembrokeshire Lottery Interest Free Loan) which are to be identified. CCAA will also approach the loan providers to establish the possibility of having a payment holiday at the start of the loan until revenue generation starts. Business Plan for Cymdeithas Cwm Arian Association Page 35 8.7 Assumptions The revenue and cost assumption on which the financial plan is based can be viewed in the following pages. Business Plan for Cymdeithas Cwm Arian Association Page 36 Cost Assumptions Development Costs Land Cost Wind Testing Cost Planning Cost Plant & Equipment Cost Building Cost Financial Service Cost Legal Cost Insurance Cost Project Management Other Project Start Up Costs £0 £0 £40,000 £600,000 £386,600 £18,000 £4,500 £9,000 £25,000 £66,000 Planning cost incurred in year one. All other development costs incurred in year two. £1,149,100 Jul £0 £0 £0 Year 1 Year 2 Year 3 Operational Costs Maintenance & Consumables Insurance Land Rental Business Rates Overheads Refurbishment Year 1 Year 2 Year 3 Year 4 Year 5 % Increase 0% 0% 0% 1% 1% Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total £0 £0 £0 £0 £0 £6,667 £6,667 £6,667 £6,667 £6,667 £6,667 40,000 £0 £110,910 £110,910 £110,910 £110,910 £110,910 £110,910 £110,910 £110,910 £110,910 £110,910 1,109,100 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 0 1,149,100 £53,663 £5,926 £8,015 £3,860 £9,475 £0 £80,939 The schedule for these costs are illustrated below: Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 £6,745 £6,812 £6,880 Business Plan for Cymdeithas Cwm Arian Association Page 37 Total £0 £0 £80,939 £81,748 £82,566 Revenue Assumptions Estimated Annual Production (kWh) Revenue Per kWh produced* Total Yearly Revenue 5,256,000 £0.0610 £320,616 *The revenue per kWh shown is inclusive of all Renewable Obligation Certificates (ROCs) and Climate Change Levy Exemption Certificates (LECs). Revenue Breakdown: Year 1 Year 2 Year 3 Year 4 Year 5 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 £26,718 £26,985 £27,255 Jun Total £0 £0 £26,718 £320,616 £26,985 £323,822 £27,255 £327,060 The assumption has been made that revenue per kWh produced will increase 1% year on year. Estimated Annual Production (kWh) is based on 25% of maximum production levels possible. It is important to note that no costs have been shown for investment by CCAA into community schemes. The level of investment possible is shown on the next sheet which summarises the total profit possible throughout the life of the scheme. Business Plan for Cymdeithas Cwm Arian Association Page 38 Summarised Breakeven and Whole of Life Project Profit/Loss Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Development Costs £1,149,100 Loans Repayments £13,010 £13,010 £13,010 £13,010 £13,010 £13,010 £13,010 £13,010 £13,010 Ongoing Maintenance Costs Revenue £80,939 £81,748 £82,566 £83,392 £84,225 £85,068 £85,918 £86,778 £87,645 £88,522 £89,407 £90,301 £91,204 £92,116 £93,037 £93,968 £94,907 £95,856 £96,815 £320,616 £323,822 £327,060 £330,331 £333,634 £336,971 £340,340 £343,744 £347,181 £350,653 £354,160 £357,701 £361,278 £364,891 £368,540 £372,225 £375,947 £379,707 £383,504 Cumulative Profit/Loss -£1,162,110 -£935,444 -£706,381 -£474,897 -£240,968 -£4,569 £234,323 £475,735 £719,690 £979,226 £1,241,357 £1,506,110 £1,773,510 £2,043,584 £2,316,359 £2,591,861 £2,870,119 £3,151,159 £3,435,010 £3,721,699 Assumptions: Development costs are those identified in the Dulas Report Loan Repayments - the assumption is made that all Development Costs are financed via a 10 year loan at 6% Ongoing Maintenance Costs and Revenue are assumed to rise by 1% each year Summary: Breakeven in identified as being achieved in Year 7 The total profit over 20 years is over £3.5m which can be used to support local community development. A separate fund for the reinstatement or rebuild at the site at the end of the life of the project must be taken out of the profit figure. Business Plan for Cymdeithas Cwm Arian Association Page 39 8.8 Case for Grant Due it’s environmental and community development nature the CCAA wind turbine project will be eligible for grant. The scheme will generate a significant new income stream into the local community and will create both direct and indirect local employment. An example of an eligible grant scheme is Environmental Goods and Services for £20,000 of grant funding. 8.9 Benefits of Grant By supporting this scheme the Welsh Assembly Government (WAG) would demonstrate support of a community based environmental project. This project will also help WAG to achieve its commitments to their Renewable Obligation and to achieving targets set by TAN8. the In addition jobs and revenue will be generated within a rural community. Business Plan for Cymdeithas Cwm Arian Association Page 40 Appendices SWOT Analysis Strengths Weaknesses Opportunities Threats Business Plan for Cymdeithas Cwm Arian Association Page 41 SWOT Analysis Strengths Dedicated voluntary committee with wide ranging skills Support of the land owner CCAA is an existing Association so the infrastructure is already in place to market this new project to the local community. Strong Community Spirit Attractive Rural Setting of the three villages Weaknesses Lack of experience amongst committee members in relation to setting up or running large scale energy projects. Reliance on external funding Reliance on planning permission Reliance upon voluntary help in order to establish the project Outside the TAN8 areas. Opportunities Ongoing Government support of schemes producing renewable energy Future Energy Initiatives Grant Funding Support Threats Wind Tests show that under 25% utilisation is possible Unable to obtain planning permissions Unable to secure external funding Resistance from the local community to the construction of wind turbines Business Plan for Cymdeithas Cwm Arian Association Page 42