In February of this year two Danish community energy charities took an innovative approach in their joint tender for the construction, maintenance and ownership of 350 MW of offshore wind turbines. Wind People Denmark and Aeroe Island Renewable Energy Fund launched a crowdfunding campaign with the support of Denmark’s largest supermarket chain, Coop Danmark, to raise 30 percent of the funding required for the bid and the project if the bid was successful.
According to an article in The Energy Collective, Danish citizens would be able to buy shares valued at DKK 5,000 (€670) each for DKK 1,500 (€200) per share through a simple online purchase. Meanwhile, renewable energy financial advisors, Green Giraffe, arranged the funding for the remaining DKK 3,500 for each share. Coop Danmark had agreed to promote the share sales through their 1,200 stores across the country.
Lea Vangstrup, the director of the “Wind & Welfare” crowdfunding campaign, was very confident of the plan. With a forecast return of 9 percent per annum for 20 to 25 years, the investment should be comparatively secure one for shareholders. She says that there is strong support for renewable energy in Denmark and that previously publicly-offered share sales had proven very popular on a local scale. Only DKK 50 (€6.70) from each share would be used in the bidding process, and this would be non-returnable if the bid failed. Shareholders would still get DKK 1,450 back if the bid failed, making it a low-risk investment.
Wind & Welfare worked to ensure their bid met the Danish Energy Agency’s technical competency requirements by signing up lawyers, engineering, delivery and service teams with previous experience in renewable energy projects. Engineering giants Siemens even offered Wind & Welfare the option of a complete turnkey solution, including the installation, operation and maintenance of the turbines.
However, after receiving five bids for the turbines and consulting with the State Attorney and Deloittes, the DEA added a criterion that consequently ruled out the crowdfunded bid. The condition was that all bidders should have an average annual turnover over three years of DKK 4bn (around €536m). The DEA said that compared to their previous tender, the criteria had been lowered to open up the market and thus increase competition and lower electricity prices.
Wind & Welfare hit back, claiming that the turnover test actually discriminated against smaller organisations and discouraged competitive pricing by limiting those capable to mounting bids for renewable energy projects to a small and exclusive club. Ms Vangstrup believes that the average price of DKK 0.70 per kWh can be cut, and that a community-based company would be more interested in delivering electricity at the lowest tariffs because the owners are also the consumers paying those tariffs.
She says that it is in the interest of shareholders of larger renewable providers to keep margins comfortably high – simple economic theory would suggest of course that she is correct! The agreements with suppliers to provide a turnkey solution meant there could be no doubt of the technical competence of Wind & Welfare’s bid, and Ms Vangstrup argues that their project-specific equity makes them a very strong financial bet.
The Danish Energy Agency has continued with the tendering process, which will close in the spring of 2016, while the Wind & Welfare team is contesting the DEA’s decision to exclude their bid through the Danish Courts. EU Directives require prequalification criteria to be proportionate to the value of the bid, and Wind & Welfare argue that the turnover requirements were disproportionate.
A judgement is expected in October, and if their appeal succeeds, the prequalification process will need to be re-run. It may also provide some interesting case law that may have implications for how many contracting authorities define prequalification criteria and set limits of bidding organisations based on turnover or similar measures.
The crowdfunding option for public projects is another novel and interesting aspect here. The large financial institutions are already under attack from new organisations with different business models in a number of their traditional business areas, such as peer to peer lending. Might this be the start of another challenge to their dominance, this time in the area of large-scale public infrastructure funding?