Business Models
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Business Models Suitable for implementing Renewable Energy in the Agrifood sector
The range of potential applications of renewable energy in the Agrifood sector is very large. Depending on the technology being considered, projects can be very small, such as installing a solar or other renewable energy heating system for a house or building, to very large and complex ones, such as the consideration for a large liquid biofuels plant or a wind farm. The purpose of this summary is to briefly outline the various business models and point out that investments in renewable energy projects are not any different from other investments being undertaken by the decision maker – farmer. The main considerations for choosing a particular model include the following:
- Ownership
- Decision making process
- Legal Set-up, including local legislation, cost to set-up and operate
- Financial issues such as the need to keep accounting records and books, financial liability, distribution of revenues and losses, and other
- Tax implications, including income tax, GST, PST and other
- Survival issues and potential for conflicts of future generation owners
- Miscellaneous other considerations such as impacts on local economy, cultural barriers, team work, etc
Briefly then, here are the main business models and their main features. There are many other variants, and it is recommended that in cases other than a sole proprietorship model for a small project, project proponent(s) seek legal advice.
- Sole proprietorship of a project by a farmer or a small business is a straightforward transaction. Advantages include the simplicity of ownership, low cost of establishing ownership, high personal motivation and freedom of action in terms of making decisions and privacy of transactions. There is no need to publish financial statements. Success or failure of the project is the sole responsibility of the owner assisted as required by technical consultants, his/her accountant and bank manager. The disadvantages on the other hand include unlimited liability, limited talent and capital, lack of continuity and the possibility of high income tax.
- Partnerships can be useful developing, establishing and operating larger projects where, in order to achieve efficiencies, there is a need for larger inputs in terms of feedstock, capital, labor and other. Other advantages of this arrangement include sharing the liability, work load and management issues. The drawbacks are the need to have clear rules for addressing problems, need to maintain books, sharing the profits equally, and hence being taxed at the personal tax rates, and uncertain fate of the business arrangement beyond the life of the partners. Partnerships in Canada come within the jurisdiction of the provinces. There is a need to establish a partnership agreement with clear rules of operation.
- Co-operative ownership of projects in the Agrifood sector is often attractive in that they allow several people to join in. Decision making is usually on a consensus basis or through the one vote per member principle. Starting a cooperative can be simple if there are only a few members, or can be quite complex if many members join. Financial liability is usually limited to the initial investment by each member. There is a need for books and records to be kept.
- A corporate arrangement is often the one preferred for larger projects. It offers the usual advantages of a corporate legal entity, including limited liability, tax advantages, and professional management of the business. The disadvantages include the arms length relationship of the shareholders and hence limited involvement in the day to day management of the business and the need and costs for keeping and publishing accounts. The incorporated model is often quite common in large farms. The implementation of a sustainable energy project can come either under the ongoing activities of the existing corporation or register a separate one, specific to the project.
A more detailed description of the advantages and limitations of each business model can be seen in the Table that follows this note.
Busniess Model Comparison
Click here to view the table.
Modified: 04-02-2008
