Iowa Wind Entrepreneurship Workshop Steps in Organizing, Utility Agreements, and Financing
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Transcript of Iowa Wind Entrepreneurship Workshop Steps in Organizing, Utility Agreements, and Financing
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Iowa Wind Entrepreneurship Workshop
Steps in Organizing,Utility Agreements,and Financing
October 21, 2005
Iowa Community Entrepreneurship Academy
Manning Hausbarn Konferenz Centre
Thomas A. Wind
Wind Utility Consulting
Jefferson, Iowa
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Organizing a Wind Farm
• It all starts with one person with an idea or a dream!
• Someone has to be the promoter or champion that is willing to take the lead and do some leg work
• Learn all you can about the wind industry
– Visit with others who have done what you want to do
– Attend conferences
– Internet research
• Decide if you want to do a project by yourself or partner with others on a larger project.
Attend Seminarsand Conferences
Neighboring FarmersOrganizing a Wind Farm
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Examples of Locally-Owned Projects in Minnesota
MinWind 1 & 2• 4 x 950 kW turbines• 66 farmers invested cash
for equity (40% of cost)• 60% from local bank• Minnesota State Incentive
1.5 ¢ per kWh for 10 yearsDevelopment Hurdles
• Legal costs to set up LLC
Photo: Mark Steil
Steve & Jane Teideman• 2 x 950 kW turbines• 40% Equity / 60% Debt• Most of equity from selling tax
benefits to outside investor• Debt from local bank loan• Minnesota State Incentive 1.5 ¢
per kWh for 10 yearsDevelopment Hurdles
• Purchased turbine from manufacturer new to U.S.
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Economic Feasibility
• At some point in your educational phase, you will need more detailed information about your specific site to determine the economic feasibility and the wisdom of proceeding
• Internet based wind generation evaluation tools may help
• If no one else is doing a wind turbine project in your area, you need to ask “Why not?”
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Economic Feasibility
• Farm Bureau now provides a free wind generation screening service for its members– This service will provide an
initial assessment of the wind speed on your property
– It will give an estimate of the selling price of power you need to make a large wind turbine economically feasible
• If you want a specific site evaluation you will likely need additional technical help
• You may be able to apply for some funding from the USDA to pay for some of the study costs.
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Meteorological Test Tower
• You may want to install a met tower to verify the computer estimated wind speed analysis
• A 50 meter Met Tower will cost about $11,000 to install and maybe another $1,000-$2,000 for the analysis of the data over a year or so
• You need at least 1 year of data if there isn’t another nearby met tower that you can correlate data with
• Computer based studies are less expensive and in some cases provide enough information.
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Wind Rose in % of Time Per Year at 50m
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%N
NNE
NE
ENE
E
ESE
SE
SSE
S
SSW
SW
WSW
W
WNW
NW
NNW
Example of Wind Data
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Mean Annual Wind Speed
Data from the Iowa Energy
Center
in Meters per Second
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High Resolution Wind Speed Mapof 10 Mile by 10 Mile Area Mean Annual
Wind Speeds in Meters per
Second
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11Wind Turbine #1
Met TowerM1
0.02 Mps per
ColorChange
High Resolution Wind Speed Mapof 3 Mile by 3 Mile Area
12 3
4 5 67
8
M
Mean Annual Wind Speeds in Meters per
Second
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Most Significant Factors Affecting the Economics
• Wind speed at site• Buyback rate from utility• Financial incentive from state legislature of 1.5 ¢
per kWh for first 10 years– Generally, this incentive is required to make a
“small” project financially feasible • Wind turbine prices• Interconnection cost• USDA Section 9006 grants ($250-$500k)• Zero interest loan from Iowa Energy Center
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Getting Agreements with Your Utility
• You must get a Power Purchase Agreement (“PPA”) typically from your local area utility (or its provider) that specifies the terms for selling the power to the utility
• You must get an Interconnection and operating agreement that specifies standards and safety conditions for how the wind turbine is operated.
• You will be working closely with your local utility
• A good relationship with the local utility is important since you will be working with them for a long time!
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Turbine Supply and Balance of Plant Contracts
• You must have an purchase agreement with the wind turbine manufacturer– Wind turbine supply is
very tight now and delivery times have stretched from 6 months to 1 to 2 years since the Energy Bill passed
– It’s a seller’s market, little negotiation in the price
• You need a “Balance of Plant” contract for installing the foundation and erecting the wind turbine.
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Financing Options• To be competitive with fossil fueled generation, wind
generation needs a subsidy – Production Tax Credit (“PTC”)– 1.9 ¢ per kWh sold for first 10 years– 5 year MACRS tax depreciation
• These sizable tax benefits usually require partnering with a large company or wealthy investors who can use the tax benefits
• Since non-profit entities don’t pay income taxes, they can’t use these benefits– Federal subsidies for non-profits are generally not as
good or reliable.– Renewable Energy Production Incentive (“REPI”) and
Clean Renewable Energy Bonds are both constrained by funding levels.
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LLC Flip Structure• This structure fully utilizes the federal tax benefits for wind
by partnering with another “Tax Investor” as an equity provider
• Ownership structure based on Minnesota LLC Flip model– Outside Investor for utilizing income tax benefits (“Tax
Investor”) becomes a partner in your LLC and pays 35-40% of the wind turbine project cost depending upon how windy the site is
– Ownership flips after ≈10 years from Tax Investor to local owner when the tax benefits lapse and Local Owner becomes majority stakeholder
• May want to apply for USDA grants– Limited to $500,000 or 25% of project– Reduces Production Tax Credit and depreciation basis
for Tax Investor• Iowa Energy Center’s (IEC) Alternate Energy Revolving
Loan Program (AERLP), limited to $250,000• Modest down payment• Borrow balance from bank or use Tax Investor’s debt
sources.
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Summary
• All wind projects start with one person and someone must be the champion
• It takes a lot of work to develop a wind generation project and some capital will be at risk in the development process
• You will likely need some technical help along the way
• In today’s market, there is a shortage of wind turbines
• There is plenty of capital out there for good projects