What’s community wind got over those mega farms?

Community wind refers to 100-kW to 100-MW projects owned in part by local community members, often land owners of the site. Though community wind represents only 4% of the overall wind market, it’s the fastest growing segment of the industry. The community-wind development model has several benefits over traditional absentee-owned mega farms.

Landowners often have a stake in the community-wind project, so they reap a higher return than in larger farms. The project also positively impacts the local economy through job creation, and the utility gains community good will. Also, zoning and permitting is often easier and faster when the application is submitted for a project that directly benefits the community—and when the community rallies behind it—than for one driven by outside developers and investors. Furthermore, the cost of transmission and connection to the grid can be much lower because projects can be closer to the cities they support, and require lower voltage lines with fewer upgrade costs to deliver power. To realize benefits, local partners must invest some capital, time, and effort, particularly in early stages. Most initial planning work must occur locally. Often there’s a steep learning curve at this point, because few laypeople have the specialized knowledge to determine if a project is viable.

The tricky part for any new wind entrepreneur is identifying a suitable location. Many factors will rule out a site altogether.  One must consider environmental aspects, such as wetlands, bird-migration patterns, and protected animal habitats, as well as aircraft-flight patterns. Also, along with state and federal permits and regulations, local restrictions and ordinances mandate how close a turbine may sit to residential areas.

Once a site is identified, several factors help determine its economic viability, wind availability being foremost. While different turbines have different capacities, the total power the farm can be expected to produce depends on the expected average wind speed. The most efficient farms have an average wind speed of 15 mph or more, though that figure can fluctuate in relation to power cost in any given state. Next, assess the cost of turning the wind into electricity on the grid. This includes everything from purchasing and erecting the turbines, to grid connection, and cost offsets such as state and federal grants and tax credits. The final factor to consider is the local market price for energy. A wind farm is considered a viable project if it can produce enough energy so that, at market price, it will provide a reasonable rate of return to its investors.

After a site is found environmentally and economically viable, and adheres to all regulations, most initial work can be done from a desk. High-resolution maps, wind-resource maps, and overlays with information on transmission lines, protected areas, and even air patterns are available in digital format, on the internet, and through private companies. Acquiring this data is much quicker and easier than in the early days of wind farms, when a developer had to drive a truck over miles of windblown prairie.

Next, to measure the wind, a carefully positioned meteorological (MET) tower with wind gauges at various heights will record actual wind speeds and direction for six months to a year.  Based on this data, a specialist can estimate the long-term average wind speeds at turbine height for each location. This determination, along with turbine specifications, helps a developer arrive at the farm’s total expected energy. Losses must be factored in, such as maintenance down time and “tower shading,” where one turbine blocks wind from another.  Total expected energy is used to determine the expected financial return, and therefore the site’s potential viability. Then developers can focus on gaining permits, signing a Power Purchase Agreement with the local utility, and securing financing. Finally, construction can begin. While work can be accomplished relatively quickly in comparison with the project prep, wind-farm construction and connection is a complex task. In most cases, a special wind-development group will partner with local landowners to achieve the best results in the given conditions.

Community-wind projects make sense in many places throughout the country, but getting expert help to assess a site and partner in completing specialized tasks will help expedite the process and ensure getting a project across the finish line.

WPE

Ridgewind: pioneering leaseback and letting the community in on the cake

Woodstock Minnesota may bear the same name as its New York counterpart, but instead of a stage full of musicians, it sports a field full of wind turbines. The 11 Siemens SWT 2.3-MW units of the Ridgewind farm are a source of power for 10,000 homes and local businesses. But more importantly, they are a testament to the first successful sale-leaseback financing of a wind project, and to the investments and hard work of the surrounding community.

Minnesota- based project resources Corporation (PRC) developed and constructed the 25.3-MW project with $51 million in construction financing from Union Bank in California. Now, with the project operating commercially (as of last December), this construction loan has been paid off as part of a 20-year, sale-leaseback financing with a leasing affiliate of Union Bank. In sale-leaseback, the project sells the turbines to the leasing company, which then leases them back to the project for 20 years. This allows financing the project with a single investor─in this case Union Bank ─or, as PRC President Paul White puts it, makes financing a “one-stop-shop.”

White says using a leaseback structure made the project financing simpler, with potentially better annual payment terms than a partnership deal with debt and a tax investor. For example, leaseback involves financing with a single investor, so you’re dealing with just a single entity for both construction and permanent financing. As Berkeley’s National Laboratory’s Community Wind: Once Again Pushing the Envelope of Project Finance report explains, this simplifies the financing process and eliminates the possibility of troublesome creditor issues that can often arise between tax-equity investors and lenders. White says this method works well for small projects such as Ridgewind. “It helps not to have to deal with multiple banks or investors,” he says. “It means fewer lawyers and lower transaction costs.” Another advantage of leaseback financing is longer tenor. The financing term may extend 20 years versus only 15 in straight financing, and depreciation benefits are rolled into the lease rate. “The lease financing simplifies project accounting as the payments are simply a project expense,” White says.

The Ridgewind project also applied for a U.S. Treasury Cash grant issued under the American Reinvestment and Recovery Act. This drives down the equity required and leaves Union Bank with tax benefits. According to Berkeley’s report, this means that project investors need not have any tax appetite at all, whereas in a partnership-financing structure some portion of tax benefits will be allocated to the project owners, whether or not they can use them. Lease financing could potentially broaden the base of tax investors interested in wind projects, according to the report. Typically, many large institutional tax equity investors won’t bother with smaller community-wind projects, but many smaller banks have affiliated leasing companies that might have more interest.

All these advantages make a “single- investor” sale-leaseback structure a good option for community wind projects, according to White, especially for smaller projects that can’t afford a large budget for transaction costs. However, this approach may not be appropriate for bigger projects. “A project of, say, 100 or 200-MW can cost $200 to $500 million to build,” White explains. “Such larger projects will undoubtedly involve multiple investors pulling together for the total financing, including a lead bank, a tax-equity investor, and follow-on banks or investors. In such a scenario, each bank or investor will have its own legal council, which will significantly push up transaction costs. Financing becomes more complex when there is more than one financial institution involved in the deal.”

Another interesting aspect of the Ridgewind project was that local farmers were able to invest. After the project began commercial operation and the sale-leaseback financing closed, PRC expanded community ownership through its Minnesota Windshare program, opening a portion of Ridgewind Power Partners, LLC to local investment. White explains the program was inspired ten years ago when PRC saw that farmers want to invest in wind, but didn’t have much time or appetite for the risky project development and construction process.

“Wind energy makes sense to farmers,” he says. “They trust the wind and want to make use of it, like farming another crop. But wind development is technical, challenging, and risky.”

 

At the same time, PRC wanted to avoid raising eyebrows of bankers that are often uncomfortable with local partners. “Banks and tax investors rely on professionals that know the business,” White says. “They don’t have patience for uncertainty.” So the company created a model where they develop and construct the project and invite the community to invest alongside PRC afterwards. “Not only does this keep the bank happy, but this way local investors can take a hard look at the finished product,” White says. “They can kick the tires and decide if they want to invest or not with more certainty.” Working in cooperation with local utility Xcel energy and Union Bank, PRC retains management control of the facility from day one.

Other community wind developers can certainly benefit from this type of financing, and White offers them some advice. He says it’s helpful to have a financial adviser, as PRC had Miracol energy LLC of new York to advise in Ridgewind. Also, he stresses the advantages of inviting the community to invest only after achieving commercial operation. “This can simplify the process a lot,” he says. “I think it helps the local community get a handle on a project before they make decisions about whether or not they want to participate.”

WPE

The big guys learn financing from the little ones

The U.S. community wind sector, as a report from the Berkeley National Laboratory defines, consists of relatively small utility-scale wind power projects that sell power on the wholesale market and are developed and owned primarily by local investors. The recently published report explains this industry sector has historically served as a test bed, not only for up-and-coming wind turbine manufacturers trying to break into the broader market, but also for wind project financing structures.

For example, a variation of one of the most common financing arrangements in the U.S. wind market, the special allocation partnership flip structure, was first developed by community wind projects in Minnesota more than a decade ago before being adopted by the broader wind market. More recently, a handful of community wind projects built over the past year have been financed via new and creative structures that push the envelope of wind project finance in the U.S. In many cases, they have moved beyond the now-standard partnership flip structures involving strategic tax equity investors. The report explains this past year has seen a wave of financial innovation in the community wind sector.

The partnership flip structure was first devised in response to the specific nature of federal policy support for wind power projects, specifically the inability of most individuals to make efficient use of the production tax credit (PTC) and accelerated depreciation. Likewise, so too has this new wave of financial innovation in the community wind sector been driven by policy changes, most of them recent. For example, as the report describes, for a limited time the American Recovery and Reinvestment Act of 2009 enables wind power (and other types of) projects to elect either the 30% investment tax credit (ITC) or a 30% cash grant in lieu of the PTC. This flexibility, in turn, enables wind power projects to pursue lease financing for the first time. Neither the ITC nor the cash grant is subject to the PTC’s requirement that the project owner also operate the project in order to be eligible for the incentive. The ITC and Section 1603 grant also reduce performance risk relative to the PTC, and (unlike the PTC) neither the ITC nor the grant is penalized for the use of subsidized energy financing. Finally, by providing a cash rather than tax incentive, the cash grant alone reduces, but does not eliminate, the need for tax appetite among project owners. All of these policy driven changes can be particularly useful to community wind projects.

Another policy-related enabler of some of the financial innovation profiled in the report include New Markets Tax Credits, which are not new but have only recently been tapped to help finance solar projects and, for the first time, in 2010 have been part of a community wind project financing. Also, Section 6108 of the 2008 Farm Bill expands the USDA’s authority to loan to renewable generation projects even if those projects are not serving traditional rural markets.

The collective experiences of the five community wind projects profiled in report can be distilled into the following common observations or lessons learned regarding the development and financing process. These include how the Recovery act was critical in the project, working with nearby projects can help ease the burden, partnering with experienced professionals pay of, take advantage of tax credits, and more highlighted in the report.

-www.lbl.gov

Program gets community wind access to better wind sensors

A manufacturer of wind measurement equipment has announced a program to fuel the growth of community-scale wind power projects. The Community Wind Information Service uses leading-edge wind measurement technology from Second Wind Inc, to provide comprehensive wind resource analyses to individuals and groups considering wind turbines.

The service will let community wind developers decide quickly whether the wind resource at their site will make their proposed wind power project economically viable. The process begins with a wind measurement campaign using the company’s Triton Sonic Wind Profiler. Second Wind then analyzes the wind data and other information to produce a Wind Information Report. The report includes detailed wind resource data, energy estimates, and capacity factors for the turbines under consideration. With minimal environmental impact, few permitting requirements, and a fast installation process, Triton can accelerate the development process. Because Triton units are easily relocated, Second Wind can evaluate multiple sites in a single community faster and at a lower cost than meteorological towers.

“Community wind project economics are tight,” says Matthew Cumberworth Sr., VP wind energy at WPCS, an international design-build engineering firm that provides meteorological towers, Triton installations, maintenance, and data services to wind-farm developers. “Many projects don’t have a budget for consulting and equipment purchases for site evaluation. A service like Second Wind’s can make the difference between a productive project and one that shuts down after a year.”

Triton is an advanced remote sensing system that uses sodar to measure wind at higher heights than the previous tower-based standard. By measuring wind speeds at the turbine rotor’s hub height and beyond (up to 200 m), the measurements reduce uncertainty in annual energy production forecasts. Ease of deployment also streamlines wind farm development.

“Community wind projects need a credible, low-cost, and efficient method for evaluating their sites,” says Michael Wiltshire, Triton account manager at Second Wind. “The Community Wind Information Service is a turnkey proposition. The customer doesn’t have to hire multiple parties or go through the onerous permitting procedures that met towers require. After the measurement campaign is finished, they get a report that details all of our findings so they can make informed decisions about their project.”

The service is available to municipalities, private landowners, engineering firms, or anyone developing community wind projects. It is cost-optimized for projects with small capital budgets involving low numbers of small turbines – one or two megawatts. The assessment period can last anywhere from three to 12 months, and all service options are priced under $50,000.

Second Wind Inc.
secondwind.com/community-wind

Community program gives access to resource assessment

A manufacturer of wind measurement systems has developed a turn-key community wind information service to provide community wind project developers with analysis of wind power potential. Second Wind says its program will fuel the growth of community-scale wind power projects. The Community Wind Information Service uses leading-edge wind measurement technology to provide comprehensive wind resource analyses to individuals and groups who are considering wind turbines on sites such as farms, industrial facilities, landfills, schools, wastewater treatment plants, and community lands.

The service will enable community wind developers to decide quickly and cost-effectively whether the wind resource at their site will make their proposed wind power project economically viable. The process begins with Second Wind deploying a Triton Sonic Wind Profiler to conduct a wind measurement campaign. Second Wind then analyzes the Triton data and other wind information sources to produce a Wind Information Report. The report includes detailed wind resource data, energy estimates, and capacity factors of turbines that the customer is considering. With minimal environmental impact, few permitting requirements, and a fast installation process, Triton can accelerate the development process. Because Triton units are easily relocated, Second Wind can evaluate multiple sites in a single community faster and at a lower cost than meteorological towers.

“Community wind project economics are very tight,” says Matthew Cumberworth, Sr., vice president wind energy at WPCS, an international design-build engineering firm that provides meteorological tower and Triton installation, maintenance, and data services to wind farm developers. “Many projects don’t have a budget for consulting and equipment purchases for site evaluation. A service like Second Wind’s can make the difference between a productive project and a project that’s shut down after a year.”

Triton is a remote sensing system that uses sodar technology to measure wind at higher heights than the previous tower-based standard. By measuring wind speeds at the turbine rotor’s hub height and beyond (up to 200 m), Triton reduces uncertainty in annual energy production (AEP) forecasts.

The Community Wind Information Service is available to municipalities, private landowners, engineering firms, or anyone developing community wind projects. It is cost-optimized for projects with small capital budgets involving low numbers of small turbines – 1 or 2 MW. The assessment period can last anywhere from 3 to 12 months, and all service options are priced under $50,000 USD.

Second Wind www.secondwind.com

University launches 2-MW turbine

Texas’ Windthorst-1 ready for next phase

Communities to own utililty-sized wind projects

Erin Edholm
National Wind
Minneapolis

Traditional wind plant developers often say their work benefits landowners by providing them with royalty or lease payments. While such an arrangement does provide some benefit to the community, the business model makes little provision for ownership or local participation.

One community-based wind project in Minnesota works on another principle of making the landowners the project owners of their community-based wind farm. The arrangement, for example, at Lake Country Wind Energy LLC (lakecountrywindenergy.com) gives ownership interest to those who donate land to the project along with the opportunity to influence its development. Such community involvement fosters camaraderie and growth within the company and the neighborhood. The business model is to form the LLC so that the land owners need not put money into the project. “With a lease agreement and at least 500 acres, they get a unit of stock in the company,” says National Wind spokeswoman Erin Edholm.

This development model, promoted by National Wind, Minneapolis, also works to build larger wind farms than are usually associated with community-wind efforts. “Lake Country, for example, will begin working on the first of a several phases by building 40 MW of wind power and eventually finish with some 340 MW in a footprint that will cover over 25,000 acres,” says Edholm.
Community wind projects often get started when land owners call a development firm looking for opportunities. “Groups that have tried to go it alone often get stuck in the complexity and turn for assistance to other organizations like ours,” says Edholm. “Then we look to partner with 10 to 20 land owners, people we call founders.

On occasion the founders put capitol in to get the operation rolling. A board of advisors, a smaller number, are appointed from the initial founders. These are local people, so they know the local issues. We meet with them on a regular basis to provide updates and listen to their issues. They are our eyes and ears into the project,” she says.

Occasionally, the board requires changes to the lease. “For example, it could be to the provisions for the setback from a road or building, or how they are compensated for the land use, where access roads are built, or to the underground lines that connect to the grid. Occasional concerns are for how the turbines might interfere with crop farming,” she adds.

Payments to landowners vary with their involvement in the project. Some receive leases for their land and others get acreage payments, an operational payment the land owners get for the acres in the project. Edholm says her company has completed two community wind projects and has 11 more in development.

Lake Country Wind Energy has just over 150 participating landowners and eight board members, all people from the community which is mostly of agricultural land. The project started in the summer of 2008 with a site assessment. “We’ve now collected over a year’s worth of wind data from the footprint’s meteorological tower. With that data, our wind assessments team will be able to place turbines at the most productive locations,” says National Wind Field Specialist Jan Donahue.

The first construction phase will put up 20 REpower 2.0 MW turbines. REpower USA Corp., in Denver, has installed or sold more than 400 wind turbines with a total output of over 800 MW in the U.S. since 2007. These were chosen by competitive bids and from wind studies showing that such turbines of the size selected are best for the wind measured on the sites.

Following construction projects in Washington, Oregon, Indiana, Michigan and California, these are the first wind turbines that the U.S. subsidiary of Hamburg-based REpower Systems AG will deliver to Minnesota.

Myths and facts in community wind projects

Communities to own utility-sized wind projects

Traditional wind plant developers often say  their work benefits landowners by providing  them with royalty or lease payments. While such an arrangement does provide some benefit to the community, the business model makes little provision for ownership or local participation.

One community-based wind project in Minnesota works on another principle of making the landowners the project owners of their community-based wind farm. The arrangement, for example, at Lake Country Wind Energy LLC gives ownership interest to those who donate land to the project along with the opportunity to influence its development. Such community involvement fosters camaraderie and growth within the company and the neighborhood. The business model is to form the LLC so that the land owners need not put money into the project. “With a lease agreement and at least 500 acres, they get a unit of stock in the company,” says National Wind spokeswoman Erin Edholm.

This development model, promoted by National Wind, Minneapolis, also works to build larger wind farms than are usually associated with community-wind efforts. “Lake Country, for example, will begin working on the first of a several phases by building 40 MW of wind power and eventually finish with some 340 MW in a footprint that will cover over 25,000 acres,” says Edholm.

Community wind projects often get started when land owners call a development firm looking for opportunities. “Groups that have tried to go it alone often get stuck in the complexity and turn for assistance to other organizations like ours,” says Edholm. “Then we look to partner with 10 to 20 land owners, people we call founders.

On occasion the founders put capitol in to get the operation rolling. A board of advisors, a smaller number, are appointed from the initial founders. These are local people, so they know the local issues. We meet with them on a regular basis to provide updates and listen to their issues. They are our eyes and ears into the project,” she says.

Occasionally, the board requires changes to the lease. “For example, it could be to the provisions for the setback from a road or building, or how they are compensated for the land use, where access roads are built, or to the underground lines that connect to the grid. Occasional concerns are for how the turbines might interfere with crop farming,” she adds.

Payments to landowners vary with their involvement in the project. Some receive leases for their land and others get acreage payments, an operational payment the land owners get for the acres in the project. Edholm says her company has completed two community wind projects and has 11 more in development.

Lake Country Wind Energy has just over 150 participating landowners and eight board members, all people from the community which is mostly of agricultural land. The project started in the summer of 2008 with a site assessment. “We’ve now collected over a year’s worth of wind data from the footprint’s meteorological tower. With that data, our wind assessments team will be able to place turbines at the most productive locations,” says National Wind Field Specialist Jan Donahue.

The first construction phase will put up 20 REpower 2.0 MW turbines. REpower USA Corp., in Denver, has installed or sold more than 400 wind turbines with a total output of over 800 MW in the U.S. since 2007. These were chosen by competitive bids and from wind studies showing that such turbines of the size selected are best for the wind measured on the sites.

Following construction projects in Washington, Oregon, Indiana, Michigan and California, these are the first wind turbines that the U.S. subsidiary of Hamburg-based REpower Systems AG will deliver to Minnesota.