The renewed PTC comes with new language, such as projects must “begin construction” to qualify for the credit. An exact definition of begin construction has not been identified. But the right verbiage might be enough to initiate 10 or 100 wind farms and push construction into the following year. The close of 2014 may look surprisingly like that of 2012. Then what?
Construction’s new pulse may come from unlikely sources, entrepreneurs such as Florian Zerheusan and his 10 man WKH USA. Is it possible that with enthusiasm and drive, small companies like WKN USA can power U.S. wind construction? Zerheusan’s tale may be instructive.
The early years
Right out of college in Germany in 1999, Zerheusan moved to the U.S. and began work in the investment banking field. “While Germany built a respectable wind industry in the 90’s, the U.S. had done little in the same period. Other than the old technologies built during the 80’s in Palm Springs, Tehachapi, and Altamont, few projects using new technology were going up. Developers such as Florida Power & Light and Babcock seemed to be leading the way in the early 2000’s,” says Zerhusen. In that, he saw an opportunity, wrote a business plan, and researched the German market for the most viable candidate to establish a U.S. presence. There, he found WKN AG, one of the top three wind developers in Germany, now partly owned by Siemens.
The owner of WKN AG was a visionary who had previously hired a young and successful CEO, so the president took another chance on the then 25-year old Zerhusen. “The company liked the business plan, so they agreed to fund it to establish a U.S. subsidiary,” he says. Maybe to no surprise, the initial company funding gave him a shoe string budget. Could he deliver? The one-man company developed its first project in three years and successfully sold the project to a large utility, raising over $100 million in the process. This let Zerhusen expand is team. The company successfully managed the construction of Project Snyder which uses 21 Vestas V90, 3-MW wind turbines on 105-m towers. The project still has the tallest towers at any wind project in the U.S.
This one project took four years from start to finish. What began as one idea from one individual resulted in the hiring of hundreds to high-paying positions during the development, construction, and operational period of the project. Zerheusan points out that it already has and will continue for the next 20 years to generate millions in revenues, taxes, and other benefits to the local, state, and federal stakeholders. The project will generate enough energy to supply 10,000 homes annually. Compared to a similar size conventional coal fired power plant, Snyder will displace 180,000 metric tons of carbon dioxide per year from the environment in terms of energy generation (equivalent to CO2 emissions from 35,000 cars/yr.)
The industry has been busy. Small and large private equity funds as well as utilities have established their own operations that have funded the development and construction of over 50GW nameplate capacity installed in the U.S. to date.
To prepare WKN USA for growth in the next decade, Zerhusen asked its board to bring on a larger partner. With the agreement of the board, BayWa AG, a multibillion dollar trading conglomerate from Munich, Germany, acquired a 70% stake in the company through its wholly owned BayWa r.e. (renewable energies) unit. BayWa AG was established in 1923 and employs over 17,000 people, mostly in Germany. The investment let the company build two of its existing development projects and actively pursue acquisition opportunities in the market. With the new major shareholder, Zerhusen’s business plan has expanded from pure-play developer to constructing and owning the assets. “It is not our goal to become an IPP so we will seek an exit for our operating assets when the numbers make sense.”
WKN USA’s most recent work, Project Wagner, is a modest two-turbine venture that the company acquired in 2011. After completing development, it began construction of the project in late summer 2012 with commercial operation in December 2012. The project is funded and owned by WKN USA’s parent BayWa. The size of the project was limited to the property available, the power purchase agreement, and interconnection requirements into the local grid. “We saw an opportunity to acquire and construct the project within a year in our backyard and are excited about the relationship we were able to build with Riverside Public Utility, with whom we have a long-term power purchase agreement.”
Although some may dismiss such a modest wind farm, consider that the two 3-MW turbines produce the equivalent power of 60 of the old 100-kW machines that populate most of the San Gorgonio Pass. “These V90s are the most modern turbines in the valley.”
WKN USA has decided not to avoid small projects in future. Many large developers shy away from anything less than 50 MW. “We have projects in development that are as small as 6 MW and larger than 100 MW. As projects become larger, we prefer to partner during the construction and operational period. So we enjoy this development sweet spot. We bought Project Wagner a year ago and acquired the permits. The turbines are now being synchronized to the grid as we speak,” he says.
WKN USA expanded business plan to develop, construct, and operate the projects. “Through our new majority shareholder BayWa, we now have the ability to extract maximum value from the value chain as a developer,” says Zerhusen. For example, the project in Palm Springs let WKN USA engage civil and electrical contractors directly to build all infrastructure needed to construct the project. “We worked with various subcontractors before on previous projects, such as Dressel for the foundations and roads while establishing new relationships with companies such as Bragg for cranes and the heavy lifting. No financing was involved because BayWa AG was able to “balance sheet” the project –the company funded it 100% with equity.
Challenges and lessons
Zerhusen says the biggest challenge building in seemingly always-windy Palm Springs is finding a few days in the course of the year that allow construction at the height needed. For much of the year, the strong winds prevent erecting towers, nacelles, and rotors. “We were able to find that period, so fortunately we had no wind delays.” A second challenge involved the 3 MW turbines. They are the largest in the valley and probably the most sophisticated. Most local crews are familiar with 1.5 MW and smaller units, so the larger turbines were a learning experience for everyone, although there are two other V90s elsewhere in San Gorgonio, he says.
So what has he learned? “Each project lets you identify weaknesses. If you address them correctly and apply them to the next project, they make you better. There is always room for improvement. So WKN USA will continue to build top quality renewable energy projects and take full advantage of the strong backing found in our majority parent company BayWa AG.” WPE
A few project thoughts from a power purchaser
The city of Riverside, Calif. will be the sole off-taker of the 6 MW produced by Project Wagner. The city is also functioning as the project’s scheduling coordinator with the California Independent Service Operator (CAISO) the state’s centralized grid operator. “We worked closely with the Project Wagner team to get the contractual arrangements in place,” says Bob Tang, Power Contracts and Projects Manager for the city. The utility board approved the contract arrangement in late November and as of late December, the project was being synchronized to the grid. By the time you read this, the city council will have given final approval of the project’s PPA. “We have diversified our portfolio, so a small resource of six megawatts does not bother us that much,” he says. Tang’s office also assisted with activities that commissioned the wind farm.
When the project goes into commercial operational, Riverside’s will schedule the output of the facility with the CAISO on a day to day basis.
Tang says the California energy market recognizes the variability of wind resources. Under the CAISO’s Participating Intermittent Resource Program, the project will contract for wind forecasting services with a company sanctioned by the ISO. The wind forecaster will predict the wind generation on every hour of the day. The forecast will be fed back to the ISO and made available to the scheduling coordinator.
For California wind developers, Tang suggests being aware of one big issue facing them: the interconnection process with the ISO. “It takes a lot of time to get the interconnection in place to transmit the turbine’s output. Connection facilities must be built and that is a lengthy task,” he says. So any renewable-energy resource developer should make that part of its long-term scheduling and planning with an off-taker. “We are talking years. At a minimum of two and possibly several more depending on the necessary transmission or distribution infrastructure,” he says.
CAISO has streamlined its interconnection process several times in the past few years but it’s still complicated, Tang admits. Developers frequently complain that the interconnection process is convoluted and costly. Even the interconnection check list that CAISO provided is complicated. “So make sure you take into account the time factor and secure your queue position in the process early in project planning,” he says.
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