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.

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

Mean Annual Wind Speed

Data from the Iowa Energy

Center

in Meters per Second

High Resolution Wind Speed Mapof 10 Mile by 10 Mile Area Mean Annual

Wind Speeds in Meters per

Second

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