AWEA - American Wind Energy Association

Project Summary

Project description: 1.5-megawatt (MW) GE
Application: behind-the-meter power purchase agreement (PPA)
Host/off-taker: Anheuser-Busch, Fairfield, CA
Owner/operator: Foundation Windpower
Cost: $5.9 million
Financing: third-party equity, loans, California’s Self-Generation Incentive Program
Commissioning date: November 2011
Motivation: reduced energy bills, environmental stewardship

Anheuser-Busch entered into a partnership with San Francisco-based Foundation Windpower in 2011 to buy the output of a GE 1.5-MW wind turbine at its Fairfield, California Budweiser brewery to significantly reduce the brewery’s dependence on commercially produced electricity. Although sited at Anheuser-Busch’s brewery, the turbine is owned and operated by Foundation Windpower. The turbine supplies nearly 20 percent of the brewery’s electricity. This business arrangement allows the brewery to purchase renewable energy, while Foundation Windpower acts as an on-site energy dealer. This project is just part of the brewery’s renewable energy story.

Background

In 2007, Anheuser-Busch joined the ranks of the Environmental Protection Agency’s (EPA’s) Climate Leaders program and promised to reduce its greenhouse gas emissions to 5 percent below 2005 levels by 2010. A rooftop solar project helped Anheuser-Busch achieve its goal in 2009, but the company continues an aggressive company-wide initiative to reduce its impact on the environment.[iii] Environmental stewards like Anheuser-Busch provide excellent market opportunities for renewable energy companies like Foundation Windpower.

While Anheuser-Busch provides a market for renewable energy, it is Foundation Windpower’s innovative business structure that makes the deal work. Through direct ownership and operation and maintenance of its wind turbines, Foundation Windpower offers a competitive energy solution with environmental benefits.

Financing and Economics

As the developer-owner-operator of its projects, Foundation Windpower allows its host partners to focus on their primary business—in this case, making beer. For the brewery project, Foundation Windpower utilized a mix of private investment, loans, California’s Self-Generation Incentive Program, and equity partnerships. Because Foundation Windpower owns its projects, its host-partners are protected from the risk throughout the life of the project.

Cost isn’t the only driving force for many of Foundation Windpower’s partners. “Some customers just want green energy,” said Bob Lewis, Senior VP of Marketing and Sales for Foundation Windpower.

Foundation Windpower’s power purchase agreements are designed to be competitive with utility rates. “We’re effectively reducing the cost of electricity to our customers,” said Foundation Windpower’s CEO Matt Wilson. Foundation sells the wind-generated electricity to Anheuser-Busch at or below the cost of conventional power suppliers.

According to Lewis, when the turbine came online in late 2009, Foundation had invested $5.9 million dollars into the project, and much of that spending was felt locally. The project generated nearly 40 temporary construction jobs and three ongoing skilled full-time jobs.

Another advantage of distributed community wind projects is that they don’t require additional transmission to carry electricity from farm to market.

“[Distributed generation] reduces the need for thousands of miles of transmission lines,” said Wilson. “We go into locations that are already heavily industrialized.”

By avoiding the disruption of undeveloped land, Foundation Windpower can limit the environmental impacts of their projects, which is a tenet of California’s environmental policy.

Challenges and Benefits

In 2002, the California State Legislature adopted a Statewide Renewable Portfolio Standard (RPS) requiring most of California’s electrical utilities to obtain 33 percent of their energy from qualified renewable sources by 2020.[1] Under the new RPS, California-based distributed generators produce Tradable Renewable Energy Credits (TRECs). There is a cap, or limit, on how many TRECs an investor-owned utility can have because the law intended to encourage more renewable energy projects in-state rather than buying or trading TRECs from out of state. The revised RPS doesn’t distinguish between in-state or local TRECs and out-of-state TRECs. This has caused unintentional yet severe market devaluation of TRECs and has negatively impacted the in-state distributed energy industry. These consequences have impacted Foundation Windpower’s business model as well as other California-based distributed generators.

Because a low market value of TRECs is an unintended consequence of the RPS, the industry is working with the state to adjust or correct it. “We’re going to be working with regulators to get our projects eligible,” Wilson said.[2] But until the California Public Utilities Commission makes a decision on California-generated TRECs, the cap and low market value remain a market barrier.

Despite the challenges with California’s new renewable policy, the state is working to streamline the development process for renewable energy projects. In late 2011, California Governor Jerry Brown signed into law the Jobs and Economic Improvement through Environmental Leadership Act. Under this act, qualified renewable energy projects that face legal challenges will be directed to the Court of Appeals, which must make a decision within 175 days, a dramatic improvement over the two- to three-year average for a California Appellate decision.[3] This action will not only help California reach its renewable energy goals, but it will also benefit California’s growing community wind industry, including Foundation Windpower.

In the meantime, it’s business as usual at Foundation Windpower. In fact, despite the unintended turbulence created by the RPS, Wilson said the company is “generally optimistic about the 33 percent renewable standard.”

Project Summary

Project description: three 1.5-megawatt (MW) GE turbines
Application: wind- hydro-diesel mini-grid
Host/off-taker/owner/operator: Kodiak Electric Association (KEA)
Cost: $21.4 million
Financing: Clean Renewable Energy Bonds, Alaska state grants, KEA capital
Commissioning: July 2009
Motivation: provide lower, more stable rates; reduce diesel fuel usage
Benefits: rate reduction, environmental, local economic impacts
Champion: KEA CEO Darron Scott

“We need more people to understand the cooperative business model,” said Cliff Davidson, chairman of the board at KEA, a member-owned electrical cooperative in the island community of Kodiak, Alaska. As the island’s only electrical provider, KEA faces challenges unique to the island and serves as a model for community-owned wind and sustainability. In July 2009, KEA commissioned the first three of six turbines in a two-phase wind project atop the 1,300-foot Pillar Mountain.

Background

In 2005, the board members began to plan KEA’s renewable energy future. When asked what considerations went into the board’s plans, Davidson mentioned cost, energy independence and environmental considerations. 
“We are on an island and will never be on the grid, so we needed a solution to the expensive fossil fuel route,” said Davidson, who also mentioned the increasingly difficult permitting process for fossil fuel generation. 
By 2007, the board had adopted a goal to be 95 percent renewable by 2025, laying the foundation for KEA’s first wind generation project. The decision to integrate wind energy into the system came naturally for KEA's forward-thinking board, which has operated a renewable hydroelectric plant since 1984. “The wind blows a lot here in Kodiak,” said KEA CEO Darron Scott. “It’s been in the back of our minds.” 
The wind turbines added more renewables to KEA’s portfolio, which now consists of 80 percent hydroelectric, 9 percent wind, and 11 percent diesel generation. KEA has plans to construct an additional three turbines in 2012, which will bring the cooperative past its goal of procuring 95 percent of its energy from renewable sources by 2025.

Financing & Economics

Many community wind projects rely on innovative and sometimes complicated financial structures. KEA’s board evaluated its options and used $12 million in Clean Renewable Energy Bonds, $5 million from Alaska’s Renewable Energy Fund to fund the project, providing the remaining capital.

“We went for full ownership,” Scott said. He also mentioned that the not-for-profit electrical cooperative couldn’t use the Production Tax Credit or the accelerated depreciation tax model for a lack of tax appetite. When the project was finished, KEA had spent $21.4 million, nearly $1.9 million under budget.

During construction, the project created 50 to 60 temporary jobs and provided technical training to several of KEA’s existing electrical technicians who perform required maintenance on the turbines. As the turbines reduce KEA’s dependence on diesel generation, rates have decreased, saving members money. Scott described the project as “a win-win in a lot of ways; lower rates keep people happy.” Because KEA is a cooperative, the savings are passed on to members who will ultimately spend that money locally.
“The money stays in the community,” Scott said.

Benefits & Challenges

Communities determine if projects are welcome, and in this instance, the community of Kodiak came together in support of the project. According to Scott, “the community was 100% behind this.” Scott also mentioned that many of the project consultants and contractors from outside the community were taken aback by the overwhelming community acceptance. This broad support is a product of KEA’s open and transparent planning process. Planning the project required public participation and leadership, something Davidson says is built into KEA’s board. 

According to Jennifer Richcreek, environmental coordinator at KEA, in the nearly three years the turbines have been producing, KEA has saved $2.6 million gallons of diesel fuel and has spared the air nearly 27,000 metric tons of CO2. The reduced use of diesel generation helped KEA members save $5 million, according to Scott.  
In the planning and development stages, the project presented several challenges. First, because the project was planned for the summit of Pillar Mountain, extensive environmental review was necessary. With the help of KEA’s principal project consultant, Tetra Tech, a critical issues analysis was completed. Lynn Sharp, a senior ecologist at Tetra Tech, identified the issues: environment, wildlife, hazard, and cultural assessments. Sharp also identified one serious issue: the preservation of Pillar Mountain’s many sensitive wetland areas. Tetra Tech developed a detailed project layout, which helped construction crews navigate these areas.

The U.S. Fish and Wildlife Service office in Anchorage expressed concern over the turbine’s potential impact on the bald eagle population near the project site. These concerns were allayed after a two-year study completed through collaboration with the local Audubon Society and Tetra Tech. The study examined the eagle’s behavior at the site prior to and after project construction. According to Sharp, “the data showed that the eagles were very aware of the turbines” and “[the eagles] are using the mountain the same way, they’re just not crossing the turbines when they’re on.”

Scott mentioned that the project has had no impact. “After three years of operation, we have not had one bird interaction with the turbines,” he said.
In addition to the environmental challenges, the project faced several physical limitations. The 1,300-foot ascent to the summit of Mount Pillar made the delivery of both the turbines and the construction equipment difficult. Because the original access roads to the site were routed through sensitive habitat areas, many roads required reconstruction and rerouting in accordance with Tetra Tech’s project layout.

After the turbines were installed and began operating, integrating the variable output of the turbines into KEA’s grid system was a new challenge. Offsetting the diesel generation with wind and matching the island’s variable load with hydro and variable wind required KEA to develop a creative dispatching strategy and controls. When increasing total wind production with three more turbines in phase two, the existing hydroelectric power generation facility will act as a battery, following the load minus the wind production. KEA is taking additional steps to improve the reliability of the system. Through a partnership with Texas-based Xtreme Power, KEA will be soon install an advanced battery storage system, which will serve as a bridge between wind and hydro power during periods of low generation.
Despite the logistical, environmental and operational challenges, the community, KEA members, and the Board supported the project and the Board’s 2025 vision. The project has been a success for the people of Kodiak and KEA, but there is more work to be done. As KEA will demonstrate in the second phase of the project, it is possible for communities to be environmentally responsible, economically competitive and innovative leaders.

Project Summary

Project description: Seven 1.5-megawatt (MW) GE turbines
Application: Piggyback on 150-MW utility project
Off-taker: Prairie Winds (Basin Electric Power Cooperative)
Owner: 606 South Dakota residents
Cost: $21.5 million
Financing: 30% funded by 1603 grant; remainder contributed by citizens of South Dakota
Commissioning: 2011
Motivation: Local ownership
Benefits: Maximize local economic benefits
Champion: Jeff Nelson, East River Cooperative; Greg Von Wald, Mitchell Technical Institute

  

Summary

Convincing 606 rural South Dakotans to invest in the wind wasn’t a problem. Developing a business model for a community-owned, sustainable energy project that would benefit rural economies, however, was a different story.

“We asked [potential investors], ‘Do you believe the wind is going to blow in South Dakota?’ and ‘Do you believe people need electricity?’ We made it simple,” said Jim Headley, a South Dakota rancher and Central Electric Cooperative board member. “If you don’t believe these things, you don’t want to deal with us.”

South Dakota Wind Partners (SDWP), a limited liability company, formed in January 2010 to build a locally owned wind project near White Lake, South Dakota. Taking advantage of economies of scale, SDWP “piggybacked” seven General Electric 1.5-MW turbines onto the nearby Crow Lake Wind project that includes 100 wind turbines built by North Dakota-based Basin Electric Power Cooperative (under its subsidiary, PrairieWinds SD 1, Inc.). Another turbine is owned by Mitchell Technical Institute (MTI) of Mitchell, South Dakota, and is used as part of the school’s wind turbine technology training program.

The total capacity of the 108 wind turbines is 162 MW, while SDWP has a nameplate capacity of 10.5 MW. SDWP produced 43,933 megawatt-hours between April 2011 and March 2012 – an average capacity factor of 47.8 percent.
 
The project has created economic benefits on the state and local levels: SDWP is about 6.5 percent of the total Crow Lake Wind project. It is responsible for 26 construction jobs and one full-time job. SDWP paid sales, use and contractors’ excise tax during the project’s construction phase and pays about $65,000 each year in state wind taxes that go to the local community, county and state, said Nick Sershen of Val-Add Service Corp. Val-Add is a consulting company hired by SDWP that has been active in the state’s ethanol development and specializes in assisting new entities to develop businesses.

Background

East River Rural Electric Cooperative explored the SDWP concept in 2009 with the goal of investing in a project that would bring wealth back to landowners and to the local community. SDWP created the opportunity for local residents to invest in this wind project after approaching Basin and inquiring about the possibility of piggybacking their 100-turbine Crow Lake project with a small, locally owned project and taking advantage of economies of scale. This was more of a challenge than convincing rural South Dakotans to invest in the wind.

The Great Plains states have the highest onshore wind potential in the nation, and as a result, have attracted wind developers. According to the American Wind Energy Association (AWEA), South Dakota ranks fourth for potential wind energy production. East River general manager Jeffrey Nelson believes there should be an opportunity for local investors to participate financially in wind developments in their backyards. This is the piece that would otherwise go to Wall Street,” Nelson said. “But instead, it went to local owners – to Main Street.”
 
Many residents were already on board with the concept; they had been introduced to the concept via earlier project proposals that, for a variety of reasons, didn’t come to fruition, Headley said. This familiarity with the co-op model and Basin made it easier for potential South Dakota investors to trust in the project, he added.
 
“It was a co-op deal, and I thought they were probably the best people to deal with. That was my personal feeling,” Headley said. “We’re all a member of Basin, and they’re a little more member-friendly. We have a representative in our East River system on the Basin board, so we have a little say. It’s a better scenario, I believe. It seemed pretty positive to me.”

Financing

East River, the South Dakota Corn Utilization Council, South Dakota Farm Bureau and South Dakota Farmers Union each provided $20,000 for SDWP and appointed two people each for SDWP’s board. This was the seed money for creating the business plan and investment strategy for a wind enterprise that could be locally owned and operated.

What emerged was an in-state offering designed for South Dakota citizens. SDWP hosted 27 investor meetings between August 2 and September 27, 2010, raising more than $16 million from 606 South Dakota residents.

“Keep in mind, this was at a time when the economy was at its worse,” Nelson said. “We thought, ‘Let’s start [holding investor meetings] in the area around Crow Lake,’ then, [grow out] in concentric circles. Once we got to the second or third meeting, people were driving from 200 miles away.”

These meetings were open only to South Dakota residents. A combination of equity, debt and grant financing paid for the project costs. Local investors were offered three types of investments, designated as “Class A,” “Class B,” and “Class C” investments. Each investment class consisted of a specified number of debt and equity shares, which was necessary to avoid becoming a public reporting company. The average investment per member was $27,000, with a minimum of $15,000. All notes will mature on August 31, 2017. The classes break down as follows:

- For a Class A investment of $15,000, an investor received one Class A share ($750) and a Class A note in the amount of $14,250 with an interest rate of 7 percent. For matters brought to a vote of Class A members, each Class A member is entitled to one vote, regardless of the number of Class A shares owned by that member.

- A Class B investment of $15,000 includes two Class B shares and a Class B note in the amount of $13,500, with an interest rate of 6.75 percent. These investors were also given one vote per share. Each Class B member will be entitled to one vote per Class B share.

- A Class C investment of $15,000 includes 19 class C shares ($14,250) and a Class C note in the amount of $750 with an interest rate of 5.5 percent. Each Class C member is entitled to one vote per Class C share.

The plan included a power purchase agreement in which the Basin-owned PrairieWinds agreed to purchase the electricity produced by the seven SDWP turbines for 20 years. The turbines are connected to the PrairieWinds collection system for distribution to the Western Area Power Administration (Western) system in Wessington Springs. If it decides to do so, SDWP may take advantage of a Mutual Option Agreement that will require PrairieWinds to purchase the SDWP turbines at a fair market value after six years of operation. SDWP may also sell its shares at a fair market value after six years of operation.

SDWP broke escrow in October 2010, and made the first payment the following month.

Development Challenges

The PrairieWinds project was already planned and construction was ready when East River and its community partners, proposed an expansion that would be locally owned. This significantly compressed the time frame in which a series of tasks had to be completed to enable piggybacking onto the larger PrairieWinds project. The tasks included organizing the SDWP project, creating the SDWP founders’ board, designing a viable business model approved by the SD Securities authorities and holding meetings and raising the required investor dollars necessary for the SDWP project to proceed.

In addition, the land for the SDWP wind turbines had to be leased, and another wind energy company had the current land option. The project organizers had one shot to make this opportunity happen, and it required keeping all parts moving according to the larger, PrairieWinds project schedule. The 27 South Dakota residents-only investor meetings spanned less than two months but still raised $16 million.

The project also needed to lock in a deal with an electricity buyer. PrairieWinds not only purchases the electricity generated by the eight turbines, but it also operates and maintains MTI’s and SDWP’s turbines.

“A solid lock-down power purchase rate for so many years is really critical if you’re going to try to sell shares,” Headley said. “That way you can put something together. Otherwise, you’re shooting in the dark.”

SDWP entered into a “Mutual Option Agreement and Right of First Refusal” with PrairieWinds that gave PrairieWinds the exclusive right and option to purchase SDWP’s property between May 1 and August 31, 2017. If the option is exercised, the purchase price for the project will be calculated based on the adjusted net present value of the projected future cash flow from the project.

Economic Benefits

In addition to creating construction jobs, a full-time maintenance job and tax dollars that benefit local, county and state communities, MTI’s wind turbine provides students the opportunity to climb a turbine and to learn about its operation and maintenance. These hands-on experiences give students an advantage when they apply for jobs, MTI president Greg Von Wald said. The revenue collected from the electricity sold also helps cover maintenance costs and loan payments.

Pleased with the project, Von Wald said the efforts of community leaders were pivotal in overcoming obstacles and making the wind turbine a reality.

Bob Sahr, East River’s General Counsel, credits leaders like Von Wald.

“Without an advocate, you probably won’t get a project like this done,” Sahr said. “You have to work hard, and you can’t take ‘no’ for an answer.”

The result has pleased local residents and SDWP investors.

“It’s gone so much better than anyone could have guessed,” Headley said. “People thought, ‘Wind is free. It’s environmentally friendly.’ And the driving thing for most people was the return on their investment, to be honest. It was a feel-good thing and the interest was good, so it was a good fit.”

Project Summary

Project description: Ten 1.5-megawatt (MW) GE turbines (15-MW project)
Application: Supply power for co-op member utilities
Owner: Berkshire Wind Power Co-op Corporation, a cooperative of 14 Massachusetts municipal utilities, and Massachusetts Municipal Wholesale Electric Co. (MMWEC), a municipal agency that coordinates power supply and provides other services for its member utilities.
Cost: $64.7 million (including an 8-mile interconnection line)
Financing: Berkshire Wind Power Cooperative Corporation issued tax-exempt, 20-year revenue bonds to finance the project; short-term financing for turbine purchase and construction.
Commissioning: May 28, 2011
Motivation:The 14 member communities in the Berkshire Wind Power Cooperative Corp. wanted renewable energy in their portfolio for the environmental benefits, as well as rate stabilization.
Benefits: The towns of Hancock and Lanesboro receive payments in lieu of taxes from the project. During construction, the equivalent of 50 full-time jobs were created for more than 20 Massachusetts companies. The equivalent of two full-time positions at MMWEC now exists, as well as regularly scheduled operations and maintenance work for the turbine manufacturer. 

Background

Even though no renewable energy requirement exists for Massachusetts municipal utilities, the 14 member communities of the Berkshire Wind Power Cooperative Corp. wanted renewable energy in their portfolio. Dale Osborn, a pioneer in the wind industry and especially in distributed generation, had power to sell. In 1998, Osborn was developing a wind project on Brodie Mountain in New Ashford, a location with excellent wind. Osborn tried to sell the power to MMWEC. Fourteen of the MMWEC members were interested in buying the power when the project was complete and signed a contract. By 2008, although the project was ongoing and still faced obstacles, the co-op decided to purchase the project's assets outright.
 
H. Bradford White, general manager of MMWEC at the time, said: “It was an opportunity to do renewable energy. It was an opportunity to say that we are reducing our utilities' carbon footprint, and it was a locally owned project serving the ratepayers of the municipals. It was a good group of people (who decided to purchase the power), people who came together to do something not only for renewable energy but also for their ratepayers.” 

Financing & Economics

The Berkshire Wind Power Cooperative Corporation (BWPCC) is a nonprofit organization and therefore is ineligible for incentives such as the Production Tax Credit, the Investment Tax Credit, or the Treasury Grant. According to David Touhey, director of communications and external affairs at MMWEC, the group applied for federal Clean Renewable Energy Bonds (CREBs) to finance the project but were denied. Touhey said that CREBs cannot be used to refinance debt, and they were told that when MMWEC issued debt to get the project going quicker, the CREBs would have refinanced the short-term debt.
 
BWPCC has authority to issue tax-exempt bonds, and so, with MMWEC handling the details, it issued $64.7 million in tax-exempt revenue bonds to finance the project.

According to White, gas and oil prices were volatile at the time while wind was a stable local energy source. "It was a new local power plant that we could afford to build," he said. "It was economic, it was reliable, it was 15 megawatts that we needed.”

Because the project is located in western Massachusetts and the BWPCC members are in other parts of the state, the electricity is sold into the New England market. The renewable energy credits (RECs) are sold separately in the REC market. The 14 municipal utility members are credited according to the share that each one agreed to when joining the BWPCC.

Development Challenges

Touhey explained that the biggest development challenges were regulatory, related to permitting.

"When we bought the project in 2008, it came with the environmental permits and easement agreements," he said. "The special use permit caused us some problems – it had to do with the construction of the road. Silverleaf, a company out of Texas, sued us. They bought some land adjacent to the site, and they were building condos on their site."

According to Touhey, Silverleaf filed a complaint in Massachusetts Land Court, arguing that the permit to construct the road expired before the road was built.

"The road was there, it was finished and complete," Touhey said. "But they claimed that it was built illegally because 'substantive progress' on the road had not been completed within a year of the permit's issuance."
 
The legal issue stalled the project for a year.

"We started construction in June 2009," Touhey said. "Four turbines were erected, and we had towers up for a few more. And then came this order from the Land Court telling us to cease and desist. So in October 2009, we had to stop work and remove all the construction gear and the cranes from the mountain. We worked out an agreement with Silverleaf and settled the lawsuit in the fall of 2010. But then we had to mobilize our construction company again, get all the cranes back up the mountain. It was a very expensive proposition, costing the project about $10 million dollars between all the legal fees and costs related to halting construction."

Berkshire Wind is the largest wind project to date in Massachusetts, which has a wind power development goal of 2,000 megawatts by 2020. The project generates enough electricity to power approximately 6,000 homes. 

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