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JULY 2004 Victorville Prison Pioneers New Financing
Mechanism for Wind Power
This kind of energy savings performance contract is common with energy efficiency projects: an energy services company (ESCo) goes in to a facility, does an energy efficiency audit, installs a number of energy saving technologies, finances the upgrades, then recovers those costs from a portion of the energy costs saved. The customer sees a reduction in energy costs and receives new equipment. The ESCo receives enough profit to stay in business and do the same for another customer, and the general public benefits because fewer resources are used and less pollution is created. An energy savings performance contract has never been used to finance a wind energy projects until now – a company has designed a hybrid solar, wind, and energy efficiency project for a new prison in Victorville, Calif., and has financed the construction with an energy savings performance contract. The new facility will include one 750-kW Vestas wind turbine, along with a parking structure made of solar panels, and heating, ventilation, air conditioning and controls systems upgrades. The new project will be financed under a Department of Energy (DOE) program called a Super Energy Saving Performance Contract (ESPC). NORESCO, a pioneering ESCo, will develop the project, provide the investment capital, guarantee that the energy savings are being realized, and provide ongoing maintenance services over the 19 year contract term. Even though the wind speeds are lower than what would usually interest developers, the overall project economics proved to be attractive to the customer thanks to state and utility incentives, grants, the long term financing and the fact that electricity offsets retails rates. Because the owner is a federal facility, the wind turbine is not eligible (and also not hostage to) the wind energy production tax credit. The wind turbine is expected to produce up to 30% of the facility’s peak energy demand, and nearly 10% of the average annual demand. Construction began in January, and NORESCO expects the turbine to be operational by late 2004. The state incentives put in place to encourage new renewable energy projects were critical for this project’s success. To finance the project, NORESCO has taken advantage of one of California’s incentive program for renewables, the Self-Generation Incentive Program (SGIP). That program provides financial incentives to customers who install renewable, on-site, distributed generation up to 1.5 MW in rated capacity. SGIP was designed primarily with business and large institutional customers in mind. The California Energy Commission offers a similar program to customers who install renewable generation sources with rated capacity of less than 30 kW. The project will also receive some incentive payments from the local utility. Under its “non-residential Standard Performance Contract” (SPC) program, the utility offers cash payments to both large and small non-residential customers for custom-designed energy saving retrofits. The project also received a DOE grant. After subsidies the installed cost for the wind, solar and energy efficiency equipment is about $3,800,000. With annual energy savings of $420,000 this is a payback of about 9 years. NORESCO found that the installation of the wind turbine cost significantly more than the often-quoted figure of $1,000/kW that applies to large wind farms. The company found that costs were higher because the project could not take advantage of any economies of scale that usually lower a development and construction costs. However, these were offset by the state incentives, high retail rates and long term financing. Although some of the features of this project are unique to California, other features should be replicable at other on-site generation projects. The DOE Super ESPC Program is available to all federal facilities in the fifty U.S. States. A similar energy savings performance contract model for renewable projects could be easily developed and may be able to bring wind projects to facilities that could not finance them in the usual way, potentially opening a new market for the wind industry. For more information about this project or the DOE Super ESPC Program, contact Scott Debenham, of NORESCO, phone (619) 334-9541. |
©
2004 by the American Wind Energy Association. |
ouldn’t
it be great if a school or community could install a wind turbine without
worrying about the up-front costs, but financing the construction and
maintenance costs over a specified period of time with the energy cost
savings that the turbine would bring to the customer?