Interconnection - Getting Energy to Market
The electrical generation, transmission, and distribution system has been labeled the most complex machine ever created by humans. There are many rules and regulations to ensure that it runs reliably, and as a result the process for interconnecting your energy project with this system involves dealing with regulatory agencies at the state and regional level as well as utility personnel, engineering consultants, and lawyers with experience with interconnection contracts. It can take over a year to complete the required interconnection studies and can cost your project up into the hundreds of thousands of dollars. You will need to weigh the results of conversations and studies to determine if it is worth moving on to the next phase of studies or if the cost of interconnection will not allow your site to be profitable.
A power purchase agreement (PPA) is a contract to buy the electricity generated by a power plant. These agreements are a critical part of planning a successful wind project because they secure a long-term stream of revenue for the project through the sale of the electricity generated by the project. Securing a good PPA is often one of the most challenging elements of wind project development.
This section covers the basics of a power purchase agreement and things to consider as you negotiate with a power purchaser. The main topics covered in this section are:
The Minnesota Flip business model was developed in response to a unique combination of federal incentives for wind development and state policies that encouraged development of community-owned wind projects. The structure has proven a successful model for landowners and equity investors interested in partnering in the development of wind projects. This partnership allows the equity investor to take advantage of federal tax credits, while providing local owners the economic benefits of ownership.
In order to be financially competitive, most wind projects need to take advantage of federal and, where available, state tax incentives. It is critical to understand the role and mechanics of tax incentives while developing a commercial-scale community wind project because these incentives can represent one-half to two thirds of the total revenue stream over the first 10 years of operation due to the Federal Production Tax Credit (PTC) and Modified Accelerated Cost-Recovery System (MACRS) or other type of depreciation that can be applied to wind energy assets. You will need to consult a tax professional in the early stages of project planning to ensure that your financial projections are valid and accurately take into account the project’s tax burden and benefits.
Most commercial-scale community wind projects are multi-million dollar investment endeavors that require outside financing assistance. This section will give you some background on how to approach a bank or other financing entity. Loan terms will affect the bottom line of your wind energy project revenue, so understanding the requirements and options for financing your wind development are critical. Getting organized in the beginning will put your project in a much better negotiating position for acquiring favorable financing. With enough due diligence documentation, your project will be less risky and more attractive to a financing entity.