Chapter 8: Costs

The cost of wind energy fell dramatically from the 1980s through 2003, then increased for most of the remainder of the decade. Then, as the recession hit, turbine orders declined and prices with them. Meanwhile turbine technology has significantly improved, so that they are  producing energy more efficiently than ever, which is the real bottom line.   Specific costs vary considerably from project to project and region to region due to differences in markets, wind resources, and economies of scale. As you work with your team of experts to plan your wind project, you must estimate these costs, especially in preparation for approaching investors and lenders. Some costs, such as the turbine purchase price, will be fairly straightforward, while other costs may be harder to estimate, such as the level of maintenance and repair your turbines will require. You will need to develop a pro forma, a financial worksheet designed to calculate project expenses and revenues, to determine the financial viability of your plan. The pro forma also allows you to determine what power purchase agreement rate you will need to negotiate in order to make your project financially viable. The pro forma is discussed in the "Financing" and "Business Models" sections of the Toolbox. Continue reading

Chapter 9: Financing

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.   The main topics covered in this section of the Toolbox include: Elements of Wind Energy Finance Getting a Bank Loan: What will the bank want to know? At-a-Glance: Third Party Certification Additional Resources for Financing Community Wind Continue reading

Chapter 10: Tax Incentives

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.   Different tax incentives apply to different projects based on location, project size, and other tax liability delimiters, so you will need to explore what is currently available and applicable to your project. This section of the Toolbox provides information on currently available (as of spring 2007) tax incentives that have significantly contributed to wind energy development. It also explains mechanisms for utilizing them to improve your project’s bottom line. The application of many of these tax benefits is also outlined in the "Business Models","Financing", and "Project Calculator" sections of the Community Wind Toolbox. The role of the tax consultant is covered in further detail in the Project Management section. Federal Tax Incentives State Level Tax Incentives Taxation of Wind Energy Property Additional Resources for Taxes and other Incentives Continue reading

Chapter 11: Choosing a Business Model

There are several options for structuring a community wind energy project. Business structure options should be evaluated based on their ability to deliver low-cost wind energy and local benefits, as well as on their profitability. In general terms, business arrangements are best when they: Make optimal use of state and federal incentives (tax credits, production payments, accelerated depreciation, and grants); Attract lenders offering low interest rates and long financing periods; Provide an acceptable rate of return for investors; and Facilitate local investment. This section of the Toolbox discusses various ways to structure your wind energy business and gives you an overview of the factors to consider when choosing your business model. The main topics covered include: Factors to Consider Business Model Options Models in Practice Which Business Model is Right for You? Additional Resources for Business Models Continue reading

Chapter 12: The Minnesota Flip

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.   The purpose of this section is to provide a basic understanding of how the Minnesota Flip model works. The main topics covered here include: Basic Elements LLC Structure and Purpose Ownership Rights The Flip Capital Contributions Distributions and Allocations Project Management Other Issues Continue reading

Chapter 13: Power Purchase Agreement

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: Length of the Agreement Commissioning Process Sale and Purchase Curtailment Transmission Issues Milestones and Defaults Credit Insurance Environmental Attributes or Credits Continue reading

Chapter 14: Interconnection

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.   Most wind project developers choose to hire an engineering consultant to help them properly fill out the required forms, interpret study results, and to act as a liaison between the project, your Regional Transmission Operator (RTO), and the interconnecting utility. This section of Windustry’s Community Wind Toolbox is designed to help you through the process by breaking it down into stages and defining the key concepts and vocabulary you will need to understand while moving through the process. Here are some quick links to the major topics covered in this section of the Toolbox: Summary of the Interconnection Process Understanding the Transmission and Distribution System The RTO Process Interconnection Agreement Additional Resources for Interconnection Continue reading

Chapter 15: Turbine Selection and Purchase

Even after you have determined that you have a good wind resource and a viable site, putting a down payment on a turbine is a huge commitment. How do you choose the right wind turbine from a reliable manufacturer? The turbine that you choose for your project will depend on your wind resource, the goals of your project, and the price and availability of turbines (many turbines have long waiting lists), as well as the reliability of the machine and availability of spare parts and expertise to fix the machine if it breaks. This section is intended to give you some idea of what to look for when choosing a turbine and to provide you with information on turbine manufacturers and turbine specifications. Turbine Basics Choosing a Turbine Negotiating a Turbine Deal Commercial-Scale Turbine Manufactures Additional Resources Continue reading

Chapter 16: Public Policy

Hundreds of megawatts of community wind projects have already been installed throughout the country, but increased policy support for locally-owned projects is needed so that rural America can continue to benefit from this growing industry. Continue reading