Catching the wind yourself
Finding a site for a wind farm has been made more difficult by booming demand for the clean, CO2-free energy source. According to the American Wind Energy Association, the U.S. is on track to add well over 3,000 MW of wind power capacity this year, topping last year’s record of 2,454 MW. California ranks second nationally, behind Texas, in installed wind generating capacity, with 2,376 MW.
Location. With wind power in such demand, many of the sites with the best wind profiles—the most consistently high average wind speeds, in other words—have already been spoken for. The three areas in California with the best wind profiles are Altamont, Tehachapi, and Banning Pass.
As land owners in these areas have become more aware of the enhanced value of their property, many are now less interested in selling their land to developers and utilities and keener on leasing it to them at rising market rates, in the hope of creating a perpetual revenue stream. Of those landowners willing to sell, some have even sold their wind rights and land-use rights to different parties (based on precedents legalizing the separation of mineral rights from land-use rights), with contracts stipulating that the new land-use owner will provide easements enabling the new wind-rights owner to erect turbines on the property.
Wind profiles in the U.S. heartland are very favorable, but moving wind-generated electricity over heavily loaded existing lines to California remains problematic. Many Midwest states are planning new transmission, but the lines typically terminate in Utah, under the erroneous assumption that existing transmission capacity from there west is sufficient.
When you look for a site, try to find one where the average wind speed (confirmed by a year’s worth of readings from anemometers) is at least 16 miles/hr, which would generally give your turbines a capacity factor of 30% or better. Proximity to transmission lines with excess capacity also is important. For economies of scale, your wind farm should have an installed capacity of at least 100 MW—anything less might make your per-kWh price uncompetitive.
Large wind turbines require terrain that is fairly level, so the site should not have significant grades. If the surrounding terrain makes the site difficult to access, construction costs go up drastically. I’ve found that some inaccessible sites require a lot more road building than wind farm development.
To avoid this problem altogether, go offshore. In fact, there are more advantages than disadvantages to building a wind farm offshore, as compared with those on land. On the plus side, delivering large components—like blades hundreds of feet long—to terrestrial installations usually is more problematic than shipping them to offshore sites. More often than not, offshore sites also have stronger and steadier winds than land-based sites. And then there’s the blade advantage. Terrestrial turbines typically use three blades to make them quieter. Offshore, noise is no problem, so two-blade turbines are more common there. Because turbine blades are among the most expensive components of a wind farm, the capital cost savings can be substantial.
The biggest disadvantages of offshore wind farms are the higher cost of building them at sea and the need for long transmission cables to bring their output onshore. Construction costs vary from site to site and depend on seabed geology and water depth. Less is known about how much more it costs to operate and maintain an offshore wind farm. But experience from the many installations offshore of Europe (see Cover Story, Burbo Bank) is accumulating rapidly.
Ownership. Because you may be investing hundreds of millions of dollars in a site, it behooves you to control it for an extended period. For that reason, buying land is generally better than leasing it. But if you must lease, or choose to do so, get a lease for at least 30 years with an option to extend the term. In most instances, the facility’s infrastructure and installations are worth far more than the land itself. So if you sublet the land to a developer, structure the contract so that if he defaults, you retain the lease rights.
Size. How many turbines can be squeezed onto a wind farm? That number is a function of the size of your farm and the length of your turbine blades. As rules of thumb, figure that each turbine in a row will be three to five diameters (or roughly six to 10 blade lengths) from its neighbor, and that the rows will be five to nine diameters apart. Packing turbines too tightly hinders the reforming of wind between two machines and may cause the turbulence produced by a turbine to adversely affect its neighbors.
Buying wind power wholesale
The booming wind power market has increased the number of developers willing to build a wind farm and sell it or its electrical output to you. Most IOUs are opting for ownership, but some larger developers are balking at relinquishing it. Given the high percentage of proposed plants that fail to come to fruition, be sure that a prospective developer has firm control of the proposed site before taking the trouble to negotiate a contract; doing so will weed out a good portion of the pseudo-projects. Another way to ensure the viability and security of your wind farm is to deal only with larger developers, or developers backed by substantial guarantors. Finally, determine how far along the project is in its environmental review, as that may be the critical path for setting an in-service date.
Contracts. Before starting full-fledged negotiations, establish a confidentiality agreement and exclusive negotiation rights. That will save you the frustration of almost reaching a deal only to have it pulled away at the last minute. If you plan on multiple capacity acquisitions, develop an in-house pro forma contract to use as a template. Doing so will allow you to be intimately familiar with contracts at the start of negotiations. After a few deals, you’ll become familiar with the likely “pushback” points and the industry standards for various clauses. You should also be aware of the typical rates of returns for investors underwriting the project: 9% to 11% for tax-exempt investments, and 14% to 16% for tax equity investments.
When it’s time to negotiate, start by getting your developer to commit to a commercial operation date (COD). Be sure your contract includes both incentives for the developer to beat specified project milestones and penalties if milestones or the COD are not met (see POWER, November 2007, “Milestones on the road to commercial operation,”).
It is also useful to have the value of the wind farm be predetermined for any time during the contract period, including the precommissioned date. Insist on having the first right of refusal for any sale of the project in case of foreclosure, or at least the right of first offer. Doing so ensures that if the lender forecloses on the property, the utility will finish the project and make it operational without disturbing the schedule for RPS compliance.
Pricing. Be aware that there are two different pricing structures for wind energy: one for so-called “P99” wind (with a 99% probability of occurring) and another for P50 wind. Use the former when calculating rates of return on investment.
Compare developers’ proposals based on a levelized price for energy, with escalations only on the O&M component. I’ve found this to be the easiest way to compare the values of proposals, and lenders seem to like escalations on O&M because they know O&M costs increase. I’ve seen some offers start out with very low energy costs and have an annual inflation quotient applied to the entire energy cost (not just on the O&M component), making for very expensive energy.
Email
Comments
Print
Reuse
