Money matters
Wind farms typically require a capital investment on the order of hundreds of millions of dollars, so financing issues are critical to project development.
A boon to wind power financing arrived two years ago in the form of the Energy Policy Act of 2005. It provides a federal production tax credit (PTC) of 19 cents/kWh to any renewable energy facility built by December 31, 2008—the provision’s “sunset” date. Although the current PTC is likely to be renewed (as most of its predecessors were, eventually), your negotiations with developers should include calculations of the cost of wind energy both with and without the effect of the subsidy.
The salient feature of the current PTC is its size; 19 cents/kWh is enough to underwrite 20% to 30% of a typical wind farm’s total installed cost. The PTC is typically exhausted by the 10th year of a facility’s commercial operation. However, it is not directly available to tax-exempt entities, such as municipal utilities. To take advantage of the federal PTC, munis need to develop other models with other options. One is the early buyout, which entails having a third party, such as the developer, own and operate a wind farm until its PTC runs out and then sell the plant to the utility at its current market value. Many agreements also include a buyout option at the end of the contract term.
Another option that can retrieve 10% to 15% of wind energy’s production cost is to prepay for the energy. Though PTC provisions forbid the buyer of renewable energy from even partially funding development of a facility, prepurchasing the expected energy is allowable and provides money with which a developer can build a wind farm. This approach, however, imposes extra risk on the utility by replacing the traditional “pay as you go” approach with one requiring a much larger upfront investment. If the PTC is of little or no value to a utility, it makes sense for it to have the option to buy the facility when it comes on-line.
For many developers intent on building multiple projects, consolidating their developed assets is an attractive mechanism for addressing bankruptcy concerns. By financing at a higher level in the corporate structure than the particular project company, these developers can use several projects as security for the debt incurred at the holding company level. However, this strategy increases the buyer’s risk, because if one of those projects goes bankrupt, all of the projects listed as collateral may be subject to bankruptcy proceedings. The buyer of one particular project’s output can mitigate this increased risk by securing a mortgage on the project and subordinating all of its other indebtedness to the mortgage.
The costs of doing business
Even though wind turbines don’t require on-site staff for daily operation, you’re not finished with project costs once the site and turbines have been secured.
Power quality. Because wind farms produce asynchronous, intermittent power, their operating guidelines are more stringent than those of fossil-fueled plants. For example, a wind farm should be able to shed up to half of its generation within 20 seconds of the occurrence of a transmission contingency to avoid causing grid instability. Some utilities require this shedding to be accomplished within 2 seconds.
If sufficient shedding has not taken place within the specified time, a backup shedding system will start to open specified feeder breakers in sequential order. Most utility interconnection agreements impose additional operating constraints. One is the requirement that the wind farm be operated so the transmission line’s power factor ranges between 0.98 lagging and 0.98 leading.
Proper operation of a wind farm requires extensive studies, including steady-state load flow and dynamic analyses. Such studies, which cost between $50,000 and $100,000, determine what additional power quality equipment, like capacitors, is needed to meet the standards for interconnection to the local utility. They also provide information such as how quickly generation shedding needs to be accomplished in the event of transmission instability (2 seconds or 20 seconds, for example).
Communications. Most wind generation equipment comes with a prepackaged communication system. Although such systems provide valuable real-time operating information, they typically are not optimized with the end user in mind. Other communication systems, like those offered by Second Wind Inc. (www.secondwind.com), provide a superior wind energy measurement and control system that works well with many wind farm supervisory control and data acquisition (SCADA) systems.
Hierarchically, a SCADA system operates one level above a power plant’s real-time control system to control a process external to the SCADA system. At a wind farm, the SCADA system can work in concert with other control equipment to execute a “soft” shutdown of the wind turbines when a predetermined condition—such as the need for generation shedding—arises.
Maintenance. Because they have far fewer moving parts and no fuel-handling systems, wind farms require much less maintenance than comparably sized fossil-fuel plants. Some require only 30 hours of scheduled downtime annually, during planned outages that can be scheduled so that only a few turbines are out of service at any one time.
However, unscheduled maintenance is an issue that all plant operators must contend with. Unless the wind farm’s maintenance staff has extensive experience with wind turbines, it’s a good idea to try to get as long a turbine warranty as possible, to pass the turbines’ maintenance risk back to their vendor. A typical manufacturer’s warranty guarantees 95% availability for two years; some provide coverage for up to five years. However, a few manufacturers, such as GE Energy, offer a very limited service warranty on their turbines.
Many utilities have found that union or labor contracts restrict how much wind farm maintenance can be outsourced. Given that constraint, it’s wise to purchase a turbine warranty’s training option. That way, when your warranty period expires, your O&M staff will know how to maintain and fix the turbines and who to call at the vendor if they can’t. Of course (if your contracts permit), you could always farm out wind turbine O&M to a specialist such as enXco Inc. (www.forasenergy.com).
Another maintenance issue to consider is access to wind turbine components. Most turbines require maintenance techs to climb ladders up to 200 feet high to reach the rotor. The effort required to do so on a regular basis limits the pool of available technicians and their career longevity. Some newer wind turbines are equipped with service elevators to facilitate maintenance.
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