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WIND DEVELOPMENT 101

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Screen via the Wyoming wind map. Assessing the Wind Resource - II. Goal: 18 mph speed ... Terrain contour high spots beneficial. Orient rows perpendicular to wind ... – PowerPoint PPT presentation

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Title: WIND DEVELOPMENT 101


1
WIND DEVELOPMENT 101
  • Tom Potter
  • Sustainability Field Advocate for the Rural West
  • All American Energy LLC
  • (303) 534-4317 tpotter_at_allamericanenergy.com

2
Objectives
  • Overview the process
  • Recommend further action
  • Reference support resources

3
Overview of Wind Development
  • Resource and siting
  • Business forms and deals
  • Land issues
  • Wind power economics
  • Utility partners
  • Project installation and operations

4
Assessing the Wind Resource - I
  • Screen via the Wyoming wind map

5
Assessing the Wind Resource - II
Goal 18 mph speed (annual average) at 250
hub height Assumes no landform barriers

6
Layout and Site Suitability
  • Terrain contour high spots beneficial
  • Orient rows perpendicular to wind
  • Spacing 1/8 mile rows 1/2 mile
  • Avoid homes and farm buildings
  • Use corners of crop circles
  • Road access rail too, if possible
  • Transmission access substation 1/4 acre
  • This example Colorado Green, near Lamar

7
Business Forms and Issues
  • Prepared by
  • Bradley J. Haight, J.D.
  • Hackstaff Gessler LLC
  • 1601 Blake Street, Suite 310, Denver CO 80202
  • P (303) 534-4317 F (303) 534-4309
  • bhaight_at_hackstaffgessler.com

8
Business Forms
  • PARTNERSHIP (general or limited)
  • CORPORATION
  • LIMITED LIABILITY COMPANY
  • NEW GENERATION COOPERATIVE

9
Purpose of the LLC
  • LIABILITY PROTECTION
  • CAN PROVIDE FAVORABLE TAX TREATMENT
  • FLEXIBLE FRAMEWORK
  • MEMBER CLASSES
  • SIMPLE REVERSION FEATURES
  • DIVISION OF RIGHTS AND RESPONSIBLITIES

10
Form the Entity (e.g., the LLC)
  • TALK TO CO-OP DEVMT CENTER
  • FILE ARTICLES OF ORGANIZATION WITH THE SECRETARY
    OF STATE
  • MEMBER-MANAGED OR MANAGER-MANAGED ENTITY?
  • LOCAL OWNER, OUTSIDE INVESTOR?
  • PREPARE OPERATING AGREEMENT

11
Structure (Contd)
  • OWNERSHIP AND REVENUE SHARING EXAMPLE
  • 95 INVESTOR AND 5 LOCAL OWNER
  • CONVERSION TO 5 INVESTOR AND 95 LOCAL OWNER
    AFTER GOALS MET
  • LEASE AND MANAGEMENT FEES PAID THE LOCAL OWNER BY
    THE ENTITY

12
Elements of the Deal
  • PURCHASER, INTERCONNECTION, WHEELING
  • LAND AGREEMENT
  • MONEY INVESTOR, DEBT, LINE OF CREDIT
  • OM, EPC, BOP CONTRACTS

13
Elements of the Deal (contd)
  • TURBINE AND TOWER PURCHASE AGREEMENT
  • PERMITS AND APPROVALS
  • GREEN CREDIT PURCHASER
  • INSURANCES

14
  • Consultants
  • MAY BE ABLE TO ASSIST WITH THE FOREGOING, BUT CAN
    BE EXPENSIVE
  • CONSIDER EXPERIENCED COUNSEL, LIKE JEFF PAULSON
    (952) 835-0055 OF MINNESOTA, WITH LOCAL COUNSEL
    TO ADDRESS LOCAL ISSUES

15
  • Investor Issues
  • FAVOR MINNESOTA MODEL
  • REQUIRE CLASS 4 WIND CONFIRMED BY ANEMOMETER,
    ALSO MAY REQUIRE WINDLOGICS VERIFICATION
  • REQUIRE MINIMUM RETURN, POSSIBLY 15-20 IRR,
    GREATER RETURN REQUIRED WITH SMALLER PROJECTS

16
Investor Issues (contd)
  • IRR AND TAX CREDIT REQUIREMENTS DICTATE
    SIGNIFICANT INITIAL OWNERSHIP PERCENTAGE (UP TO
    95) IN FAVOR OF INVESTOR
  • WANT LOCAL OWNERS TO SHARE RISK AND INVEST
    THEIR OWN CAPITAL IN THE PROJECT
  • REQUIRE PARTICIPATION OF EXPERIENCED CONSULTANTS
    AND COUNSEL

17
Investor Issues (contd)
  • PREFER MULTI-UNIT PROJECTS
  • LIKE TO AGGREGATE PROJECTS
  • REQUIRE STRONG WARRANTIES AND EQUIPMENT TRACK
    RECORD

18
  • Land Issues Nature of the Agreement
  • LEASE, EASEMENT, OPTION, OR COOPERATION (or
    analysis) AGREEMENT
  • WHAT DOES THE AGREEMENT AUTHORIZE
  • BEWARE OF AGREEMENT THAT GRANTS RIGHTS NOT
    RELATED TO WIND-ENERGY DEVELOPMENT
  • CONFIDENTIALITY AGREEMENT

19
Land Issues (contd)
  • EXPLORE ALTERNATIVES TO LEASES OR OPTIONS (such
    as cooperation or analysis agreement) IF ONLY
    ANALYSIS OF THE LAND AND WIND REGIME IS NECESSARY
  • NOTE ANY EXCLUSIVE RIGHTS OR FIRST REFUSAL RIGHTS
    SUCH AGREEMENTS MAY GRANT
  • AVOID PERPETUITY CLAUSES

20
  • Landowner Due Diligence
  • RESEARCH THE DEVELOPER
  • ASSESS THE DEVELOPERS INTENT AND ABILITY
  • DETERMINE WHETHER A GUARANTY IS NECESSARY

21
The Subject Land
  • IDENTIFY THE LAND IMPACTED
  • IDENTIFY WHAT MAY BE CONSTRUCTED
  • CONSIDER HOW THE DEVELOPMENT WILL AFFECT THE
    HISTORIC, CURRENT, AND FUTURE USE OF THE LAND

22
  • Lease Term
  • TERM
  • NOTE WHEN THE LEASE STARTS AND FINISHES
  • NOTE ANY CONDITIONS PRECEDENT TO LEASE
    COMMENCEMENT

23
Lease Term (contd)
  • EXTENSION AND RENEWAL
  • WHEN AND HOW MAY THE LEASE BE RENEWED OR EXTENDED
  • HOW MANY TIMES MAY THE LEASE BE RENEWED OR
    EXTENDED
  • FOR HOW LONG MAY THE LEASE, ULTIMATELY, BE
    EXTENDED OR RENEWED

24
  • Compensation
  • PER INSTALLED MEGAWATT?
  • PER ACRE?
  • NO LONGER COMMON, EXCEPT MAYBE WITH OPTION
    AGREEMENTS
  • ROYALTIES (percentage of the electricity sold)

25
Compensation (contd)
  • OTHER PAYMENT OPTIONS
  • EXECUTION PAYMENTS
  • CROP LOSS PAYMENTS
  • ASSIGNMENT PAYMENTS
  • CAREFUL ANALYSIS IS NECESSARY SPEAK WITH AN
    EXPERT
  • CONSIDER A MOST-FAVORED NATIONS CLAUSE

26
  • Liability Protection
  • DEFENSE, INDEMNITY, AND HOLD HARMLESS PROTECTION
    HIGHLY RECOMMENDED
  • SIGNIFICANT INSURANCE COVERAGE FOR THE DEVELOPER,
    NAMING THE LANDOWNER, IS ESSENTIAL
  • INCREASED TAX LIABILITY ISSUES MUST BE ADDRESSED
  • ADDRESS MECHANIC LIEN ISSUES

27
  • Financing Provisions
  • NEARLY ALL IF NOT ALL DEVELOPMENTS ARE FINANCED
  • DEVELOPMENT FINANCING IS SIGNIFICANT (projects
    cost on average 1 million per installed
    megawatt)
  • DEVELOPERS, AND THEIR LENDERS, REQUIRE BROAD (and
    complicated) FINANCING PROVISIONS

28
  • Assignment Provisions
  • ASSIGNMENT IS POSSIBLE WITH ALL DEVELOPMENTS
  • DEVELOPERS ABSOLUTELY REQUIRE ASSIGNMENT
    PROVISIONS, WITH SOME REQUIRING AN ABSOLUTE RIGHT
    TO ASSIGN REGARDLESS OF LANDOWNER CONSENT

29
Assignment Provisions (contd)
  • BEWARE OF ASSIGNMENT RIGHTS THAT EXCUSE DEVELOPER
    LIABILITY
  • EXPLORE REASONABLE LIMITS TO DEVELOPER
    ASSIGNMENT RIGHTS
  • BEWARE OF RIGHTS GRANTED THE DEVELOPER THAT
    AUTHORIZE SUB-LEASES (sub-easements, or
    sub-licenses)

30
  • Termination
  • WIND-ENERGY LEASES ARE NOT EASILY TERMINATED BY
    THE LANDOWNER
  • TERMINATION RIGHTS IN FAVOR OF THE DEVELOPER ARE
    OFTEN BROAD, PARTICULARLY PRE-DEVELOPMENT
  • CAREFULLY NOTE THE LIMITED BASES UPON WHICH
    TERMINATION IS ALLOWED

31
Termination (contd)
  • NOTE THE SPECIFIC PROCEDURE TO FOLLOW IN ORDER TO
    TERMINATE
  • BEWARE OF ANY PROVISIONS THAT PURPORT TO SURVIVE
    TERMINATION
  • SEEK TERMINATION RIGHTS TO PROTECT AGAINST THE
    POSSIBILITY THAT THE LEASE WILL SIMPLY TIE UP THE
    LAND

32
  • Decommissioning
  • NOTE WHEN AND HOW THE PROJECT WILL BE
    DECOMMISSIONED
  • TAKE STEPS TO ENSURE THE DEVELOPER WILL BE
    RESPONSIBLE FOR DECOMMISSIONING COSTS
  • NOTE WHETHER THE LEASE INCLUDES SELF-HELP
    REMEDIES IN THE EVENT THE DEVELOPER FAILS TO
    DECOMMISSION THE PROJECT

33
Economics
  • Prepared by
  • Tim Olsen, P.E.
  • Advanced Energy Systems LLC
  • 1428 S. Humboldt St., Denver CO 80210
  • P (303) 777-3341
  • tolsen_at_windtechnology.com

34
Project Economics - I
  • Project Description
  • Total Rating 10.5 MW
  • Turbine Rating 1.5 MW
  • Number of Units 7
  • Hub Height 80 m (263 ft)
  • Project Life 20 years
  • Losses 9.0
  • Project Finances
  • Initial Cost 16.5 million
  • Equity 9.0 million (51)
  • Debt 7.5 million (49)
  • Interest Rate 9.0
  • Debt Term 15 years
  • CPI Growth 3.0

35
Project Economics - II
  • Wind Resource and Energy
  • Average Wind Speed 8.56 m/s at hub height
    (19.1 mph)
  • Air Density 1.05 kg/m3 at 1600 m (5250
    ft)
  • Annual Energy Production 36.0 million kWh/year
  • Capacity Factor 39.2

36
Project Economics - III
Revenue
Year 1 Year 16 Energy Sales
at 0.039 /kWh 1,406,000
1,632,000 Green Credit at 0.005 /kWh
180,000 180,000 Gross Revenue
1,586,000
1,812,000 Expenses Property Taxes
64,000
64,000 Land Royalty at 2
32,000 36,000 Operating Costs
259,000
403,000 Debt Service
675,000 0 Total
Expenses 1,030,000
503,000 Net Operating Income
556,000 1,309,000 Principal
Repayment 255,000
0 Net Cashflow
301,000
1,309,000 Tax Benefits PTC
685,000 (holds
for 10 years) Depreciation, 5 yr DDB
2,110,000 (tapers out in 5 years) Net Tax
Benefit 2,795,000
(tapers down to 685k in 5 years)
37
Project Economics - Summary
  • Financial Results
  • Assume 20 year life and contracts
  • Internal Rate of Return 12.5
  • Debt Coverage Ratio 1.40

38
Utility Partners
39
Utility concerns
  • Safety
  • Interconnection standards
  • Power quality
  • Interconnection standards
  • Reliability of resource
  • Buy-back rate
  • Rate equity
  • Buy-back rate

40
Utility opportunities
  • Local economic development
  • Support entrepreneurs
  • Better use of facilities lower rates
  • Ease interconnections
  • Partial alternative to new central plants
  • Encourage local vs. out-of-state investments
  • Higher reliability, shorter outages
  • Help wind become part of the solution

41
Project
Installation

42
Prep for Installation Overview
  • Land lease or purchase access
  • Wind data collection 1-2 years, monthly visits
  • 1-5 meteorological towers w/ guy wires, 1/4 acre
    each
  • 50-60 m tall (164-197 ft)
  • Energy buyer local utility, urban market,
    private
  • Utility interconnection protective switchgear
  • lt 5 MW feeder voltage gt 5 MW substation
  • Engineering, soil testing
  • Permits and taxes local, state, federal
  • Financing debt _at_ 5-7, equity _at_ 12-20, PTC
  • Legal Framework

43
Installing Project HardwareSite Preparation
  • Roadways, crane pads
  • Electrical trenching
  • Excavation for foundations
  • Substation
  • Operations and maintenance building in area

44
Installing Project HardwareConstruction Process
  • 4-8 months, depending on project size
  • JOBS 100 MW, 1.5 mm, 200 jobs
  • Foundations, installation, commissioning
  • Dust, noise, hard work, commerce
  • Permanent roads, foundations, crane pads (4 of
    land)
  • Minimal impact to farm operations courtesy
    (polite to the livestock), speed limits, gate
    etiquette (close them)
  • Reclamation of damaged land

45
Installing Project HardwareOM, Upgrades,
Decommissioning
  • OM Jobs (long-term) 0.16 FTE / MW direct
  • Example 100 MW Project, 16 direct jobs, many
    indirect jobs
  • Project life 20 years, with likely upgrades and
    extensions up to 40 repowering for much longer
  • Upgrades from subtle software changes to new
    blades and drivetrain
  • Decommissioning reserve fund to remove all
    equipment and concrete to 3 depth restore land

46
Summary

47
What did you hear?
  • Wind development is not a trivial exercise
  • Check out the lay of the land first, yourself
  • If it still looks good, get professional help
  • Excellent benefits await successful developers,
    and their communities
  • With help, you can do it!

48
Questions
Wind Advocate Tom Potter 303.503.2230
tpotter_at_allamericanenergy.com Legal/Business
Brad Haight 303.534.4317bhaight_at_hackstaffgessler
.com Minnesota Model Jeff Paulsen
952.835.0055 Project Devmt Tim Olsen
303.777.3341 tolsen_at_windtechnology.com
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