Glenn Schleede examines the financial incentives available to owners of industrial wind energy and how taxpayers and utility customers are picking up the tab.

"This presentation will review financing of renewable projects based on available incentives:

••Benefits and challenges.

••Equity and debt structures.

••Sponsor/Investor issues.

••Debt/equity issues.

The natural foods grocery chain, Whole Foods, failed to do its homework when it agreed to buy “wind energy” and, thereby, launch the nation’s largest demonstration to date of “ green energy” pseudo-environmentalism!

Three of the interesting conclusions from the analysis:

• “109 huge (32+ story, 350+ foot), low electricity producing wind turbines will be needed to produce the 458,000,000 kWh of “wind generated” electricity that Whole Foods has (in theory) purchased.”

• “$1 million spent for energy efficient light bulbs would avoid the use of 171,550,000 kWh of electricity over 5 years -- which is more than 3 times the 56,064,000 kWh of electricity that a $1,000,000 wind turbine might be able to produce over 20 years!”

• “Like the leaders in other organizations that have undertaken similar pseudo-environmental actions, it appears that Whole Foods executives thought only about the favorable PR benefits they would enjoy, while failing to consider the adverse impacts of their action.”

Editor's Note: According to the World Resources Institute and the U.S. Environmental Protection Agency the top 10 purchasers of 'wind energy' are:

Whole Foods Market Inc. 458,000 megawatts (a year)
Johnson & Johnson 295,000 MW
DuPont & Co. 170,000 MW
Starbucks Corp. 150,000 MW
IBM Corp. 110,000 MW
Safeway Inc. 78,000 MW
HSBC 66,000 MW
NatureWorks LLC 59,000 MW
Advanced Micro Devices Inc. 52,500 MW
WhiteWave Foods 49,500 MW

DOE released its first Annual Report on U.S. Wind Power Installation, Cost, and Performance Trends: 2006 on May 31st, providing an overview of developments and trends in the U.S. wind power market. The report analyzes trends in the marketplace, including wind power prices compared to wholesale electricity prices, project costs, turbine sizes, and developer consolidation. It also describes the increasing performance of wind projects, current ownership and financing structures, and trends among major wind power purchasers.
The report notes that U.S. wind power capacity increased by 27 percent in 2006 and that the United States had the fastest-growing wind power capacity in the world in 2005 and 2006. For the second straight year, the United States led the world by installing 2,454 megawatts of wind power capacity in 2006—16 percent of the capacity installed worldwide that year—followed by Germany, India, Spain, and China. Leading the way in annual growth capacity in the United States are Texas, Washington, and California.

Wind power is the fastest growing source of electricity generation in the United States. In 2003, the installed U.S. wind power capacity increased by 1,700 megawatts (MW) to a total of 6,374 MW.1 Most of this additional capacity came in large projects of 50 MW or more, typically owned by strategic investors who have developed or acquired a portfolio of projects. As wind power generation continues to grow, these large projects and experienced developers will likely continue to dominate wind power development. Because of their scale and access to capital, these large projects are the fastest way to move towards increasing renewable energy’s share of the generation mix—and they provide significant economic benefits to the communities where they are located, from payments to farmers for wind rights and turbine easements to construction-related spending to permanent operations and the maintenance staff at each project.

At the same time, there has been a growing interest in community wind power development. While the notion of community wind varies, these projects are generally smaller scale (less than 20 MW), and are locally initiated and owned. Projects range from single turbines erected by municipal utilities, school districts and tribal reservations to larger multi-turbine installations owned by one or more local investors and landowners. These projects may capture and retain more of the economic benefits locally (both construction-related and ongoing returns) and drive continued reinvestment in the communities. As a result, community wind projects often enjoy more favorable community support than large-scale commercial projects.

There have been numerous publications and conferences on community wind development, but less specific attention on options for project structuring and financing. The goal of this handbook is to identify critical financing issues and present several possible financing models that reflect the differing financial positions and investment goals of various project owners/developers.

The handbook includes six sections:

• Section I describes various models for community wind power ownership.

• Section II examines sources of equity and debt financing and the steps necessary to secure this financing.

• Section III identifies federal grant and loan programs and state incentives for wind power development.

• Section IV reviews the federal tax incentives supporting wind power projects, the impact of these incentives on project economics, and limitations on utilizing these incentives.

• Section V examines power purchase agreements and the value of green tags to community wind power projects.

• The Appendix contains a list of operating community wind projects in the United States and a list of project consultants and financing resources.

Today, we adopt an interim greenhouse gas (GHG) emissions performance standard for new long-term financial commitments to baseload generation undertaken by all load-serving entities (LSEs), consistent with the requirements and definitions of Senate Bill (SB) 1368 (Stats. 2006, ch. 598).2 Our adopted emissions performance standard or “EPS” is intended to serve as a near-term bridge until an enforceable load-based GHG emissions limit is established and in operation.......
Under SB 1368, the EPS applies to “baseload generation,” but the requirement to comply with it is triggered only if there is a “long-term financial commitment” by an LSE. The statute defines baseload generation as “electricity generation from a powerplant that is designed and intended to provide electricity at an annualized plant capacity factor of at least 60%..........
Pursuant to SB 1368, the performance level of the EPS must be “no higher” than the emissions rate of a CCGT powerplant.11 However, the statute does not specify the emissions rate for a CCGT. Based on our review of emissions rates associated with a broad range of CCGT powerplants of varying vintages, we adopt an EPS emissions rate of 1,000 pounds of carbon dioxide (CO2) per megawatt-hour (MWh).

Editor's Note: This provides interesting insight into the rationale behind establishing 1,000 pds of CO2/MWh as an Emissions Performance Standard (EPS) for baseload generation. Please note that in Figure 1 "Net Emissions Comparison Data' the net emissions accorded 'wind electricity' should have been accorded to 'solar thermal with Gas Assist'.

To maximize the advantages that the production tax credit offers, however, requires a closer look at how wind power facilities are financed. Unlike most power projects which are financed based on their revenues from power sales, financing for wind power projects depends heavily on the production tax credits.

....there are too many forms of subsidies and favoritism to determine accurately which energy sources get the best treatment, although some interpretations can be made. In any case, those who argue that their technology should receive more in order to compensate for another technology’s subsidies are being disingenuous. Congressional subsidies in the latest energy bill will only make matters worse.