Can contractors meet Duke Energy timeline on wind power?

With tax-credit deadline approaching, one says ‘timing is unfortunate’

Carolinas’ recent call for wind-power contracts seeks to encourage offers from North Carolina projects. But the developer of the state’s largest proposed wind project says bad timing may leave it unable to bid.
 
The problem involves a deadline for a 30% federal investment tax credit. To qualify, a wind-power developer must finish building the project before the end of 2012.
 
Duke proposes awarding contracts in next year’s first quarter. Craig Poff, the senior developer for Iberdrola Renewables’ 300-megawatt wind farm planned near Elizabeth City, says it is almost impossible complete his project by the end of 2012 if he has to wait months to get a contract.
 
“The timing is unfortunate,” he says.
 
Owen Smith, Duke’s managing director of renewable energy, says his company is aware of the deadline. And it has tried to address it.
 
“If timing is an issue, we would close earlier, if it is possible,” he says. “We would do everything we could to make it happen.”
 
Poff finds little comfort in that assurance. “I don’t want to shut down all hope, but every day that goes by now makes it harder to do a deal,” he says.
 
Duke sent out requests last week for bids on selling the utility power from wind turbines. It requires that projects be 50 to 300 megawatts in size — a range that would include the only two projects approved in the state to date.
 
Bidders must be able to deliver the power to North Carolina or be based in the state. Duke says it will consider buying renewable-energy credits — as alternative to buying wind power — only from projects that are in North Carolina. That could also boost in-state projects.
 
A bigger reliance on wind
 
The request for bids marks the first time Duke has specifically targeted wind as a renewable power source. And it follows Duke’s recent disclosure in its long-range plan that wind is increasingly important to the company’s efforts to meet state requirements for power from renewable sources.
 
The plan indirectly cites Iberdrola’s project and an 80-megawatt farm that Invenergy proposes to build near Washington, N.C., in explaining its belief that wind power will be more available in North Carolina than Duke thought just a year ago.
 
State regulators approved both projects this year.
 
A spokeswoman for Invenergy says her company is confident that it can work on Duke’s timeline. That makes sense, as Invenergy’s project is smaller than Iberdrola’s and would take less time to build.
 
The stumbling block for the larger project is tied to the way renewable power plants are financed.
 
To get the money to build a project, developers generally must have power-purchase agreements that lock in a customer for all the power a project produces. Those contracts often extend over 20 years.
 
So Poff needs such contracts before his company can start construction. Any delay in signing a power-purchase agreement threatens Iberdrola’s ability to qualify for the investment credit and for a program that allows a developer to get cash for the amount of the credit, rather than the actual tax break.
 
Poff and the Invenergy spokeswoman decline to say whether their projects need the tax credit to be built. But Poff notes that failing to get the credit will increase the cost of the project. And that, he says, increases the cost of the power that will ultimately be sold from it.
 
Making a deal soon would allow Duke to buy renewable energy “at a very reasonable price,” he says. Delay will make it considerably more expensive, “and that cost will pass right through to the ratepayers,” he says.
 
Progress also seeks contracts
 
Duke is not the only game in town. Progress Energy Carolinas issued a call for wind-power bids in June, and it hopes to announce contracts in the fourth quarter.
 
But even that would be cutting things close for Iberdrola. And both projects are in Virginia-based Dominion Power’s service area.
 
The Dominion connection makes it possible for the projects to sell their power into the PJM Independent System Operator grid.
 
That would make it possible to sell power in Virginia, Ohio, Maryland, New Jersey and Pennsylvania.
 
But the key remains contracts to sell all of the power from the wind farms. So the developers need to find utility customers with a large appetite for renewable energy.
 
A Progress spokesman says his company has been talking to Iberdrola and Invenergy for months — even before the June request for bids. Duke’s Smith says the power company also has had conversations with both of the wind-energy developers.
 
Poff says Iberdrola has reached out to all major utilities in the region.
 
“I am optimistic that the project will happen,” he says. “But I am realistic that things have to happen very quickly here for this to come to fruition.”