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Decommissioning costs and scrap value: Beech Ridge wind energy facility

Tom Hewson|October 7, 2008
West VirginiaEnergy Policy

Tom Hewson of Energy Ventures Analysis, Inc. ("EVA") was hired by the citizen's group, Mountain Communities for Responsible Energy, to evaluate a Decommissioning Cost Report prepared for the Beech Ridge Energy Project - a 124-turbine project proposed for Greenbrier County, West Virginia. His summary below provides insight into what communities and permitting agencies should be looking for when evaluating decommissioning plans. Mr. Hewson's memo on decommissioning of the Beech Ridge wind facility, which was included in the public record before the West Virginia Public Service Commission on the project, can be accessed by clicking on the link below.


Tom Hewson of Energy Ventures Analysis, Inc. ("EVA") was hired by the citizen's group, Mountain Communities for Responsible Energy, to evaluate a Decommissioning Cost Report prepared for the Beech Ridge Energy Project - a 124-turbine project proposed for Greenbrier County, West Virginia.

The project wind developer, Invenergy, had argued that the scrap value of the wind turbines would far exceed the cost to decommission the wind project and thus, bonding only $2,500 per turbine that would slowly escalate to $25,000/turbine by year 16 would be more than adequate.

The applicant's consultant estimated that its salvage value credit would reach $12.64 million ($101,900/turbine) in their decommissioning fund study based upon application of general scrap factors and prices. This scrap value credit would more than offset their estimated demo costs ($8.68 million: $70,000/turbine).

EVA completed an independent assessment of the salvage value of the Beech Ridge Wind turbines by first contacting the major regional scrap yards directly and obtaining current scrap prices for steel, copper and transport. From these data, EVA developed a Beech Ridge project-specific salvage credit estimate of only $2.63 million, i.e., $10.01 million less than the original applicant study. They also uncovered several major flaws in the applicant study methodology and pricing. The developer not only used old scrap prices but failed to take into account costs related to transporting scrap to a yard. In addition, to obtain the posted scrap price, they would need to break down the tower into 3-4 ft length pieces else the quoted price would be significantly less. In addition, the copper materials must also have their insulation stripped and/or copper pieces separated to obtain their posted copper price. If not, their scrap value would be far less than the common posted price. Given the large drop in scrap prices in recent yeard (>40%), EVA found that scrap value would no longer cover decommissioning costs.

EVA also compared the estimated demolition costs to another decommissioning report for another wind project developer that had contained detailed cost breakdowns. The other study estimated demo costs of $97K/turbine vs. $70K/turbine by Beech Ridge. Using the demolition costs from the other wind turbine project decommissioning study would translate to a Beech Ridge demo cost of $12.03 million, i.e., $3.35 million more the applicant's $8.68 million estimate. (Note: In another very recent project EVA had reviewed, the decommissioning costs were again severely underestimated by more than 50% by not taking into account recent crane rental rates, assuming extremely low earth moving costs, and assuming high productivity rates (6 turbines/wk).)

The bottom line is that even if the permitting agency allows the salvage credit, the total net cost of decommissioning the Beech Ridge project today would be $10.4 million ($83,900/turbine). EVA's analysis quantified the large scrap price and demo cost escalation risk being assumed by the local community. To protect the community, the permitting agency should require a bond of a minimum $100/K per turbine ($12.4 million) to capture demolition cost escalation risk. If the wind developer can convince the bonding company of the high salvage value, then they should be able to negotiate a lower rate for the bond. If they were right, there would be very little price difference for a larger $12+ million bond. EVA encourages shifting the risk to the bonding company. The developer and bonding company should assume the price risk and not the community.

Attachments

Beech Ridge Energy Decommissioning

September 27, 2013


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