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Small Farm Profitability: Is Wind Energy the Answer?

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Why Consider Wind?

• • • • Many landowners own land with quality wind resources.

Electricity prices are not directly related to agricultural commodity prices, resulting in more diverse farm income.

Wind is a clean domestic source of energy.

Wind development may help support rural economies.

Modern Wind Energy

• Two types of projects: – Commercial Scale • Sell electricity to a utility company at a contracted rate • Numerous state rules and regulation apply – Net Metering Scale • Allows customers to offset their personal electrical usage by producing small amounts of electricity.

• Utility company rules generally regulate this type of project.

Net Metering Projects

• The process – Customer contacts their utility company to find out about Net Metering Policies • These policies often limit the size of turbine that can be installed – Customer purchases a turbine – Turbine is installed – Customer’s energy production is subtracted from their energy use and they are billed for the reduced amount • Net metering customers reduce their electrical bill but in most cases do not generate any revenue

Commercial Scale Projects

• Questions to ask in the planning stage: – How big of investment are you considering?

• Will you need financing?

– Is electrical transmission capacity near your site?

– Do you have anemometer testing data?

– How does your state’s regulatory process work? • How long does it take?

– Is equipment available for purchase?

• At what price? And when will it be available?

– What contract price is needed to be profitable?

– Are state or federal tax credits available?

Getting Started

• Why are you interested?

– As an investor?

• If you are an investor: – Buying shares or bonds in a wind development company may be the extent of your involvement – Being an informed investor may help improve your chances of making a good investment – For environmental reasons?

• Consider this question “Is this the most environmental benefit you can purchase with your money?” – Answering this question may help you determine if this is the most appropriate investment

Getting Started

• Why are you interested?

– As a land owner?

• Most land owner’s simply lease the wind rights on their land to wind developers.

• Wind leases can be very complex and lengthy. Becoming educated and possibly seeking legal advice may help you obtain the best possible lease.

• Don’t be afraid to ask questions and to take time to finish your research before signing.

– For local economic development reasons?

• Many wind projects in rural areas can benefit the local economy through an increased tax base and new jobs.

• If these issues are important to you…try to estimate how much these benefits are worth to you and include them in your evaluation.

Developing a Wind Project

• Assume you are developing a wind energy project. What steps do you need to take?

– The steps will be listed in an “order” but many of these steps will be taken simultaneously.

Developing a Wind Project

• Do you have a good wind resource at the potential site?

– First look at estimates of regional wind speed.

– If the site looks promising, on-site testing using an anemometer is recommended (and in many cases required).

• Anemometer data is often collected for 1 to 3 years • An anemometer measures and records wind speeds at a specific location. Anemometers are usually installed on towers to more accurately measure wind speeds at the height of the proposed wind turbine.

Developing a Wind Project

• The regulatory process – State rules generally apply – The process may takes months to years – Environmental studies will required – The size and location of the project may need to be determined before or during this process – The potential buyer and transmission agreements may also need to be provided during this process

Developing a Wind Project

• Transmission Capacity – Any credible buyer needs to have a way to transport the electricity to a market.

– Transmission capacity is a limiting factor in many rural areas.

• Expanding transmission capacity can be costly and time consuming.

Developing a Wind Project

• Land Ownership/Lease Agreements – In order to build a wind project the developer must have either a lease, option to lease or ownership of the land needed for the project.

• The land needed may also included land for access roads and support facilities.

• Some states also have regulations about development that would limit the ability of a neighbor to develop wind on their property. An easement from the neighbor or leaving a buffer zone may be required to develop a project.

Developing a Wind Project

• Determining the correct size of a wind project – A number of factors can play a role in determining the size of a wind project.

• Transmission capacity: If only a limited amount of capacity can be obtained, the size of the project can not exceed this amount.

• Financing: A developer with limited resources to invest may be limited in large capital investment required for wind turbines.

• Land: The potential site may have only limited number of viable turbine locations.

Developing a Wind Project

• Selecting wind turbines – Wind turbine can be purchased in various sizes from numerous manufacturers.

• The sizes have increased over the past decade.

– Common turbine sizes for commercial projects have increased from 0.75 and 1.0 megawatts to 1.5, 2.0 and 2.5 megawatts.

• The recent boom in wind development has resulted in waiting lists for turbines. Waits times can easily exceed 1 year.

• Some smaller refurbished turbines are also available in some cases. The capacity of these turbines are commonly less than 0.25 megawatts.

Developing a Wind Project

• Financing – Wind Projects generally require significant investment during the development of the project. After the project is operable, wind turbines begin to generate revenue for the owner.

• Many developers do not have a large amount of capital to invest for 10 to 20 years. They often obtain financing for much of the development cost.

• Securing financing can be a requirement to get on a waiting list to purchase turbines.

Developing a Wind Project

• Finding a Buyer – Electricity produced from wind projects is often under contract to be sold long before the project is completed.

– The contracts typically specify the amount of electricity that will be sold, the price, and the length of the contract.

– The contract also may require that casualty insurance be purchased to provide revenue in the event the project is in-operable for some period of time.

Developing a Wind Project

• Tax Credits – The Federal Government currently provides tax credits for wind energy development.

– These tax credit may account for 10% to 25% of the total revenue generated by a wind project.

• These credits have been renewed one year at a time in recent years. Insuring that your project is eligible for these credits will impact the financial viability of the project.

Conclusion

• • • Wind projects can be complex and planning is essential to project success.

Many different factors can determine the size and viability of a wind project.

The wind energy market is developing and changing quickly. Keeping current of new issues is important.