WIND ENERGY EDUCATIONAL PROGRAM FOR FARMERS AND LANDOWNERS Professor Stephen B. Harsh

EnergizingMichiganEnergizingMichigan

WIND ENERGY EDUCATIONAL PROGRAM FOR FARMERS AND

LANDOWNERS

Professor Stephen B. HarshDepartment of Agricultural Economics

Michigan State UniversityAnd

Professor Lynn HamiltonDepartment Of Agribusiness

California Polytechnic State UniversitySan Luis Obispo


WIND ENERGYEDUCATIONAL THRUSTS

1. The initial grant was to involve the Extension System in conducting a general wind energy awareness educational program It involved both campus and district staff

Lynn Hamilton was hired as director of the project

First phase related to becoming informed about various aspects of wind energy The knowledge gathering trip to Iowa and

Minnesota played a large role in this process


(Educational Thrusts Continued) (Initial Grant Continued)

A four hour workshop curriculum was developed Introduction to wind energy and

economics of wind energy systems Legal aspects of a wind power lease Issues related to local approval and

zoning considerations Small wind systems and grant

programs for wind energy


(Initial Grant Educational Thrusts Continued) Introduction to Wind Energy and

Economics of Wind energy session Basics of wind energy Key factors to consider in developing

wind energy Economics of both utility scale and

small wind systems


23

4


MichiganWind

Power at50 Meters



WHY GROWTH IN WIND ENERGY It is renewable energy

Wind will blow for generations – it can not be depleted It is environmentally friendly

A 1 megawatt turbine in a “good” wind area will: 2.6 million kilowatt-hours electricity per year Serve about 300 average households Removes over 5 million pounds of greenhouse

gasses(CO2)• Equivalent of 16 carloads of coal

Also removes sulfur (SOX) and nitrogen (NOX) dioxide and mercury

Helps the local economy Property taxes Funds not being sent to oil producing countries Creates jobs

It can be a very good economic investment


(Initial Grant Educational Thrusts Continued) Key factors for developing wind energy

A good source of wind Wind is solar energy and the speed is

critical• As the speed increase by 25%, the power

increases by 100%• 15 mph to 18 mph results in a 73%

increase in power A power purchase agreement

Renewal Portfolio Standard (RPS) Net metering

Access to power sub-station Adequate transmission capacity Good financial plan Local acceptance and approval


UTILITY SCALE TURBINES


EXAMPLE OF UTILITY SCALE PROJECT A is community wind project with eight 1.5 mW

turbines in the project Key assumptions for a turbine (Case 1):

Total cost per turbine is 2.2 million dollars Assumed life of investment = 20 years Power purchase agreement = 6.0 cents per kWh Federal tax credit of 1.9 cents per kWh for 10 years Average power capacity factor for each turbines =

30% Financing 60% of the cost (15 year loan @6.5%) Major rebuild of gear box every 5 years Annual costs include repairs, utilities, property

taxes, insurance and service contract Before tax desired return on investment = 12% Aggregate marginal tax bracket = 41% Prior taxable income of 640,000 & $182,000 taxes

paid


(Utility Scale Project Continued) Analyzed with the “Alpha-3” version of Utility Wind

Investment Model (used capital budgeting methods) Uses after-tax discounted flows

Results (Case 1): Years with negative after-tax cash flows = 3 After-tax discounted income = $169,000 Before-tax internal rate of return = 16.6%

Results (Case 2), Flip ownership (Corporation owns the first 10 years and farmer owns the next 10 years): Results are nearly the same for both owner groups


SMALL WIND SYSTEMS FORINTERNAL CONSUMPTION

Used60 kW

SystemPurchased

overInternet

LessThan

$30,000Installed



ECONOMICS OFSMALL WIND SYSTEM (CASE 1)

Key assumptions: Total cost of project is $36,000 Assumed life of investment = 20 years Power purchase agreement = 3.3 cents per kWh Before installing system, purchased 130,000 kWh

of electricity at 8.8 cents/kWh Average power capacity factor = 20% Proportion of business potential not usable = 20% Financing 60% of the cost (15 year loan @6.5%) 25% cost share under Section 9006 Annual costs include repairs (higher rate), utilities,

property taxes and insurance, service contract Aggregate marginal tax bracket = 41%


(Small Wind System Economics Continued)Analyzed with the Small Wind Investment

ModelUsed after-tax discounted flows

Results (Case 1):Net Present Value = $13,688Number of years with negative after-tax cash

flows = 4First couple of years have negative

operating lossesBefore-tax internal rate of return = 49%


(Initial Grant Educational Thrusts Continued) Legal issues related to a wind lease session

Initially Roger McEowen from Iowa State provided materials for this session Later on an in-house lawyer handled this

session Main points of presentation

Do not sign anything until you discuss with a qualified lawyer

Be cautious about a “high pressure” lease Look for a good lease rate Every add-on should have an enhancement

fee Understand the 3 time phases of the lease

(discovery, production, renewal)


(Initial Grant Educational Thrusts Continued) Local approval and zoning

Nuisance issues (noise, avian kill, ice shed, flicker, visual impact, etc.)

Zoning (setbacks, wind energy shadow, removal provisions, etc)

Small wind systems and grant programs Small wind applications (homeowner, small

business, special function systems, etc.) Grants to help offset the cost of the systems

such as the USDA 9006 grant What is considered in evaluating these

grant requests


(Initial Grant Educational Thrusts Continued)

12 Workshops were held Nearly 800 attended Evaluations were very positive

Information presented met their needs

Increased their general knowledge of wind energy issues

Caused behavior change


EDUCATIONAL THRUSTS2. The second grant focused on an

anemometer loan program and small wind systems More than one grant was actually used to

purchase the ten anemometer systems Used an application process to select

participants Eric Wittenberg is director of the

Anemometer Loan Program


MSU

Anemometer

Loan

Program




(Second Grant Thrust Continued) Small wind program

Special workshops Presentation by an actual user of a

small wind system In depth presentation on what is

involved in the installation of a system by an installer

Economics of a small wind system• Use of the small wind model

Presentations at grower meetings (e.g., greenhouse association)


EDUCATIONAL THRUSTS

3. Currently with the aid of a third grant the educational effort is continuing Continuation of the Anemometer Loan

Program Community wind assistance

Wyandotte Municipal Power Others in discussion stage


Documents

WIND ENERGY EDUCATIONAL PROGRAM FOR FARMERS AND LANDOWNERS Professor Stephen B. Harsh