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The Never Dull Life of a Wind Farm

A wind farm’s story is a little bit like a romantic comedy. It’s all about the buildup. We tend to rivet our attention on the development phase – the controversies over siting, the struggle for permitting, the landing of contracts.

Then the turbines start to whir, and we forget about the project, unless it’s part of a merger, bankruptcy or a rare calamity like a toppled wind tower.

But it turns out that wind farms are pretty interesting even after the ring is on the finger. Here’s a look at some of the milestones, issues, even philosophical musings that arise in the life of a wind farm.

Five-year Anniversary

This story is pertinent now because so many utility­-scale wind farms are coming of age — with an operating history to show.

True, bulk power wind projects go way back, even to Russia in the 1930s, and more significantly to California’s mega Altamont Pass projects in the 1980s and later the European golden era of wind development. But it wasn’t until the mid-2000s that wind farm operation began in earnest, at least in the U.S. About 85 percent of today’s 45,100 turbines were installed post-2005, according to Lindsay North, spokeswoman for the American Wind Energy Association (AWEA).  Many of the larger ones came later in the decade.

Ten Largest U.S. Wind Farms

Project

State

MW

No. of Turbines

Year Online

Owner

Shepherds Flat

OR

845

338

2011, 2012

Caithness

Roscoe

TX

782

627

2008, 2009

E.ON Climate & Renewables

Horse Hollow

TX

736

421

2005, 2006

NextEra Energy Resources

Alta Wind Project

CA

720

290

2010, 2011

Terra-Gen Power

Capricorn Ridge

TX

663

407

2007, 2008

NextEra Energy Resources

Sweetwater

TX

585

392

2003, 2005, 2007

Duke Energy and Infigen Energy

Buffalo Gap

TX

523

296

2005, 2007, 2008

AES

Meadow Lake Wind Farm

IN

501

303

2009, 2010

EDP Renewables North America

Flat Ridge 2

KS

470

294

2012

BP Wind Energy and Sempra Generation

Panther Creek

TX

458

305

2008,2009

E.ON Climate & Renewables

Source: AWEA 2012 Annual Report

*AWEA defines a project as contiguous with the same owner. A project can be completed in multiple phases, have multiple turbine manufacturers and different power offtakers.

So with a few years of history to show, wind farms are beginning to celebrate anniversaries. Renewable Energy World has noticed wind farm operators increasingly reporting their success stories at the five-year mark, a point where operators have a good view of what’s to come in their 20-year history, according to Sebastian Herzog, head of the due diligence for German-based DEWI Services, a wind turbine certification company and a subsidiary of UL (United Laboratories).  

At five years the first round of the lifetime of a wind farm has passed, he said. “You know very well after five years how the wind is behaving, how is the meteorology, which problems [you] might face in the future at a particular wind farm. You have some kind of statistical outliners.”

Five years can be significant for another reason, too, because for some wind farms it’s when warranties expire.

This is a good news/bad news time period for the wind farm operator, according to Edward Zaelke, who serves as co-chair of Akin Gump’s global project finance practice and as an AWEA board member.  The bad news is obvious ­— no more guarantees on those gears and other moving parts most likely to go. The good news is that the project is probably no longer obligated to contract for services with the manufacturer.

“You can hire whoever you want to run your project,” Zaelke said. “So you may see a transitional period when owners take control after five years — it’s typically more expensive if they have a manufacturer doing it.”

Did We Measure Correctly?

After five years, too, the wind potential at the site has fully revealed itself. This is perhaps the most worrisome measure. If the wind farm developer overestimated the wind strength, the plant is likely to generate less energy than expected and therefore earn less money.

“This is a huge problem because there is nothing to do about it. This is the worst case,” DEWI’s Herzog said.

Operations, of course, feed into financial performance. If the turbines are working well and the wind is up to speed, then the wind farm stands a better chance of achieving financial goals and transitions. Those goals will vary company to company and country to country. Financial milestones for U.S. companies, for example, are likely to be closely tied to the federal production tax credit (PTC).

Five years sees an end to depreciation of the asset, so the economics of the wind farm begin to change at the point. But it is at 10 years that the big milestone occurs for PTC-dependent companies, according to Akin Gump’s Zaelke.

That is when a project that uses the PTC is likely to buy out its tax equity partner. PTC rules require that tax benefits must accrue to the owner. So the tax equity investor, a company like JP Morgan, might own the project for the first ten years.

“It is as if you and I own a taco stand. I give you profits for first 10 years because you take all the PTC and depreciation. Then I take all the profits for 10 years. It’s still a 50:50 split of profits. But by giving you everything for the first 10 years, I allow you to get all tax benefits,” Zaelke said. “At the end of year 10, I own everything.”

The flip, however, can get complicated if the wind farm did not perform as expected. The time frame for the transaction might be adjusted.

 “If the wind blows as it’s supposed to and if everything happens right when that 10-year production tax credit ends, you’ll hit a threshold return of 8 percent, or something like that. But if it doesn’t happen right then, I don’t take the taco stand back, you carry the profits a little bit longer until you meet a specified return. Sometimes that takes 12 years,” he said.

What’s the End, Really?

Measuring lifetime success of a wind farm raises some philosophical questions, says Paul Copleman, communications manager for Iberdrola Renewables, whose Spanish parent, Iberdrola, describes itself as the company with the largest renewable energy asset base in the world.

For one, a wind farm’s success is not necessarily just its own; the local community’s well-being might be tied to it. Wind farms can be a significant source of revenue to land owners and local governments. Iberdrola’s 304-MW Blue Creek Wind Farm, for example, recently made a $2.1 million tax payment to Van Wert County, Ohio, where the project has 117 turbines. This made Blue Creek the largest single taxpayer to the county. In fact, its single payment is equal to that paid by the county’s top 11 taxpayers combined. The wind farm also made a $666,000 payment to nearby Paulding County, home of 37 of its turbines.

And then there is the question of when exactly does a wind farm end? Iberdrola measures success of its investment “over very long periods of time…beyond even the life of the machine,” Copleman said.  As the typical 20-year lifespan ends, wind farm owners may repower with new turbines. A whole new round of measuring, permitting and developing begins, now with turbines that are likely to be far more efficient. So Wind Farm II beings, the movie sequel. It’s a pretty good life trajectory, one that ultimately depends on the wind blowing, which seems a sturdy guarantee.

Lead image: Gronton Wind Farm via Iberdrola Renewables

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