Project Development, Utility Scale, Wind Power

Wind Farm Financing: Don’t Get Blown Away

As a stubborn patriot, the thing that disturbs me the most about the exploding wind industry deals with one of its key ingredients: lender financing.

RE Insider – February 24, 2003 There are, for all intents and purposes, only seven banks in the world that loan money on large-scale wind farm projects (100 MW or greater) and none of them are U.S. banks! My fellow Americans: we invented modern wind power, which in recent years has been the fastest growing energy source in the world. Although wind power is swiftly blowing through America, European wind development has exceeded the U.S. by a 3:1 ratio in the last decade. It’s time we do something about it, and it starts here and now with you: the foundation of the American Heartland’s banking community. The wind industry is gigantic. In 2001, Texas alone had nearly US$1 billion of new investment added to the state solely for the construction of over 900 MW of new wind farms. Worldwide – and in the US – the industry is growing at over 25 percent per year. It is estimated that with current growth rates, over US$10 billion will be invested in the U.S. wind energy industry from 2003 to 2010. That figure would be much greater if Congress would authorize the federal production tax credit (PTC) for wind farms further into the future as they’ve done with similar subsidies for the fossil fuel industries. Because the PTC must be renewed by Congress every couple of years, the industry suffers from a start-and-stop mentality. Although the PTC has never failed to be renewed by Congress since the 1980s, whenever the renewal has been delayed, both turbine manufacturing and wind development stall. These delays, which cost billions of dollars in productivity and efficiency losses, could be avoided with an extension of the PTC for at least 5 years. In spite of this public policy shortcoming, wind is still (please excuse the pun) blowing away every other source of energy in the world. The wind industry has enormous potential. The three states of Kansas, Texas and North Dakota have enough wind energy potential to power the entire country. And, the estimates have actually improved recently. What a time for our great nation to embrace our own energy resources, and decrease dependence on foreign sources of oil. Most of our electricity currently comes from the burning of coal (roughly 65 percent) with nuclear, natural gas and hydroelectric rounding out the remainder. Non-hydro renewables comprise only a fraction of 1 percent of our total supply in the US, whereas several other countries (including Germany, Denmark and Spain) each boast 10 percent or more of their electricity from wind. Fossils fuels are finite and estimates show most supplies could be exhausted by 2040. Not surprisingly, coal is the dirtiest of energy sources, causing acid rain, contributing significantly to air and water pollution and indirectly increasing our nation’s health bill. It’s estimated that 50,000 people die every year from air pollution-related illnesses such as asthma, and it’s on the rise. Therefore, I have dedicated the rest of my life to bringing 10,000 MW of new wind power to America. The Midwest provides huge amounts of our country’s food supply – why not also farm our winds to provide huge amounts of energy? Why should community and regional banks glide into the wind business? Quite frankly, those who do will prosper and those who don’t invest in wind will wish they did. Bold words, so let’s back them up: according to the ABA Banking Journal, “community banks are aggressively courting business customers, expanding sources of income and grappling with a shortage of qualified employees.” The need for electricity isn’t going to disappear anytime soon and wind power is currently generated – at large wind farms – for roughly the same cost as fossil fuel generation. In fact, Xcel Energy recently stated that building a new wind farm provides lower-cost electricity than building a new coal-fired or natural gas-fired plant. And, the wind isn’t going away anytime soon unless Mother Nature decides to radically change her breathing habits. Therefore, diversifying a bank’s balance sheet with wind energy, secured by a creditworthy utility and equity partner over the life of the loan, can offer a very solid new business customer, additional income that should be favorable to any bank’s balance sheet, and stimulate economic development in the local community (which in turn keeps more qualified people in the area as prospective employees). Oh, and one more minor detail: you’re helping to save the planet. Are wind farms controversial? The negative issues we have ascertained at most of our prospective wind farm sites in Kansas, Texas, North Dakota, South Dakota, Nebraska, and Colorado center on aesthetic concerns and avian (bird) issues. The avian issue is not about bird strikes (today’s turbines are so large the blades spin very slowly), but about habitat fragmentation. Proper siting procedures should eliminate or dramatically mitigate this issue. The aesthetic concern is a tough one: people want Renewable Energy by an overwhelming majority , but may not want the wind farms within site of their homes. Beauty is in the eye of the beholder, so here’s my opinion: wind turbines look like graceful, dancing ballerinas. These structures are tall (275 feet or more at hub height), nearly noiseless, non-polluting, and don’t burn fossil fuels to create inexpensive electricity. Controversial or not, tourism operators love them: Andy Stanton, Director of Tourism in Dodge City, Kansas said, “our wind farm has now become one of the major attractions for tourism in southwest Kansas” and was the cover story on the Winter 2002 issue of The Legend magazine. How do wind farms help the rural community? This is a fun question and one for which you can find a wealth of information. The simple answer: a 100 MW wind farm should generate about US$300 million in direct, indirect and induced economic impact to the community, county and state fortunate enough to attract a wind farm. Landowners hosting wind turbines will receive a healthy chunk of that figure: the average landowner in a lease with our company receives roughly US$4,000/year per turbine in the first 10 years, then about US$6,000/year per turbine after that. This includes royalties on the energy generated from each turbine, so these figures assume a Class 4 wind site. For six turbines located on a 640-acre section, that’s at least US$24,000 per year in additional revenue, and the landowner can continue to farm or graze cattle right up to the base of each turbine. In Texas, ranchers may earn US$5-15 per acre grazing cattle. Adding wind turbines to that same ground increases the revenue to US$50-75 per acre. The footprint (amount of land used by turbine pad sites and access roads) is typically less than 2-3 percent of the total acreage leased for an entire wind farm, so the agricultural integrity of the land is preserved. How many rural landowners, nearing retirement or still farming, could use these extra funds? It might just be the difference to allow that farmer or rancher to keep their land. According to Mark Edelman, Economics Department professor at Iowa State University, “if you’re only looking at the farmer lease/royalty payments, you’re only looking at a tiny fraction of the total impact on the county and state.” In conclusion, I implore those of you reading this article to take a hard look at investing in the large-scale wind energy business. The industry needs U.S. champions in the lending community and your communities need the economic development, in some cases desperately. Participation by the regional and community banks of the Midwest in helping the wind energy industry to grow will inject new life into rural communities – and inject a secure new revenue stream into those banks progressive enough to welcome this huge industry with open arms. We will reduce our dependence on foreign oil by farming our wind. And wind farms will be constructed in the Midwest – with or without the help of U.S. banks. An opportunity now confronts us: let’s join forces to take charge of our country’s future and compete with the rest of the world in this exciting industry. Working together we can bring a new breed of windmill – and ‘windfall’ – to our local communities. About the Author Troy Helming is CEO and Chairman of the Board of Kansas Wind Power, LLC. He has over 11 years experience running successful enterprises. He was formerly Chairman & CEO of AZtech Financial Services, Inc. a small business incubator, offering tax advice, financial, healthcare and legal services nationwide to over 4,000 small businesses, a customer base that was later sold to another company after Helming left to run Kansas Wind Power.