Wind Power

The Deal: NRCO Facilitates Renewable PPAs

Issue 4 and Volume 13.

This past spring, the National Renewables Cooperative Organization–a recently formed entity owned by 24 power supply and distribution cooperatives–facilitated and negotiated agreements between two member cooperatives and E.ON Climate & Renewables North America. The arrangement represents the first of as many as five planned renewable energy projects for NRCO and its member cooperatives in 2010.

Under separate power purchase agreements (PPAs), Southern Maryland Electric Cooperative Inc. (SMECO), a customer-owned electric utility based in Hughesville, MD, and Old Dominion Electric Cooperative (ODEC), a Glen Allen, VA-based cooperative that supplies wholesale power to 11 member distribution cooperatives in Virginia, Maryland and Delaware, agreed to buy the energy and associated environmental attributes for the next 18 years from the Stony Creek Wind Project. The project–which began commercial operation last fall and has a nameplate capacity of 52.5 MW–is owned and operated by a unit of EC&RNA and is near Somerset, Penn. within the PJM market.

“These inaugural agreements represent the execution of NRCO’s mission to evaluate, deliver and facilitate the negotiation of promising renewables opportunities for its member cooperatives that will help them achieve meaningful participation in renewable energy projects at the most affordable cost,” said Amadou Fall, CEO of NRCO when the PPAs were announced.

As a clearinghouse, NRCO serves as an initial screening point for projects. The organization considers a project’s location in the grid. That’s an important concept, Fall said, because regional transmission operators have different degrees of pricing transparency. NRCO also considers potential environmental impacts of a proposed project.

Given the size and dispersed nature of cooperatives across the U.S., most agreements will likely involve multiple off-takers for the power as well as the renewable energy credits. Electricity may be delivered to one cooperative while the renewable energy credits are acquired by a second cooperative hundreds of miles away.

“Our members could be anywhere,” Fall said. “It’s a question of the fungibility of RECs.”

Members currently include Adams Columbia Electric Cooperative, Wis.; Arkansas Electric Cooperative Corp., Ark.; Associated Electric Cooperative, MO.; Basin Electric Power Cooperative, N.D.; Big Rivers Electric Corporation, Ky .; Brazos Electric Power Cooperative, Texas; Buckeye Power, Ohio; Dairyland Power Cooperative, Wis.; East Kentucky Power Cooperative, Ky.; Hoosier Energy Rural Electric Co-op, Ind.; Jo-Carroll Energy, Ill.; New Hampshire Electric Cooperative, N.H.; North Carolina Electric Membership Corporation, N.C.; Oglethorpe Power Corp., Georgia; Old Dominion Electric Cooperative, VA.; PowerSouth Energy Cooperative (formerly Alabama Electric Cooperative, Ala.); Rayburn Country Electric Cooperative Inc., Texas; Seminole Electric Cooperative, Fla.; South Mississippi Electric Power Association, Miss.; Southern Illinois Power Cooperative, Ill.; Southern Maryland Electric Cooperative, MD; Sunflower Electric Power Corporation, Kan.; Tri-State G & T, Colo.; and Wabash Valley Power Association, Ind.

Electric power cooperatives represent a potentially large market for renewable energy projects, both as owners and as electric power off-takers.

Electric cooperatives began to spread across rural America after President Franklin D. Roosevelt created the Rural Electrification Administration (REA) in 1935. Today more than 900 electric cooperatives are in business with generating portfolios that range anywhere from 75 MW to 10,000 MW.

The range is equally great when it comes to cooperatives’ ability to identify renewable resource projects and bring them into their portfolio, whether through power purchase agreement, renewable energy credit or outright ownership.

“Our role is driven by our ability to facilitate one-stop shopping,” said Fall.

Work to form NRCO began in 2007 when senior executives from a number of cooperatives brought up the idea at one of their twice-yearly meetings to discuss emerging issues. By early 2008, 15 cooperatives had agreed to support the organization. A CEO was hired and work began developing operating procedures and business models. In particular, Fall–as the recently hired CEO–wanted to ensure the proper business processes were in place to enable the organization to quickly move on opportunities as they presented themselves.

“We felt strongly we needed to have a PPA base agreement in place,” he said.

NRCO began work in June 2009 to review nearly 100 project proposals, mostly wind. From that initial list of 100 Fall and his team narrowed the field to three facilities they decided were worth pursuing. Initial indications of interest were signed in January 2010 and four months later the PPA was finalized.

Fall has been in the energy industry since he graduated from college with a degree in electrical engineering. He spent 10 years as a design engineer with PPL in its nuclear energy operations. He moved to the company’s unregulated business side and worked as a trader dealing with PJM resources. There he had a ringside seat to the market blowups in the late 1990s that resulted from natural gas price volatility. He joined Williams’ power trading arm then moved to Exelon where he had a focus on New England generating resources. In December 2008 Fall joined NRCO as its CEO.

Working through NRCO a developer can reach a single base agreement. One line of business NRCO is pursuing involves cooperative project ownership.

In general, cooperatives obtain financing in three principal ways. The first and typically least expensive method is through the U.S. Department of Agriculture’s Rural Utilities Service program. The second is through the National Rural Utilities’ cooperative finance corporation or co-bank. The third is for the cooperative to go to the market itself.

“We’re in the process of looking at ownership under a collective entity,” Fall said. “A developer who builds and transfers or sells a facility outright can benefit by working with a cooperative and its low-cost sources of finance.

“We develop centralized market intelligence regarding renewables,” Fall said. At the same time, NRCO offers potential developers a single point of contact for a large number of potential customers.