Economic Climate Opens Door for Small Wind Energy Projects

Very few large-scale wind projects are able to obtain financing under the current economic climate. But falling turbine, steel and labor prices have created the perfect environment for mid-scale wind energy projects to thrive. Although total new installed capacity in 2009 may not rival the impressive 8,900 MW installed in North America in 2008, a golden opportunity exists for smaller wind development.

Small wind projects range in size from 100 kW to 30 MW and typically serve schools, farms, rural villages, businesses and municipal utility companies.  Because these type of installations can access funding from various sources, they are less vulnerable to the credit crisis than their large-scale wind farm counterparts. 

Small rural Iowa utility, Waverly Light and Power financed two 900-kW turbines to be installed in 2008 and 2009 with Clean Renewable Energy Bonds (CREBs), tax-credit bonds that can be used to finance renewable energy projects.  The bonds provide, in effect, interest-free financing for clean energy projects. The recently passed stimulus bill provides up to $1.6 billion in new CREBs but in order to take advantage of them, bondholders must have a tax liability.

Universities often have other means for raising funds for small wind projects.  At Appalachian State University in Boone, North Carolina, students agreed to pay an additional $5 fee per semester towards the installation of a 100 kW wind turbine this year. 

Carleton College in Northfield, Minnesota paid for the installation of its 1.65-MW turbine in 2004 (see lead image) from its operating budget and a second turbine may be added in the near future thanks to the generosity of a donor.  Rob Lamppa, director of energy management at the college feels that now is definitely the right time to install this second turbine.

“We’re really hoping we can move forward on this project now,” said Lamppa.  “I’m not so sure that if we wait even a year that we will have the same opportunity.  I think there is only a limited window for a wind project of this size.  Once it is easier to obtain credit, the developers will snatch up all the turbines.” 

In Lamppa’s experience, last summer manufacturers only wanted to sell large quantities of turbines.  Now they are eager to work with the college and prices are 10-15 percent lower.

Lamppa is not alone.  In the past few years, many utility-grade turbine manufacturers weren’t interested in selling small quantities, but now stagnant inventories and a growing sense of desperation are pushing them toward smaller markets.  

“In the heat of all the development that was going on last year, there was definitely the feeling that smaller projects were getting squeezed,” says Kathy Belyeu, manager of industry information services for the American Wind Energy Association (AWEA) .  “If you weren’t able to go to the turbine manufacturer and purchase a big quantity of turbines, they weren’t really going to talk to you.” 

With the economic crisis taking its toll on wind energy development in 2009, large turbine manufacturers are paying more attention to the mid-scale market, giving smaller projects greater accessibility to utility-grade turbines. 

“A municipal utility company I’m working with in Illinois is looking at General Electric and Vestas turbines, which were unavailable to them for several years due to the small size of their project,” says Wes Slaymaker, owner of wind-farm consultancy WES Engineering.

Small Wind Project O&M Concerns Mitigated

Choosing the right turbine for small projects is crucial for many reasons, not the least of which is operation and maintenance (O&M). Small project developers need to be sure that qualified technicians will be available to service the machines when needed without large transportation expenses or extended downtimes.

“If the project is too small to have a service and maintenance crew, then your operating costs per turbine are going to be higher,” says Slaymaker.  “A smaller project, however, can choose the same type of turbine as a larger project nearby so the crew can easily travel over and service their machines.”  Whereas in the past, this wasn’t an option for smaller project developers, now they have a variety of utility grade turbines available to them.

The fear that O&M costs will skyrocket is often a stumbling block for schools and other potential small project developers who are thinking about going forward with a wind project.

 “Schools are very interested in doing a lot more wind projects,” says Slaymaker.  “They are figuring out how to do it.  They just want the financial assurance that they won’t have to dig into their own pockets to run the project.”  Mechanical failures are one of the main reasons this would happen.

Technology advances in direct-drive wind turbines can diminish maintenance concerns because the absence of a gearbox and fewer moving parts make the turbines much more dependable and require fewer repairs.  Appalachian State University and Waverly Light and Power both have direct-drive turbines.

“It allows us to go to non-professional wind owners, such as high school principals, town mayors and business owners and provide them to with a turbine that is incredibly reliable,” says John Danner, president and CEO of Northern Power Systems.  “There’s no gearbox and there’s only 2 bearings in the drive train instead of 50.” 

Eliminating the gearbox removes a major maintenance concern and improves the reliability of the machine.  “Since I’ve been in the wind business, I’ve seen many serial failure issues with gear boxes,” says Slaymaker.  “I’ve seen that multiple times with many manufactures. The gear box is the Achilles’ heel of turbines.” 

Once prohibitively expensive, lower commodity prices and technology advances have allowed Northern Power Systems to lower the cost of its direct-drive permanent magnet turbines considerably.  The company currently sells a 100-kW turbine that is suitable for schools, remote villages, farms and businesses.  In addition, direct-drive technology enables energy to be generated at lower wind speeds, increasing the energy potential of many sites.

Incentives for Small Wind Project Development

U.S. government support for wind energy through net-metering laws and an extension of the renewable energy production and investment tax credits offers stability to the industry, while stimulus funding provides a boost. In addition to the $1.6 billion in CREBs that is available to state and local governments, municipal utility companies and rural electric cooperatives, some state or local governments also offer grant or rebate programs.

Such incentives make wind projects more attractive, as do lower commodity and labor costs.  “We’re already seeing manufacturers come back and say, ‘The steel prices have come down so much that the tower is now $100,000 cheaper,’” says Slaymaker.  “Since the economic collapse in late 2008, steel prices have come down at least 50 percent.  The cost of labor has also come down because there are a lot of contractors looking for work.”

While these factors also benefit large wind projects, the financing difficulties that are plaguing the industry now have made it harder for large wind developers to take advantage of them so smaller developers, with greater access to capital, can step right in.

This special window of opportunity for smaller projects will not last forever.  Although some encouraging factors will remain, the large-scale wind industry is likely to pick up as soon as liquidity returns to the market.  “With the three-year extension of the production tax credit and the investment tax credit, it is seen as a very good sign that a lot of wind farms are going to get built,” says Slaymaker.  “The feeling on the street is that we are going to see a lot of projects being built from late 2010 to 2012.  Everybody is waiting for the ability to finance projects to improve.” 

Although 2009 may be a year to survive for some players in the wind industry, it presents a golden opportunity for the mid-scale market.  Time will tell if this opening will result in a boom in this segment of the industry.  “If this opportunity for smaller projects is successful, we will start seeing the turbines ordered this year for projects to be installed later in the year or in 2010,” says Slaymaker.  “It sounds like there are a number of small to mid-size projects working towards turbine purchase right now.”

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