Paying For It

by Kathy Belyeu

One of the perennial problems facing wind energy is that project costs are upfront, in the form of capital costs for the purchase and installation of turbines. The high initial outlay can discourage individuals and business or government customers, even when the benefits of the investment over time are clear. But with the first-ever application of an innovative financing contract to a federal wind project, federal facilities now have the opportunity to eliminate capital budgeting and upfront costs for these installations. The promising model could eventually be adapted and extended to commercial projects.

The benefiting facility is a new prison in Victorville, California. Under a Department of Energy (DOE) contract developed by NORESCO, a Massachusetts-based energy services company (ESCo), the purchase, installation and long-term maintenance of a wind turbine, solar panels and energy-efficiency systems are being financed with the energy cost savings that they will bring the customer.

This kind of energy-savings performance contract is common with federal energy-efficiency projects, largely as a result of green power purchases by government agencies that must be financed or offset by energy savings. Under this type of contract, an ESCo conducts an energy-efficiency audit at the facility, installs a number of energy-saving technologies, finances the upgrades, and then recovers those costs from a portion of the energy cost savings.

The Victorville received a 750-kilowatt (kW) Micon NM 48 wind turbine from Vestas, along with a parking structure made of solar panels, and heating, ventilation, air conditioning and control systems upgrades. The entire project is due to be completed in February.

ESCo Provides, Capital, Reaps Savings

The project is financed under a DOE program called a super energy savings performance contract (ESPC). NORESCO developed the project, providing investment capital and guaranteeing the energy savings would be realized. NORESCO also structured the financing of a 19-year service phase.

Even though the wind speeds are lower than what would usually interest developers, the overall project economics proved to be attractive to the customer thanks to state and utility incentives, grants, the long-term financing and the fact that the electricity generated offsets retail rates. Because the owner is a federal facility, the wind turbine is not eligible for (and not hostage to) the wind energy production tax credit.

The turbine is expected to produce up to 30% of the facility’s peak demand, and almost 10% of the average annual demand.

State incentives established to encourage new renewable energy projects were critical to this project’s success. To finance the project, NORESCO has taken advantage of California’s incentive programs for renewables, the Self-Generation Incentive Program (SGIP). That program provides financial incentives to customers who install renewable, on-site, distributed generation up to 1.5 megawatts in rated capacity.

SGIP was designed primarily with business and large institutional customers in mind. The California Energy Commission offers a similar program to customers to install renewable generation sources with rated capacity of less than 30 kW.

In addition, the local utility is awarding incentive payments to the facility. Under its “nonresidential standard performance contract” programs, it offers cash payment to large and small nonresidential customers for custom-designed energy-saving retrofits. The project also received a DOE grant.

After subsidies, the installed cost for the wind, solar and energy-efficiency equipment totals about $3.8 million. With annual energy savings of $420,000, planners expect payback in about nine years. The cost for the turbine, which was high because it could not achieve economies of scale with only one turbine, are offset by state incentives, high retail electricity rates, and long-term financing.

Opportunity for Wind Industry?

Already, NORESCO has received calls from other federal sites and companies interested in pursing wind energy development using this model. Although some features are unique to California, others should be replicable at other locations. The DOE Super ESPC program is available throughout the U.S.

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Kathy Belyeu is green power market analyst at the American Wind Energy Association (AWEA).
Contact her: kathy_belyeu@awea.org

FROM Solar Today, a SustainableBusiness.com Content Partner