# Presentation: 376971

## WIND DEVELOPMENT 101

- Tom Potter
- Sustainability Field Advocate for the Rural West
- All American Energy LLC
- (303) 534-4317 tpotter@allamericanenergy.com

## Objectives

- Overview the process
- Recommend further action
- Reference support resources

## Overview of Wind Development	

- Resource and siting
- Business forms and deals
- Land issues
- Wind power economics
- Utility partners
- Project installation and operations

## Assessing the Wind Resource - I

- Screen via the Wyoming wind map

## Assessing the Wind Resource - II

**  **

_**Goal**_**:  **
**18 mph speed**
**(annual average)**
**at ~250’ hub height**
**    ****Assumes no landform barriers**

##  Layout and Site Suitability

** ****Layout and Site Suitability**

**Terrain contour – high spots beneficial**
**Orient rows perpendicular to wind**
**Spacing 1/8 mile; rows 1/2 mile**
**Avoid homes and farm buildings**
**Use corners of crop circles**
**Road access; rail too, if possible**
**Transmission access; substation 1/4 acre**
*** This example: “Colorado Green,” near Lamar**

## Business Forms and Issues

- Prepared by
- Bradley J. Haight, J.D.
- Hackstaff Gessler LLC
- 1601 Blake Street, Suite 310, Denver CO 80202
- P: (303) 534-4317 F: (303) 534-4309
- bhaight@hackstaffgessler.com

## Business Forms

- PARTNERSHIP (general or limited)
- CORPORATION
- LIMITED LIABILITY COMPANY
- NEW GENERATION COOPERATIVE

## Purpose of the LLC

- LIABILITY PROTECTION
- CAN PROVIDE FAVORABLE TAX TREATMENT
- FLEXIBLE FRAMEWORK
- MEMBER CLASSES
- SIMPLE REVERSION FEATURES
- DIVISION OF RIGHTS AND RESPONSIBLITIES

## Form the Entity (e.g., the LLC)

- TALK TO CO-OP DEVMT CENTER
- FILE ARTICLES OF ORGANIZATION WITH THE SECRETARY OF STATE
- “MEMBER-MANAGED” OR “MANAGER-MANAGED” ENTITY?
- LOCAL OWNER, OUTSIDE INVESTOR?
- PREPARE OPERATING AGREEMENT

## Structure (Cont’d)

- OWNERSHIP AND REVENUE SHARING EXAMPLE
- 95% INVESTOR AND 5% LOCAL OWNER
- CONVERSION TO 5% INVESTOR AND 95% LOCAL OWNER AFTER GOALS MET
- LEASE AND MANAGEMENT FEES PAID THE LOCAL OWNER BY THE ENTITY

##  Elements of the Deal 

- PURCHASER, INTERCONNECTION, & WHEELING
- LAND AGREEMENT
- MONEY: INVESTOR, DEBT, LINE OF CREDIT
- O&M, EPC, & BOP CONTRACTS

## Elements of the Deal (cont’d)

- TURBINE AND TOWER PURCHASE AGREEMENT
- PERMITS AND APPROVALS
- GREEN CREDIT PURCHASER
- INSURANCES

**Consultants**
- MAY BE ABLE TO ASSIST WITH THE FOREGOING, BUT CAN BE EXPENSIVE
- CONSIDER EXPERIENCED COUNSEL, LIKE JEFF PAULSON [(952) 835-0055] OF MINNESOTA, WITH LOCAL COUNSEL TO ADDRESS LOCAL ISSUES

## Investor Issues
FAVOR MINNESOTA MODEL
REQUIRE CLASS 4 WIND CONFIRMED BY ANEMOMETER, ALSO MAY REQUIRE WINDLOGICS VERIFICATION
REQUIRE MINIMUM RETURN, POSSIBLY 15-20% IRR, GREATER RETURN REQUIRED WITH SMALLER PROJECTS

- FAVOR MINNESOTA MODEL
- REQUIRE CLASS 4 WIND CONFIRMED BY ANEMOMETER, ALSO MAY REQUIRE WINDLOGICS VERIFICATION
- REQUIRE MINIMUM RETURN, POSSIBLY 15-20% IRR, GREATER RETURN REQUIRED WITH SMALLER PROJECTS

## Investor Issues (cont’d)

- IRR AND TAX CREDIT REQUIREMENTS DICTATE SIGNIFICANT INITIAL OWNERSHIP PERCENTAGE (UP TO 95%) IN FAVOR OF INVESTOR
- WANT LOCAL OWNERS TO “SHARE RISK” AND INVEST THEIR OWN CAPITAL IN THE PROJECT
- REQUIRE PARTICIPATION OF EXPERIENCED CONSULTANTS AND COUNSEL

## Investor Issues (cont’d)

- PREFER MULTI-UNIT PROJECTS
- LIKE TO AGGREGATE PROJECTS
- REQUIRE STRONG WARRANTIES AND EQUIPMENT TRACK RECORD

** ****Land Issues: ****Nature of the Agreement**
- LEASE, EASEMENT, OPTION, OR COOPERATION (or analysis) AGREEMENT
- WHAT DOES THE AGREEMENT AUTHORIZE
- BEWARE OF AGREEMENT THAT GRANTS RIGHTS NOT RELATED TO WIND-ENERGY DEVELOPMENT
- CONFIDENTIALITY AGREEMENT

## Land Issues (cont’d)

- EXPLORE ALTERNATIVES TO LEASES OR OPTIONS (such as cooperation or analysis agreement) IF ONLY ANALYSIS OF THE LAND AND WIND REGIME IS NECESSARY
- NOTE ANY EXCLUSIVE RIGHTS OR FIRST REFUSAL RIGHTS SUCH AGREEMENTS MAY GRANT
- AVOID “PERPETUITY” CLAUSES

## Landowner Due Diligence

RESEARCH THE DEVELOPER

ASSESS THE DEVELOPER’S INTENT AND ABILITY
DETERMINE WHETHER A GUARANTY IS NECESSARY	

- RESEARCH THE DEVELOPER
- ASSESS THE DEVELOPER’S INTENT AND ABILITY
- DETERMINE WHETHER A GUARANTY IS NECESSARY

## The Subject Land

- IDENTIFY THE LAND IMPACTED
- IDENTIFY WHAT MAY BE CONSTRUCTED
- CONSIDER HOW THE DEVELOPMENT WILL AFFECT THE HISTORIC, CURRENT, AND FUTURE USE OF THE LAND

## Lease Term

TERM

NOTE WHEN THE LEASE STARTS AND FINISHES

NOTE ANY CONDITIONS PRECEDENT TO LEASE COMMENCEMENT

- TERM
- NOTE WHEN THE LEASE STARTS AND FINISHES
- NOTE ANY CONDITIONS PRECEDENT TO LEASE COMMENCEMENT

## Lease Term (cont’d)

- EXTENSION AND RENEWAL
- WHEN AND HOW MAY THE LEASE BE RENEWED OR EXTENDED
- HOW MANY TIMES MAY THE LEASE BE RENEWED OR EXTENDED
- FOR HOW LONG MAY THE LEASE, ULTIMATELY, BE EXTENDED OR RENEWED

## Compensation
PER INSTALLED MEGAWATT?

PER ACRE?
NO LONGER COMMON, EXCEPT MAYBE WITH OPTION AGREEMENTS

ROYALTIES (percentage of the electricity sold)

- PER INSTALLED MEGAWATT?
- PER ACRE?
- NO LONGER COMMON, EXCEPT MAYBE WITH OPTION AGREEMENTS
- ROYALTIES (percentage of the electricity sold)

## Compensation (cont’d)

- OTHER PAYMENT OPTIONS
- EXECUTION PAYMENTS
- CROP LOSS PAYMENTS
- ASSIGNMENT PAYMENTS
- CAREFUL ANALYSIS IS NECESSARY; SPEAK WITH AN EXPERT
- CONSIDER A MOST-FAVORED NATIONS CLAUSE

## Liability Protection
DEFENSE, INDEMNITY, AND HOLD HARMLESS PROTECTION HIGHLY RECOMMENDED

SIGNIFICANT INSURANCE COVERAGE FOR THE DEVELOPER, NAMING THE LANDOWNER, IS ESSENTIAL

INCREASED TAX LIABILITY ISSUES MUST BE ADDRESSED	

ADDRESS MECHANIC LIEN ISSUES

- DEFENSE, INDEMNITY, AND HOLD HARMLESS PROTECTION HIGHLY RECOMMENDED
- SIGNIFICANT INSURANCE COVERAGE FOR THE DEVELOPER, NAMING THE LANDOWNER, IS ESSENTIAL
- INCREASED TAX LIABILITY ISSUES MUST BE ADDRESSED
- ADDRESS MECHANIC LIEN ISSUES

## Financing Provisions
NEARLY ALL IF NOT ALL DEVELOPMENTS ARE FINANCED
DEVELOPMENT FINANCING IS SIGNIFICANT (projects cost on average $1 million per installed megawatt) 
DEVELOPERS, AND THEIR LENDERS, REQUIRE BROAD (and complicated) FINANCING PROVISIONS

- NEARLY ALL IF NOT ALL DEVELOPMENTS ARE FINANCED
- DEVELOPMENT FINANCING IS SIGNIFICANT (projects cost on average $1 million per installed megawatt)
- DEVELOPERS, AND THEIR LENDERS, REQUIRE BROAD (and complicated) FINANCING PROVISIONS

## Assignment Provisions

ASSIGNMENT IS POSSIBLE WITH ALL DEVELOPMENTS

DEVELOPERS ABSOLUTELY REQUIRE ASSIGNMENT PROVISIONS, WITH SOME REQUIRING AN ABSOLUTE RIGHT TO ASSIGN REGARDLESS OF LANDOWNER CONSENT

- ASSIGNMENT IS POSSIBLE WITH ALL DEVELOPMENTS
- DEVELOPERS ABSOLUTELY REQUIRE ASSIGNMENT PROVISIONS, WITH SOME REQUIRING AN ABSOLUTE RIGHT TO ASSIGN REGARDLESS OF LANDOWNER CONSENT

## Assignment Provisions (cont’d)

- BEWARE OF ASSIGNMENT RIGHTS THAT EXCUSE DEVELOPER LIABILITY
- EXPLORE REASONABLE LIMITS TO  DEVELOPER ASSIGNMENT RIGHTS
- BEWARE OF RIGHTS GRANTED THE DEVELOPER THAT AUTHORIZE SUB-LEASES (sub-easements, or sub-licenses)

## Termination
WIND-ENERGY LEASES ARE NOT EASILY TERMINATED BY THE LANDOWNER
TERMINATION RIGHTS IN FAVOR OF THE DEVELOPER ARE OFTEN BROAD, PARTICULARLY PRE-DEVELOPMENT
CAREFULLY NOTE THE LIMITED BASES UPON WHICH TERMINATION IS ALLOWED

- WIND-ENERGY LEASES ARE NOT EASILY TERMINATED BY THE LANDOWNER
- TERMINATION RIGHTS IN FAVOR OF THE DEVELOPER ARE OFTEN BROAD, PARTICULARLY PRE-DEVELOPMENT
- CAREFULLY NOTE THE LIMITED BASES UPON WHICH TERMINATION IS ALLOWED

## Termination (cont’d)

- NOTE THE SPECIFIC PROCEDURE TO FOLLOW IN ORDER TO TERMINATE
- BEWARE OF ANY PROVISIONS THAT PURPORT TO SURVIVE TERMINATION
- SEEK TERMINATION RIGHTS TO PROTECT AGAINST THE POSSIBILITY THAT THE LEASE WILL SIMPLY TIE UP THE LAND

## Decommissioning
NOTE WHEN AND HOW THE PROJECT WILL BE DECOMMISSIONED
TAKE STEPS TO ENSURE THE DEVELOPER WILL BE RESPONSIBLE FOR DECOMMISSIONING COSTS
NOTE WHETHER THE LEASE INCLUDES SELF-HELP REMEDIES IN THE EVENT THE DEVELOPER FAILS TO DECOMMISSION THE PROJECT

- NOTE WHEN AND HOW THE PROJECT WILL BE DECOMMISSIONED
- TAKE STEPS TO ENSURE THE DEVELOPER WILL BE RESPONSIBLE FOR DECOMMISSIONING COSTS
- NOTE WHETHER THE LEASE INCLUDES SELF-HELP REMEDIES IN THE EVENT THE DEVELOPER FAILS TO DECOMMISSION THE PROJECT

## Economics

- Prepared by
- Tim Olsen, P.E.
- Advanced Energy Systems LLC
- 1428 S. Humboldt St., Denver CO 80210
- P: (303) 777-3341
- tolsen@windtechnology.com

## Project Economics - I

_**Project Description**_**:**
**Total Rating:     10.5 MW**
**Turbine Rating:  1.5 MW**
**Number of Units:  7**
**Hub Height:     80 m (263 ft)**
**Project Life:        20 years**
**Losses:               9.0%**

_**Project Finances**_**:**
**Initial Cost:   $16.5 million**
**Equity:           $  9.0 million (51%)**
**Debt:              $  7.5 million (49%)**
**Interest Rate:    9.0%**
**Debt Term:      15 years**
**CPI Growth:      3.0%**

## Project Economics - II

_**Wind Resource and Energy**_**:**
**Average Wind Speed:   8.56 m/s at hub height (19.1 mph)                        **
**Air Density:        1.05 kg/m^3 at 1600 m (5250 ft)**
**Annual Energy Production:  36.0 million kWh/year**
**Capacity Factor:  39.2%**

## Project Economics - III

**Revenue :****                                                 **_**Year 1**_**              **_**Year 16**_
**Energy Sales at 0.039 $/kWh:      $ 1,406,000       $ 1,632,000**
**Green Credit at 0.005 $/kWh:             **_**180,000**_**             **_**180,000**_
**Gross Revenue:                               **_**1,586,000**_**          **_**1,812,000**_
**Expenses:**
**Property Taxes:                                    64,000               64,000**
**Land Royalty at 2%:                             32,000               36,000**
**Operating Costs:                                259,000             403,000**
**Debt Service:                                      **_**675,000**_**                        **_**0**_
**Total Expenses:                               **_**1,030,000**_**             **_**503,000**_
**Net Operating Income:****             ****  **_**556,000**_**           **_**1,309,000**_
**Principal Repayment                          255,000                         0**
**Net Cashflow                                    $ **_**301,000**_**        $ **_**1,309,000**_
**Tax Benefits:**
**PTC                                                      685,000  (holds for 10 years)**
**Depreciation, 5 yr DDB                   **_**2,110,000**_**  (tapers out in 5 years)**
**Net Tax Benefit                                **_**2,795,000**_**  (tapers down to 685k in 5 years)**

## Project Economics - Summary

_**Financial Results**_**:**
**Assume: 20 year life and contracts**
**Internal Rate of Return:    12.5%  **
**Debt Coverage Ratio:        1.40**

## Utility Partners

## Utility concerns

- Safety
- Interconnection standards
- Power quality
- Interconnection standards
- Reliability of resource
- Buy-back rate
- Rate equity
- Buy-back rate

## Utility opportunities

- Local economic development
- Support entrepreneurs
- Better use of facilities = lower rates
- Ease interconnections
- Partial alternative to new central plants
- Encourage local vs. out-of-state investments
- Higher reliability, shorter outages
- Help wind become part of the solution

##                                 Project Installation

## Prep for Installation: Overview

**Land lease or purchase; access**
**Wind data collection:  1-2 years, monthly visits**
**1-5 meteorological towers w/ guy wires, 1/4 acre each**
**50-60 m tall (164-197 ft)**
**Energy buyer:  local utility, urban market, private**
**Utility interconnection:  protective switchgear**
**<= 5 MW feeder voltage;    > 5 MW substation**
**Engineering, soil testing**
**Permits and taxes:  local, state, federal**
**Financing:  debt @ 5-7%, equity @ 12-20%, PTC**
**Legal Framework**

## Installing Project Hardware:Site Preparation

**Roadways, crane pads**
**Electrical trenching**
**Excavation for foundations**
**Substation**
**Operations and maintenance building in area**

## Installing Project Hardware:Construction Process

**4-8 months, depending on project size**
**JOBS:  100 MW, $1.5 mm, 200 jobs**
**Foundations, installation, commissioning**
**Dust, noise, hard work, commerce**
**Permanent roads, foundations, crane pads (4% of land)**
**Minimal impact to farm operations; courtesy (polite to the livestock), speed limits, gate etiquette (close them)**
**Reclamation of damaged land**

## Installing Project Hardware:O&M, Upgrades, Decommissioning

**O&M Jobs (long-term):  0.16 FTE / MW direct**
**Example:  100 MW Project, 16 direct jobs, many indirect jobs**
**Project life:  20 years, with likely upgrades and extensions up to 40; repowering for much longer**
**Upgrades:  from subtle software changes to new blades and drivetrain**
**Decommissioning:  reserve fund to remove all equipment and concrete to 3’ depth; restore land**

##                                 Summary

## What did you hear?

- Wind development is not a trivial exercise
- Check out the lay of the land first, yourself
- If it still looks good, get professional help
- Excellent benefits await successful developers, and their communities
- With help, you can do it!

## Questions:

**Wind Advocate: Tom Potter **
**	****303.503.2230 **_[tpotter@allamericanenergy.com](mailto:tpotter@allamericanenergy.com)_** **
**Legal/Business: Brad Haight **
**	****303.534.4317**_[bhaight@hackstaffgessler.com](mailto:bhaight@hackstaffgessler.com)_** **
**Minnesota Model: Jeff Paulsen  952.835.0055**
**Project Devmt: Tim Olsen **
**	****303.777.3341 **_[tolsen@windtechnology.com](mailto:tolsen@windtechnology.com)_** **