Commercial Scale

How much do farmers get paid to host wind turbines?

Wind lease terms vary quite a bit, but general rules of thumb are: $4,000 to $8,000 per turbine, $3,000 to $4,000 per megawatt of capacity, or 2-4% of gross revenues. Larger turbines should translate to larger payments. Compensation packages typically are offered as fixed yearly payments, as percentages of gross revenues, or some combination. If you are offered fixed annual payment, you should check whether a regular cost of living adjustment is included. If you are offered a percentage of gross revenues, you should make sure that you would have good access to the information used to calculate your payments.

Production Tax Credit (PTC)

Provides the owner of a qualifying facility with an annual tax credit based on the amount of electricity that is generated. By focusing on the energy produced instead of capital invested, this type of tax incentive encourages projects that perform adequately. In 2007, the rate for the PTC is 1.9¢/kWh. The PTC increases from year to year based on the consumer price index.

Community Wind

Locally-owned, commercial-scale wind projects that optimize local benefits. Locally-owned means that one or more members of the local community has a significant direct financial stake in the project other than through land lease payments, tax revenue, or other payments in lieu of taxes. The term Community Wind refers to the method and intention of development rather than the size of the project.

Commercial Scale Wind

Refers to wind energy projects greater than 100 kW where the electricity is sold rather than used on-site. This category can include large arrays of 100 or more turbines owned by large corporations, a single locally-owned wind turbine greater than 100 kW in size, or anything in between.

Illinois Rural Electric Cooperative: Community Wind Project

Breaking the Mold: Rural Cooperative Wind Energy

Many cooperatives in the Midwest have been hesitant to venture into wind energy, but Sean Middleton, Manager of Engineering at the Illinois Rural Electric Cooperative (IREC), wanted to show them that it can be done. Middleton has been the driving force behind IREC’s installation of a utility-scale wind turbine in west central Illinois. “A main thrust of our project is to see economic growth for our area. We want our turbine to attract other wind developers and demonstrate that wind works here.” Illinois Rural Electric is a mid-size cooperative serving approximately 10,000 meters and 3000 miles of line in west central Illinois. The coop installed a Vestas 1.65 MW wind turbine in Pike County Illinois in 2005, making it Illinois’ first rural electric cooperative to own and operate a utility-scale turbine.

Many rural electric cooperatives in the Midwest serve areas with utility-grade wind resources but still have not built turbines due to contract constraints and other barriers. At the outset of the IREC project, many people wondered why their coop would be interested in building a wind turbine. Bruce Giffin, General Manager of the IREC, had the answer: “While it’s perfectly okay to use coal and/or natural gas to generate electricity, if you can use a renewable resource, that’s even better. It’s the right thing to do.”

Now that Middleton and the IREC have paved the way, there are many more opportunities for other cooperatives or small developers to enter the field. While the IREC’s wholesale contract limits how large their interest can be, the wind resource in Pike County could support the construction of 100 more similar-sized turbines. Giffin sees that great wind resource as an opportunity for Pike County’s residents and potential wind developers. Such a project “would add $5 million to $7 million to the tax base. Based on estimates from the turbine manufacturers, with 100 turbines, there could be $1.5 million in maintenance work income, which would produce an additional $5.25 million in economic activity in the county. If the resource is developed, there would be a significant economic development impact.” Counties other than Pike will also benefit. “If you’re a member of Illinois Rural Electric Cooperative, economic development in any of the counties it serves is good for members everywhere else. We share costs throughout the area, and growth anywhere on the system benefits all members.”

It takes more than just a great wind resource to develop a project however, as access to the market is a huge part of the siting process for a wind turbine. “Our process was very easy compared to a lot of other projects,” says Middleton. “We didn’t have to do a transmission interconnect because we’re connecting at the distribution level. Since we are a distribution utility, we’re really just feeding into ourselves. So the interconnect agreement is very short, I’m just agreeing to take power from myself. Part of this is showing other small utilities that you can successfully interconnect a wind turbine at the distribution level. Having your members use your power is a big benefit.”

In addition to interconnection issues, many small utilities are concerned with how adding a wind turbine will affect the grid. IREC ran into a few of these problems. “One of our issues was having enough load on the windiest days to make sure you have some place to put the electricity. As it turns out, some of the potentially windiest days happen in the spring when our load is lightest. This can be a real problem if you have to backfeed the power. In our situation, the transmission operator will take it, but when that power gets redistributed we have to pay for it again. So, we’d have to pay for power we generate ourselves, which we don’t want to do.” The coop was able to deal with this problem however, and they did not need to purchase new equipment. “We are using essentially the same equipment for our wind turbine as for any other kind of distributed generation. The intermittent nature of wind power is really somewhat overstated. The newer machines are designed to come up and sync with the grid automatically.”

Financing the project was not as easy. The total cost for the project was $1.878 million, plus an additional $300,000 to upgrade IREC’s distribution system to accommodate the turbine. The coop took the view that the distribution feeder is a general upgrade to the system and they didn’t count the system upgrades into the cost of the wind project. The project received a total of $886,544 from three sources, two of which were grants: $438,544 from USDA Section 9006, $250,000 from the IL Department of Commerce and Economic Opportunity, $175,000 from the Illinois Clean Energy Community Foundation (ICEF). The ICEF amount was not a grant but actually a purchase of green tags for the first ten years of operation. The project would not have been possible without these financing tools, but now it will be able to pay for itself in about ten years. Obtaining grants, takes time however, and the USDA grant took about 3-4 solid weeks of work during the 6 week submission window. “It seemed like I didn’t do anything else during that time,” says Middleton.

Additional financing for the project was obtained through the USDA’s Rural Utility Service’s (RUS) wind generation loan program, which provided term debt financing at the capital municipal rate. The total amount financed through RUS was $1.3 million, which includes the $300,000 of upgrades to the distribution system. With the financing from the RUS loan, the two grants, and the ICEF green tag sales, the project will generate power at a price just less than their wholesale power contract rate (~6.5 cents), assuming a 30% capacity factor.

Putting together the financing for the project was one of the biggest hurdles Middleton had to overcome. “Getting the grants was an absolute necessity. We wouldn’t have touched this project without getting the first grant (USDA Section 9006), but others were still necessary.” Other obstacles IREC encountered were finding wind and an interconnect point, and dealing with the county ordinances. “Another unanticipated issue was how it is to deal with local governing bodies that don’t have familiarity with wind or expertise in permitting wind turbines. We’re still working with our county. Local zoning boards are new to wind, so there are lots of hoops to jump through as they get educated. I think it would be smoother if rules were designed before projects were designed. But there just wasn’t much expertise on these ordinances in Illinois two years ago when we started this.”

Despite the obstacles, IREC’s turbine is up and running and considered a great success story for rural cooperatives. Giffen sees real progress in Illinois, as well as great untapped potential. “Since renewable resources are generally found in the rural areas served by electric co-ops like ours, we’re naturally interested in those resources, whether they are wind or biomass or methane from animal waste. When you can use those resources economically, we think everybody wins.”

Read more about the turbines on the IREC web site.

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