Return to CWL

The Colorado Renewable Energy Forum (CREF) is an organization of agricultural, energy, financial, legal professionals, local communities, and advocate organizations committed to the development of wind and other renewable energy resources. To be added to or taken off the distribution list for Tony's Newsletter please send an email to frank@workinglandscapes.com.

-Harvesting Energy Tours coming to the Western Slope, Southeast, and San Luis Valley

Commercial-Scale Community Wind Projects Moving Forward

Representatives from six groups coming from such counties as Sedgwick, Baca, and Boulder met last May in Burlington to discuss their work to develop locally-owned commercial scale wind projects. Following each group’s presentation the meeting concentrated on steps and activities necessary to advance a category of wind development called “community wind.” Community wind is not necessarily unlike other commercial scale projects in terms of the size of the project or who consumes the energy. Hence, it should not be confused with “small wind” which is frequently behind the grid or takes advantage of net metering policies.

Community wind is unique, however, from other commercial scale projects in terms of ownership. Projects defined as community wind are owned entirely or a significant portion by local individuals. The Great Plains Windustry Project (www.windustry.org), an organization dedicated to the advancement of community wind, defines it as “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. Commercial-scale, for this purpose, means all projects that are too large to qualify for net-metering.”

Two locally-owned Colorado projects are on track to be completed this year. The Wray School District in northeast Colorado will install a single 1.5 MW turbine near the town’s high school and sell the energy to the Wray Municipal Utility. The revenue from the turbine is expected to exceed the electric costs normally paid by the District.

A second project involves a group of five landowners near Lamar in the southeast section of the state. They formed Prairie Wind Energy, LLC and submitted a winning proposal for a 69 MW, 46 turbine project that is part of Xcel Energy’s solicitation for renewable projects in 2004. This first project for Prairie Wind will be called Signal Hill. Other projects are also on the drawing board for future consideration.

Profiles of the six community wind groups at the Burlington meeting can be viewed at www.workinglandscapes.com/Profiles.htm. Next steps to support community wind were also developed from the May meeting and organized into categories. Major areas to focus on in the next year include access to transmission lines, working with utilities, and financing projects. This information will help guide a community ownership workgroup meeting this summer. A significant portion of the workgroup’s time will be to draft recommendations to go before the PUC during its review of the Least Cost Planning (LCP) rules. The LCP rules establish the parameters investor owned utilities such as Xcel must follow in selecting new energy sources. Other states have crafted policies and regulations that are conducive to community ownership of renewable energy projects. In May of this year the Oregon PUC adopted a standard contract for renewable energy projects under 10 MW in capacity. In addition, Minnesota’s legislature passed a community based energy development tariff (C-BED) that will improve the financing of community wind projects.

Other efforts are underway in Colorado to support community wind by expanding the uses of federal tax-exempt bond financing. The Renewable Energy Finance Coalition, led by the investment banking firm George K Baum, has developed a proposal to enable tax-exempt private activity bonds for renewable energy projects (view the proposal at www.workinglandscapes.com/Bonds.htm).

Community Wind is part of a broader initiative supporting farmers and local rural communities to own the value-added production operations and to take the lead in owning new emerging markets. A recent report from the National Corn Growers Association entitled, “Taking Ownership of Grain Belt Agriculture” describes this broader initiative. You can view this report on the NCGA web site at www.ncga.com/public_policy/takingOwnership/index.htm.

Harvesting Energy Tours coming to the Western Slope, Southeast and San Luis Valley

Coming off the heels of the successful northeast Colorado tour of renewable energy activities, two new tours involving the states political leaders and agricultural developers of renewable energy are scheduled for August. In mid-August the Tour will make stops in Western Slope communities and then later in the month it will make stops in Southeast Colorado and the San Luis Valley.

Like the first tour, the upcoming tours are receiving support from local Colorado agricultural organizations, Congressman Mark Udall and former Speaker of the House Lola Spradley. Other local, state and federal elected leaders are making plans to be part of each two day tour to highlight local, state, and national efforts to expand renewable energy production from agricultural lands. In addition, the Tours will focus on each counties highest potential renewable source such as wind, biomass for energy, and biofuels (i.e. ethanol and biodiesel). They are being called the Harvesting Energy Tours. The tours are sponsored by the Colorado Farm Bureau and Rocky Mountain Farmers Union and are receiving support from Environment Colorado and Colorado Working Landscapes. Look for updates and a schedule of the tours from this newsletter in late-July or on our web site at www.workinglandscapes.com.

Why only 129 MW in Xcel Energy’s Recent 500 MW RFP?

As part of its least cost planning process, Xcel Energy, through its operating utility, Public Service Company of Colorado, sought and received approval from the Colorado Public Utilities Commission (CPUC) to vary from the least cost planning rules and solicit up to 500 MW of wind resources in an accelerated bidding process. The goal was to acquire resources that would come on-line before the expiration of the federal Production Tax Credit (PTC) and which would produce energy cost savings for Xcel Energy’s customers in Colorado. The bidding process was accelerated further when Congress extended the PTC only until the end of 2005.

On November 1, 2004, Xcel Energy received 17 bids from 12 developers totaling 1900 MW of wind capacity. Analysis of the bids was conducted in accordance with the methodology approved by the CPUC. This analysis identified a short list of three 2005 in-service date wind projects totaling 398 MW. In January 2005, negotiations began with these three short-listed projects.

The three projects were a 130 MW project in northeast Colorado, a 69 MW project in southeast Colorado, and a 199 MW project in the east central part of the state. During negotiations, one of the three projects (the 130 MW project) was downsized to allow the project to cost-effectively use existing transmission paths and another bidder (the 199 MW project) withdrew its offer, which resulted in the portfolio aggregate capacity dropping from 398 MW to 129 MW.

Xcel Energy generates the short list after consideration of due diligence investigation and economic analysis. The Company utilizes an economic optimization model that estimates the cost of system operations for various resource combinations over time. The model replicates existing and projected generation, load, and unit cost characteristics. The model also projected that the three projects would produce energy cost savings to customers totaling $52 million whereas none of the remaining 14 projects would create additional cost savings. The final portfolio of 129 MW should generate $34 million of savings. According to Xcel Energy, no other proposals could be added to the portfolio to increase the savings.

After the short list is developed, the short-listed parties and the Company meet to negotiate the details of a long-term power purchase agreement. “It is during this time that developers look in more detail about their ability to commit to the bid terms and prices,” explained Karen Hyde, Xcel Energy’s Director of Purchased Power. “And the Company and bidder discuss variations from the risk allocation provided under the model contract included in the original bid documents.”

It was during this negotiation process that one of the three projects was downsized. Xcel Energy was unable to obtain cost-effective, third-party transmission to reliably deliver the full output of the 130 MW facility to the transmission system. As a result Xcel Energy determined it was necessary to reduce the size of the project from 130 MW to 60 MW so that all of the energy could be delivered on existing Xcel Energy facilities or under existing contractual obligations. It was also during this negotiation process that the 199 MW bidder withdrew their project from consideration for a 2005 in-service date.

So, why did only 129 MW of capacity survive out of the 1900 MW that was bid?

Certainly, a rapid increase in the cost of wind turbines in late 2004 and into 2005 is a significant factor in eroding project economics and associated customer energy cost savings. Cost increases were driven by the eroding strength of the dollar, rising steel prices, and strong demand for wind projects worldwide. The failure of Congress to extend the PTC beyond 2005 placed significant completion risk on developers. Once bids made the short list, Xcel Energy has stated they did everything possible to preserve the economic savings for its customers

According to Xcel Energy bidders asked that the bid information remain confidential. To maintain the integrity of the bidding process, detailed bid information, including pricing information, is only shared with CPUC staff and the Office of Consumer Council. The CPUC has rejected a petition by Western Resource Advocates to access this information, even under a pledge to maintain confidentiality. In his letter to the PUC, John Stencel, President of the Rocky Mountain Farmers Union, said, “Secrecy breeds distrust and the Commission should find ways to make the bid evaluation process more transparent.” Recently Xcel Energy said they are “…committed to provide pricing information of the winning renewable energy bids after winning All-Source bids have been determined.”

Bids for 3,370 MW of Eastern Plains Wind Projects are Submitted to Xcel Energy

Subsequent to the 500 MW Renewable Energy RFP described above, Xcel Energy conducted an “All-Source” solicitation for 2500MW of additional electric supply and demand-side resources. Bids totaling 11,535 MW of firm capacity (e.g. coal, gas, biomass) and 4,570 MW of wind capacity were received. Wind proposals totaling 1,200 MW were bid from either Wyoming or New Mexico while the remaining 3,370 MW of capacity were bid from the eastern plains of Colorado. Xcel Energy’s three-page report describing All-Source bids they received is available at: www.workinglandscapes.com/XcelReport.pdf.

Evaluation of All Source bids will be somewhat more favorable toward renewable resources for three reasons: 1) Amendment 37 likely will create a market for renewable energy credits which will be monetized in the evaluation process, 2) $9.00 per ton “carbon credit” will be calculated in the evaluation, and 3) a ten percent capacity credit for wind will also be incorporated into the bid evaluation. Under the same settlement that afforded renewable resources the benefits listed above, the parties agreed to limit the penetration of wind on the Xcel Energy Colorado system to 15 percent of peak load – this will allow a maximum of about 750 MW of the bids received to be selected, depending on bid cost-effectiveness.

Colorado Working Landscapes (CWL) is a landowner-driven coalition of interests dedicated to the advancement of public policies and private initiatives to conserve land, preserve and sustain agriculture, and enhance landowner values while recognizing public benefits.