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WIND ENERGY EDUCATIONAL PROGRAM FOR FARMERS AND LANDOWNERS Professor Stephen B. Harsh

WIND ENERGY EDUCATIONAL PROGRAM FOR FARMERS AND LANDOWNERS Professor Stephen B. Harsh Department of Agricultural Economics Michigan State University And Professor Lynn Hamilton Department Of Agribusiness California Polytechnic State University San Luis Obispo.

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WIND ENERGY EDUCATIONAL PROGRAM FOR FARMERS AND LANDOWNERS Professor Stephen B. Harsh

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  1. WIND ENERGY EDUCATIONAL PROGRAM FOR FARMERS AND LANDOWNERS Professor Stephen B. Harsh Department of Agricultural Economics Michigan State University And Professor Lynn Hamilton Department Of Agribusiness California Polytechnic State University San Luis Obispo

  2. WIND ENERGYEDUCATIONAL THRUSTS • The initial grant was to involve the Extension System in conducting a general wind energy awareness educational program • It involved both campus and district staff • Lynn Hamilton was hired as director of the project • First phase related to becoming informed about various aspects of wind energy • The knowledge gathering trip to Iowa and Minnesota played a large role in this process

  3. (Educational Thrusts Continued) • (Initial Grant Continued) • A four hour workshop curriculum was developed • Introduction to wind energy and economics of wind energy systems • Legal aspects of a wind power lease • Issues related to local approval and zoning considerations • Small wind systems and grant programs for wind energy

  4. (Initial Grant Educational Thrusts Continued) • Introduction to Wind Energy and Economics of Wind energy session • Basics of wind energy • Key factors to consider in developing wind energy • Economics of both utility scale and small wind systems

  5. WHY GROWTH IN WIND ENERGY • It is renewable energy • Wind will blow for generations – it can not be depleted • It is environmentally friendly • A 1 megawatt turbine in a “good” wind area will: • 2.6 million kilowatt-hours electricity per year • Serve about 300 average households • Removes over 5 million pounds of greenhouse gasses(CO2) • Equivalent of 16 carloads of coal • Also removes sulfur (SOX) and nitrogen (NOX) dioxide and mercury • Helps the local economy • Property taxes • Funds not being sent to oil producing countries • Creates jobs • It can be a very good economic investment

  6. (Initial Grant Educational Thrusts Continued) • Key factors for developing wind energy • A good source of wind • Wind is solar energy and the speed is critical • As the speed increase by 25%, the power increases by 100% • 15 mph to 18 mph results in a 73% increase in power • A power purchase agreement • Renewal Portfolio Standard (RPS) • Net metering • Access to power sub-station • Adequate transmission capacity • Good financial plan • Local acceptance and approval

  7. UTILITY SCALE TURBINES

  8. EXAMPLE OF UTILITY SCALE PROJECT • A is community wind project with eight 1.5 mW turbines in the project • Key assumptions for a turbine (Case 1): • Total cost per turbine is 2.2 million dollars • Assumed life of investment = 20 years • Power purchase agreement = 6.0 cents per kWh • Federal tax credit of 1.9 cents per kWh for 10 years • Average power capacity factor for each turbines = 30% • Financing 60% of the cost (15 year loan @6.5%) • Major rebuild of gear box every 5 years • Annual costs include repairs, utilities, property taxes, insurance and service contract • Before tax desired return on investment = 12% • Aggregate marginal tax bracket = 41% • Prior taxable income of 640,000 & $182,000 taxes paid

  9. (Utility Scale Project Continued) • Analyzed with the “Alpha-3” version of Utility Wind Investment Model (used capital budgeting methods) • Uses after-tax discounted flows • Results (Case 1): • Years with negative after-tax cash flows = 3 • After-tax discounted income = $169,000 • Before-tax internal rate of return = 16.6% • Results (Case 2), Flip ownership (Corporation owns the first 10 years and farmer owns the next 10 years): • Results are nearly the same for both owner groups

  10. SMALL WIND SYSTEMS FORINTERNAL CONSUMPTION

  11. ECONOMICS OFSMALL WIND SYSTEM (CASE 1) Key assumptions: • Total cost of project is $36,000 • Assumed life of investment = 20 years • Power purchase agreement = 3.3 cents per kWh • Before installing system, purchased 130,000 kWh of electricity at 8.8 cents/kWh • Average power capacity factor = 20% • Proportion of business potential not usable = 20% • Financing 60% of the cost (15 year loan @6.5%) • 25% cost share under Section 9006 • Annual costs include repairs (higher rate), utilities, property taxes and insurance, service contract • Aggregate marginal tax bracket = 41%

  12. (Small Wind System Economics Continued) • Analyzed with the Small Wind Investment Model • Used after-tax discounted flows • Results (Case 1): • Net Present Value = $13,688 • Number of years with negative after-tax cash flows = 4 • First couple of years have negative operating losses • Before-tax internal rate of return = 49%

  13. (Initial Grant Educational Thrusts Continued) • Legal issues related to a wind lease session • Initially Roger McEowen from Iowa State provided materials for this session • Later on an in-house lawyer handled this session • Main points of presentation • Do not sign anything until you discuss with a qualified lawyer • Be cautious about a “high pressure” lease • Look for a good lease rate • Every add-on should have an enhancement fee • Understand the 3 time phases of the lease (discovery, production, renewal)

  14. (Initial Grant Educational Thrusts Continued) • Local approval and zoning • Nuisance issues (noise, avian kill, ice shed, flicker, visual impact, etc.) • Zoning (setbacks, wind energy shadow, removal provisions, etc) • Small wind systems and grant programs • Small wind applications (homeowner, small business, special function systems, etc.) • Grants to help offset the cost of the systems such as the USDA 9006 grant • What is considered in evaluating these grant requests

  15. (Initial Grant Educational Thrusts Continued) • 12 Workshops were held • Nearly 800 attended • Evaluations were very positive • Information presented met their needs • Increased their general knowledge of wind energy issues • Caused behavior change

  16. EDUCATIONAL THRUSTS • The second grant focused on an anemometer loan program and small wind systems • More than one grant was actually used to purchase the ten anemometer systems • Used an application process to select participants • Eric Wittenberg is director of the Anemometer Loan Program

  17. MSU Anemometer Loan Program

  18. (Second Grant Thrust Continued) • Small wind program • Special workshops • Presentation by an actual user of a small wind system • In depth presentation on what is involved in the installation of a system by an installer • Economics of a small wind system • Use of the small wind model • Presentations at grower meetings (e.g., greenhouse association)

  19. EDUCATIONAL THRUSTS • Currently with the aid of a third grant the educational effort is continuing • Continuation of the Anemometer Loan Program • Community wind assistance • Wyandotte Municipal Power • Others in discussion stage

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