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Planning is key to making small wind projects pay off

by Kevon Storie

The smallest business owner is often the most innovative, so it is no surprise that homeowners, small farmers and other entrepreneurs are making money while the wind blows, by building their own wind turbines.

Benefits, however, only come to those who do the research and do it thoroughly. There may be few templates or business plans for this relatively new venture, but there are plenty of information resources. Anyone considering becoming a green power producer should take advantage of as many as possible.

Land leasing offers low-risk entry into wind farming

There are three ways to invest in wind power: leasing land to a generating company, building your own turbine or forming a small group-owned wind farm. Henning Hansen chose leasing, the least risky option, when Kennetec Windpower approached him in the early '90s with a proposal to site a turbine on his farm. Several companies followed, all interested in developing western Minnesota's wind resources to sell to Northern States Power Company—since merged with Xcel.

Neighbors started talking and comparing proposals. "A group of five or six farmers got together to do research on wind turbines. We were on our own and there wasn't a lot of information out there at the time," he recalled. Kennetec offered landowners a choice between an annual payment or a lower payment and a percentage of the power sales. When NSP renegotiated the California company's leases, the new deals involved one-time payments for wind rights per acre, for land and road easements and for each tower. Most payments are now based on a percentage of power sales and the term of lease usually runs between 15 and 20 years.

Landowner shares his expertise

Hansen has used his experience to become a resource to other landowners who are thinking of leasing to wind developers. He addresses farmers' groups and rural communities and is vice chairman of the board of directors for his electric co-op, Sioux Valley Energy. On A Landowner's Perspective, on the Windustry Project Web site's Wind Farmer Feedback page, he answers many questions asked by people considering leasing their land to a generating company.

His strongest piece of advice is not to sign up with the first company that comes around. "If one company is looking to develop an area, others are. Get as many different proposals as you can, and talk to your neighbors," said Hansen.

If a contract prohibits the landowner from discussing the deal with neighbors, he added, look elsewhere. "We found that the same companies were offering very different deals to people who lived right next to each other. Every site is different, but the developer should be ready to explain why."

Government incentives make home turbines more affordable

For those willing to assume the risk, installing your own turbine offers the highest return, under the right conditions, observed Mike Bergey, president of Bergey WindPower. "You need a minimum of one acre of property with a DOE wind class 3 or average 11 miles per hour."

A 10-kW turbine costs around $40,000—complete with installation—and should generate enough electricity to cover the average all-electric household load. "Let's say an average home with a monthly electric bill between $100 and $200," he added. Based on a utility rate of around 12 cents per kWh, Bergey estimates that a turbine should pay for itself in about 10 years, but sooner in states with good incentives," he said.

High upfront costs continue to be an obstacle, and there are no Federal tax credits like there used to be back in the early 1980s. But a few states offer substantial incentive programs, such as rebates or tax credits. California, for example, provides a 50-percent cash rebate for qualified purchases of small wind systems up to 50-kW and an additional tax credit of 7.5 percent (effective rate). Montana has a small but effective rebate program for small wind systems.

The American Wind Energy Association is working to reestablish a Federal tax credit for small wind systems, to complement the Production Tax credit that has spurred the development of wind farms. The Home and Farm Wind Energy Systems Act of 2003—HR 790 sponsored by Oklahoma Rep. Tom Cole, would provide a 30-percent tax credit for residential or businesses installations of wind turbines up to 75 kW. A similar bill is expected to be introduced in the U.S. Senate in the coming weeks.

One new Federal program has the potential to help. Section 9006 of Cole's farm bill will provide grants up to 25 percent for farmers who invest in renewables or efficiency, including small wind systems. "We expect the USDA to issue a 'Notice of Funding Availability' in April or May through the Rural Development/Rural Business-Cooperative Service," Bergey said.

Small wind turbines connect to the home of farm electric service and reduce the consumption of utility power. Quite often the home is served simultaneously by the wind turbine and the utility. Federal law—PURPA's Section 210—gives consumers the right to hook up their own wind or solar generators and requires utilities to buy any excess generation not consumed on-site.

Net-metering, where the excess energy a turbine produces rolls back the meter, is the law in 36 states. Otherwise, a residential generator needs one meter to measure consumption and a second to measure production—and the homeowner is usually paid a much lower rate for the excess. On average, most owners report that their turbines produce about 30 to 90 percent of their home energy needs. This can ultimately result in substantial savings, depending on electric rates.

"Many customers pay only the monthly billing fee of about $10 to $15 for six to eight months of the year. People just love that," Bergey added.

"Small wind turbines work well, we just need to make them more affordable. We can do that with more incentive programs, which will increase manufacturing volumes and reduce costs. Someday we hope to see utilities selling small turbines to their customers, just like many are selling green power today," noted Bergey.

Turbine owners fare better when committed to renewable energy

Dick Sanford, the owner of a turbine installation and repair business, installed his own 20-kW turbine in 1985. In its fifth month of operation, the unit generated 4,990 kWh. "I thought, 'Man, this is going to be great!' It never did that well again."

He strongly recommends setting up a recording anemometer and collecting many months of wind speed data before building a turbine. Although, that doesn't necessarily predict what the wind will do—only what it's done. Sanford cautions that on-going maintenance costs, too, can extend payback time even after the system itself is paid off.

Rural communities find economic development in wind

The final option—small group-owned wind farms—take investors up the middle road between risk and return, sharing revenues as well as responsibility and the cost of building the turbine. Such enterprises also offer communities the chance to diversify their economies, said Lisa Daniels, director of the Windustry Project.

"A big part of our mission has always been outreach to small towns, school districts and rural landowners, but lately we haven't had to make a big effort to drum up interest," she noted. "A few years ago, maybe 50 people would show up at one of our presentations. Now, it can easily be more than 100 without much promotion."

Access to large capital resources make schools and municipal utilities excellent candidates for small wind ventures, but ingenuity, determination and careful planning can also get a project off the ground. Two years ago, a group of farmers in Luverne, Minn., were looking for an investment that would generate new income and have economic benefits for the local community. "Developing wind energy was the natural choice," recalled Mark Willers, president of Minwind I, one of two corporations the group formed to build turbines. "The bottom line is when a new industry comes around, you can't afford to ignore it."

After extensive research, the group formed two limited liability companies, Minwind I and II, and sold shares to local investors. The sale of the shares raised enough capital—more than $3 million—for the companies to begin developing twin 1.9 MW wind projects.

Minwind I and II will cost about $1.6 million dollars each. Factoring in Minnesota's renewable production incentive of 1.5¢ per kilowatt-hour for wind projects up to 2 MW for the first 10 years of production, the projects should be paid off in 10 years.

Each project consists of two Micon 950-kW turbines, all four to be located on the same farm seven miles southwest of Luverne. The site was chosen because the group wanted to use land owned by one of the project's investors, and this particular farm had the best combination of wind resource and access to transmission lines. "A sense of community guides our decisions. We're making an effort to use local materials and contractors for everything possible," Willers asserts. "The goal is to keep the money in the community that generates it."

Expert advice helps protect investment

To that end, both companies found the input of experts invaluable. Consultants developed the actual wind project and negotiated the power purchase agreement, and a team of lawyers determined the business structure. "Form and structure are investors' biggest protection on a project like this, whether they are a group of small farmers or a local board," emphasized Willers.

Recruiting experts paid off in the crucial step of negotiating the power purchase agreement. The uniqueness of the project as well as issues of cost, interconnection requirements and long-term exclusive contracts made it difficult to find a buyer for the power Minwind I and II would generate. "That was the hardest part so far," recalled Willers. "All I can say is, due diligence. Check all the details, then check them again."

The companies eventually entered a contract with Alliant Energy, which will use the power to help satisfy renewable energy standards in Iowa or Wisconsin.

In spite of the hard work and obstacles encountered, Willers remains enthusiastic about the prospects for farmer-owned enterprises, and he is not alone. The Minnesota Cooperative Extension recently invited him to a community wind development forum to speak to a group of farmers in Adrian, Minn., where 250 people showed up. "It's a way to bring economic development to a region that needs it badly, while giving farmers a real return on their investment," he declared.

While there is no such thing as a guaranteed investment, the market is becoming more aware of the value of renewable energy. Entrepreneurs like Willers and Hanson are creating new business models and sharing their experience. Small wind farmers may be looking at a sunny future—or, rather a windy one.