Brian Fairbank had a big goal: Build a 37-story windmill on his ski resort to help cut its huge electric bill.
But pulling it off was no easy run down the bunny slope. Mr. Fairbank ultimately pieced together a complex deal that included $597,000 in grants, renewable-energy credits valued at as much as $1.4 million over 10 years and a $3.3 million bank loan.
“If I’d known what I know now, I would have never had done it,” says Mr. Fairbank, president and chief executive of Jiminy Peak Mountain Resort Inc. in Hancock, Mass. “I would have been chicken.”
The centerpiece of the financing for the windmill were the grants from the Massachusetts Technology Collaborative, a state development agency in Westborough, Mass. They provided the initial funding to get the project under way.
“The grant was essential for my own personal comfort zone that I was getting enough assistance to get this going forward,” says Mr. Fairbank, 61, who has run the resort in the Berkshires since he was 23, eventually buying it with a partner.
While numerous grants from government agencies are available to small businesses, usually to encourage innovation or foster a new technology, the money isn’t doled out for operating capital. Instead, it’s usually given to fund a specific project. The key for a business is to find a project that benefits both its goals and those of the grant maker. In Jiminy’s case, the windmill could save the resort a bundle on its electricity bill – an estimated savings of $368,000 per year – and it furthers the mission of the agency to promote alternative sources of energy.
“Companies that figured out ways to do something that’s innovative, saves energy or is green have a higher probability of getting a grant,” says Candida Brush, a professor of entrepreneurship at Babson College in Wellesley, Mass.
Lining Up the Money
When Jiminy began looking into wind energy in 2004, a former employee who had gone into the industry put the company in touch with Sustainable Energy Developments Inc., a consulting firm in Ontario, N.Y.
Working with Kevin Schulte, Sustainable’s vice president of consulting, Jiminy applied for and received a $15,000 grant from the Massachusetts Technology Collaborative to assess the feasibility of the project. After completing the feasibility study, Jiminy applied for a $582,000 design and construction grant from the agency and a $1.8 million 10-year bank loan.
While there were no fees for the grant applications, the resort is paying Sustainable about $157,000 for its consulting work, which spans the life of the project from the wind analysis and financing to the installation.
Meantime, Jiminy made a deal to sell the renewable-energy credits the resort would generate for the energy it produced to Community Energy Inc., a Radnor, Pa., subsidiary of utility company Iberdrola SA in Bilbao, Spain. Community Energy agreed to pay a minimum price for three years, which would come to about $500,000 over the three years. Credits are bought by businesses and utilities trying to meet greenhouse-gas reduction goals and others looking to support alternative energy.
Once the financing was lined up, Jiminy put the project out to bid – but there were no takers. Turbine makers were focused mainly on wind farms, not single turbines of the size the resort was seeking – one megawatt, or one million watts.
Bigger Than Planned
Eventually, Jiminy was able to buy a 1.5 megawatt turbine from General Electric Co. But the bigger size would raise the project’s cost and require a larger loan: $3.3 million instead of $1.8 million. And the grant portion of the project fell from covering 25% of the cost to 15%.
At that point, the resort’s lender, Legacy Banks in Pittsfield, Mass., wanted to see the three-year guarantee on the price of the renewable-energy credits extended to 10 years to make sure the resort would have a steady cash-flow stream should the renewable-energy market drop unexpectedly.
“The renewable-energy credits were a key piece,” says Edward Rizzardini, a senior vice president at Legacy.
So Massachusetts Technology Collaborative stepped in and agreed to buy the credits at a minimum price for seven additional years. “We were especially interested in pioneering in this area of private-enterprise building projects, and we wanted that to go forward as quickly as possible,” says Warren Leon, director of the agency’s Renewable Energy Trust. The bank agreed to the larger loan with an interest rate of 7.3%.
Jiminy estimates it will earn an additional $161,000 annually from selling power in the spot market through National Grid PLC, a London-based utility with operations in the Northeast, and will receive $46,000 yearly production tax credits. In addition, the resort expects to write off the cost of the turbine, which began testing July 20, within five to six years.
Mr. Fairbank says the resort will spend between $60,000 and $100,000 a year on a service contract, insurance, parts and other maintenance costs. And he plans to pay down the bank loan within seven years.
“Once the loan is paid off,” he says, “we’re in essence getting free energy.”
By Laura Lorber
30 July 2007
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