Wind-power developers and local landowners are turning to a cooperative business model as a way to jump-start large-scale projects.
For years, Dan Hoffman gazed upon the Al-Corn Clean Fuel plant in Claremont, Minn., and felt a twinge of envy. The ethanol plant, owned by local farmers, provided much-needed jobs and tax revenue to an area that needed an economic boost, he said.
So when Hoffman, a Rochester resident, heard about a 300-megawatt wind project being developed by farmers in Dodge and Olmsted counties, he immediately signed up as an investor.
“We’ve got to do something to reverse some of the things happening in our rural communities,” Hoffman said.
Problem is, such large-scale wind projects can require hundreds of millions of dollars in capital, not to mention engineering and management skills that are beyond the reach of local communities.
“The project is too big for individuals,” Hoffman said.
That’s why the farmers formed a limited partnership called High Country Energy with National Wind, a Minneapolis-based start-up that specializes in community wind projects.
Through a joint ownership structure, the company provides financing and wind-power expertise while the farmers contribute land and, perhaps most important, legitimacy to complex wind projects that get bogged down by regulatory hurdles and local sensitivities.
National Wind will typically own 30 percent of the project; the rest belongs to local farmers and landowners.
“If the local community is invested in it, then we know that this project has a higher likelihood of happening,” National Wind Chief Executive Leon Steinberg said. “Investors like that because they know there will be less resistance. Utilities like it because they are likely to be built and built on time.”
Founded this past June by investment banker Jack Levi and Patrick Pelstring, an expert in community economic development, National Wind is developing 15 co-op-style wind projects, totaling 3,000 megawatts, throughout Minnesota, Iowa, North Dakota and South Dakota. In addition to High Country Energy, the company recently completed a 50-megawatt project in Jeffers, Minn.
Cooperatives are nothing to new to farmers, who often pool their crops to gain pricing power. Today, farmers are increasingly applying the co-op model toward wind power, a booming industry that’s attracting plenty of attention from politicians and investors, especially in Minnesota, where lawmakers last year passed a bill requiring energy companies to provide 25 percent of their power through renewable energy by 2025.
Traditionally, wind developers would lease land or make royalty payments to property owners. Wind cooperatives, however, are more conducive to building larger-scale projects, said Jim Bertrand, chairman of the energy practice at Minneapolis law firm Leonard, Street and Deinard.
“It’s definitely a trend we are starting to see in the industry,” Bertrand said. “It gives landowners who pool their money an opportunity to take advantage of economics of scale. It costs lots of money to build turbines and transmission lines to connect to the [electrical] grid.”
A typical 600-megawatt project will cost about $1 billion. Local investors will put up around $1.5 million, and National Wind raises the rest.
“Why would $1.5 million matter in a $1 billion project?” Steinberg said. “Even though we are raising a small amount from the community, it really cements the project” under the cloak of local credibility.
The company charges the community a one-time development fee, a percentage of the total cost of the project. In addition, National Wind earns a portion of the money generated by the project once it starts selling electricity to utilities.
What makes wind power today particularly lucrative are the financial incentives, including tariffs and tax credits, that federal and state officials have lavished on the industry, said John Ewen, a senior vice president at Ardour Capital Investments, a New York-based research and consulting firm that advises Wall Street and institutional investors about alternative-energy technologies.
By Thomas Lee
22 February 2008
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