The Sacramento Municipal Utility District is negotiating to sell its wind-power project in Solano County to a private company by the end of the year.
The utility would buy the wind power, potentially at a cheaper rate than SMUD’s current costs of operating the system.
SMUD representatives would not identify the potential buyer.
“Because we’re a municipal utility, we can’t take advantage of production tax credits that are available to private companies,” said Jon Bertolino, SMUD’s superintendent of renewable generation.
federal tax credit of 1.9 cents per kilowatt-hour produced from wind turbines expires at the end of this year, so SMUD is in a hurry to transfer the wind farm into private hands. The production tax credit would exist for 10 years from the date the private company purchases the wind project.
The utility is negotiating a contract that would include an option to buy the project back in 10 years, according to a SMUD staff report.
SMUD installed 23 wind turbines in 2003 and 2004, and added 29 larger turbines from May 2006 to December. The project produces up to 102 megawatts, or enough wind power for about 34,000 homes.
SMUD’s wind turbines could be worth about $150 million to $180 million, based on the cost of building a similar-sized wind farm today, said Case van Dam, the director of the University of California Davis Wind Energy Collaborative. The older turbines have likely depreciated in value, potentially knocking the price down.
Van Dam said he didn’t know who might be in the market for the wind farm, but it would be logical for one of the three other companies operating wind turbines in Solano County to buy the project.
Those companies include Juno Beach, Fla.-based FPL Energy, a subsidiary of FPL Group Inc. (NYSE: FPL); Escondido-based enXco Inc.; and Iberdrola Renewables Inc., a subsidiary of Spain-based Iberdrola Renewables S.A.
On July 17, SMUD’s board of directors authorized an extension of two wind-turbine operations and maintenance contracts with Vestas-American Wind Technology Inc., a subsidiary of Vestas Wind Systems A/S of Denmark. The existing contracts, worth a total of $23.5 million, expire in 2010 and 2012. The board authorized up to $23 million for maintenance through 2017.
“The extension of the Vestas (agreements) assures SMUD that Vestas will be operating and maintaining the turbines during the full period where SMUD would not have ownership of the turbines,” according to a SMUD staff report.
Selling the wind turbines and buying back the power makes good business sense, van Dam said, because the utility would receive some of the benefit of the tax credit, and that could mean lower costs for SMUD customers.
“It could be a win-win for everybody involved,” van Dam said.
By Celia Lamb
25 July 2008
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