From lightning strikes zapping insurers to swirling debates over turbine setbacks, offshore wind PPAs blowing in the wind, and the path to 100% clean power – this week’s news spans the gusty landscape of the wind industry. Rosemary, Joel, Phil and Allen cover incentives to get wind farms permitted faster in Sweden, the pushback on bigger setbacks in Iowa, a $1.5B renewables acquisition, why more expensive offshore wind will still have a role, and more. Plus, our featured Wind Farm of the Week: Luverne Wind Project in North Dakota!
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Uptime 179
Allen Hall: Well, Rosemary, we were in San Diego last week and we happened to stop in the Lego store and we were amazed at the number of Lego projects that are made for adults.
Rosemary Barnes: I’m not, I’m not surprised
Joel Saxum: I’m gonna be, I’m gonna tell you right now, I buy the race cars and build them myself, just like after dinner some nights.
Phil Totaro: Kids of all ages.
Allen Hall: They had a really cool Corvette and the Magic Kingdom castle and the Titanic, which, you know, thousands and thousands and thousands of pieces and it would take you probably weeks to do.
I don’t, I don’t Rosemary you seem like a Lego expert though.
Rosemary Barnes: I did live close to Lego in Denmark, so I guess, you know, obviously absorbed. Some sort of expertise, but yeah. During the pandemic, my part, my partner and I discovered that you don’t have to have kids to buy Lego. Yeah. You, you can as an adult, buy, buy a kit and not worry about your kid doing it wrong.
You can just, just do it yourself and you could, you can give it to them afterwards.
Joel Saxum: There’s a connection between Ørsted and Lego, like the ex CEO of Lego was at one point in time, the CEO of Ørsted, like the two, two CEOs ago or something like that. I don’t remember exactly what it was.
Rosemary Barnes: Yeah, it doesn’t surprise me.
Allen Hall: That’s gonna be a prime job, right? Like when you’re looking for jobs in the newspaper in Denmark, when Lego pops up, that’s gotta be one of your top choices, right?
Joel Saxum: Just build Legos all day
Allen Hall: since we’re in the Scandinavian countries. Phil, why don’t you kick off?
Phil Totaro: So this week we’re talking about new incentives that the Swedish government is putting in place to build onshore wind farms. And lightning strikes are responsible for 70% of the catastrophic losses in the first half of this year.
Rosemary Barnes: Then we head over to Woodbury County in Iowa where they’re debating the setbacks for wind turbines and them to be increasing and increasing and increasing the distance. And then over to Australia where we’re talking about tariffs on products like steel and cement if they have carbon emissions associated with them to support green versions of those industries.
Joel Saxum: And in the states here, Invenergy is purchasing aeps unregulated assets about 1.4 gigawatts for about 1.5 billion with a B dollars. And then jumping offshore in the us, go to the East Coast. Commonwealth Wind Is exiting their PPA and there’s about a $50 million penalty on the table. And a couple of the Massachusetts state agencies can’t quite agree which direction they want to go.
And then Ottertail Power Company over on the border there of Minnesota and North Dakota. Luverne Wind Farm is our Wind Farm of the week.
Allen Hall: I’m Allen Hall. I’m here with my good friends, Joel Saxum, Phil Totaro and Rosemary Barnes, and this is the Uptime Wind Energy Podcast.
The Swedish wind industry is urging the government to eliminate barriers for onshore wind project permits. Now there’s been a problem at the, sort of the county local level in Sweden to get projects approved and wind developers are starting to get a little bit antsy about that and rightly so. What they’re suggesting here is that the national government, federal government, Incentivize the local governments to move ahead with the permitting process and to, to get these projects permitted faster.
And, and it has sort of a, a follow on effect that the investors in these projects could get them, get their money in place to make them happen. One of the big problems in Sweden and Norway also, it sounds like in, in the States, is. You can have a bunch of money, have everything in order, but you’re just never sure when the paperwork is gonna be completed.
So Sweden’s trying a slightly different model and as we Phil, as we’ve seen in New Jersey, getting anything permitted in a state like that can be really difficult. It sounds like Sweden’s having a very similar problem.
Phil Totaro: They are. Allen. And what’s interesting about this is that. You know, you can either have the wind project developers, pay the local municipalities directly or you can have the federal government collect tax revenue and then use that to facilitate payments to the local communities.
So I think the latter is what they’re trying to implement. It sounds like, and I mean, to me it sounds like a reasonably good strategy. You know, bottom line, anything that speeds up permitting because there’s a rather significant amount of investment that. Is waiting to be unlocked in, in Sweden, they already have more than 4,000 wind turbines installed.
But they’ve got a pipeline of another like 20,000 wind turbines that have been proposed. So it’s, you know, there’s a lot of market potential there if they’re gonna speed things up.
Allen Hall: So does, does that have implications in terms of. If, if the federal government is, is proposing this where it just, it creates a level playing field if each of the individual wind turbine operators go to the local governments, wouldn’t it just be sort of a bidding process of.
If you wanna go faster, you have to pay more sort of situation. And putting the national government in charge of that just sort of levels the playing field is, is that the thought here?
Phil Totaro: Yes, and And actually I think that’s the point.
Joel Saxum: Yeah. And I’d say to add onto that, most of my experience with Swedish wind farm owners, I.
They fall into the financial asset owner category. A lot of ’em have, they, they just put the money up and they have a couple of asset managers, a couple people that will be in charge of construction. But for the most part, those wind farms are all run by FSAs and those kind of things from the OEMs. And a lot of them are remote.
If you ever just scrolled through Google Earth and looked at in Sweden, not these wind farms are not in, it’s not like in the middle of the United States where they’re covering farm fields and cattle farms and things like this, right? A lot of them are in the timber, in the woods away from communities, away from homes.
So the sighting issues shouldn’t be as bad. So like Phil was saying just kind of un unlocking it a little bit. Should, should make the development go fairly quick. And I think Rosemary, before we, we hopped on and started recording, you had some insights about the, the culture over there in Sweden too with the, the locals.
Rosemary Barnes: Well, I mean, I, so I lived in, in Scandinavia and obviously Sweden is a Scandinavian country and yeah, common to. Scandinavian countries is a, a high trust in government, and I think Sweden is probably number one of those. So I think this sort of move, it, it could potentially work in, in Sweden where, you know, people generally do trust that the government has their best interest at heart.
They’re not so cynical as. In some other countries, but I also think it means that things that work in Scandinavia that involve the government aren’t necessarily going to translate well into other countries that don’t have that high level of trust.
Joel Saxum: Yeah. And I think that, I just read something today that said by 2040 Sweden wants to be a hundred percent renewables.
Rosemary Barnes: They’ve got so much potential there. It’s, it’s an area that I used to, it’s probably the most the, the wind farm that, or the, the area that I visited the most when I was working in Denmark was Northern Sweden. Which is yeah, the area where I was was a couple of different wind farms there about a hundred kilometers south of the Arctic Circle.
There is a small town there that was getting reinvigorated and a lot of the people that I worked with were people who grew up in the area, had had to leave for work, and now were so excited that there was, there were decent jobs there that they could move back to. So that’s you know, wind turbine technicians and.
Also a guy who had started a, a wind turbine repair company is specializing in repairing the blade heating systems. You know, when, when they get damaged on the blade surface, it’s quite a specialized job to repair that without causing short circuits. And yeah, the other problems, so I’ve always used that as an example of it.
A, a really good example of how you can take an area that has really great renewable energy potential and build industry around it. ’cause it wasn’t just the, the wind turbines, the wind industry that was growing up there. It was other energy intensive manufacturers. So you see that there’s, now there’s a green hydrogen project there that they’re using to make green steel the hybrid project.
Also is it North Fault, the battery, the green battery company is in that sort of area as well. I visited a manufacturer who was making prefab bathrooms up there, y y you know and also there was plans of opening a carbon fiber factory. I’m not sure if they, you know, actually make the carbon fiber itself super energy intensive.
I don’t think that one got up. But you know, that’s the sort of the sort of thing, instead of generating your energy where it exists and then building heaps of transmission to, to get it away from the area. It is also possible to move the energy intensive industry to where the, the energy is and it’s kind of, you export the energy in a sense, in, in that way.
And it’s a bit easier than, yeah, either building a lot of transmission or the other alternative is, you know, something like hydrogen.
Allen Hall: Speaking of Sweden, Sweden’s had a number of lightning storms recently. Just looking at one of them that happened in the beginning of August. I was shocked at how many lightning strikes they had, and there was a, an article put out by Swiss Re saying that 70% of the insured natural catastrophe losses in the first half of 2023 were due to thunderstorms.
Yikes. The leading causes mostly in the US actually.
Rosemary Barnes: So is that just wind farms or is that across all, all insurance industry.
Allen Hall: All insurance. Right. There’s just been more lightning strikes, particularly in the US this year. And the the Swiss res was saying that the insured losses due to us thunderstorms surpass their significantly sur significantly surpassed their 10 year average.
Right. So all. Actuary or chart are based on averages, right? So they have, they have a number sort of built into the system of how much gonna it’s gonna cost them in insurance claims. Well, they sort of blew through that number earlier this year. Now I, I think Swiss Re is making some assumptions about what is causing it.
They’re attributing it to climate warming and some other heating of, of local communities. I’m not sure if, if that’s the case or not, but we, I have noticed, and we’ve looked at a number of lightning strike situations this year in the us you’re not having a couple of lightning strikes in a neighborhood.
You’re having thousands, thousands, thousands, thousands in a short period of time. Crazy.
Joel Saxum: So anybody that’s not sure, kind of how the insurance industry works, these natural catastrophes, the, the, the buzzword is always gonna be SCS, so severe convective storms, and those are all based on models. So they can, they’ll say, Hey, we’ll expect this many storms of this magnitude in this area based on predicted data from the past.
Right? And as we, as, as we follow along here, right, we’re all involved in. What would be the leading edge of climate change or, or however you want to call it. You see, you know, more, more wildfires, more intense storms, more intense hurricanes, kind of ggl weather patterns changing on a global scale. I mean, if you look this, this summer, it’s been the hottest sea temperatures average in the world.
Like then, then we’ve recorded, right? So all of those things have the, the. Possibility of changing weather patterns. So if they start changing weather patterns that drastically and that fast, those models don’t mean anything anymore, right? If you, if you’re say like, Hey, we’re used to having X amount of storms, and then all of a sudden the model gets thrown out, well that’s, that’s gonna wreak havoc on the global insurance industry, whether it’s for renewable energies, you know, hail storms hitting solar panels, or lightning storms hitting wind turbines.
That’s one small part of it, right? The, the whole insurance industry is based on these, these same models that have been around for a long, long time. And if they change quickly, what’ll happen is these like Swiss Re is a reinsurance group, right? So they’re, they sit and they insure the insurers.
They’re like the second line of defense, but they have a massive amount of capital behind. And these groups have billions and billions of dollars of capital. Well, if they start seeing loss runs go up and up and up, well then they’re gonna have to raise premiums and raise premiums. And if their models can’t keep up, it’s, it’s.
Worse for the entire global financial industry.
Allen Hall: Yeah, well, they had $34 billion in insured losses in the first six months in the US alone due to storms, basically. Storms. That’s crazy. $34 billion is a lot of money. Yeah, that’s, that’s insane. And I, you know what we have seen sort of towards the second half, well, we’re in the second half of 2023.
I don’t think it’s slowing down. In fact, we should be seeing some more escalation of that in September and October. Usually September and October. Or pretty big storm months. In fact, I think in San Diego we were just in San Diego. San Diego is expecting a hurricane to hit, hit the shoreline. So weird weather, right?
Joel Saxum: Yeah. Really, really hot golf temperatures down in the Gulf Coast of the us but we haven’t had a bad hurricane come agro come as shore yet, which is surprising to be honest with you. But where we’re getting into that season where it’s there, there should be some cooking. I know that. Yeah. Like you just said, her hurricane, I think they’re calling it hurricane now.
Hillary. Coming up the coast of of California is gonna do some, some work there. And usually you don’t hear about anything touching the coast of California.
Allen Hall: Well, no. And they’re talking about Los Angeles getting hit. San Diego or Los Angeles gets hit. It’s gonna be a big problem. Those places are pretty flat.
They don’t have a lot of drainage, so the water just kind of stays there. They, they don’t really have a sewer system, so it’ll be yeah, not good. Hopefully that that doesn’t come on shore. Lightning is an act of God, but lightning damage is not actually is very predictable and very preventable. StrikeTape is a lightning protection system upgrade for wind turbines made by Weather Guard.
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Speaking of things happening on shore in Iowa, mid-American energy is facing a big pushback about building wind turbines in Woodbury County.
Now, Woodbury County is sort of in western Iowa, kind of near the Nebraska border, up in there. And, and many American as we know, has a lot of turbines in Iowa, about 3,400. At the moment in 33 Iowa counties, and there’s a total of 99 counties in Iowa. So they’re in a third of the counties in Iowa. That’s a large area they’re covering.
So the Woodbury County Board increased setback distances, fill you ready for this from 1,250 feet to 2,500 feet, four rural residences, but they also increased the setback from 600 feet to two miles around incorporated towns. So mid-American says that, well, when they do that, you, you can still squeeze in 100 wind turbines in the county.
So they’re saying, oh, okay, well maybe we’ll just put in the 100 turbines. But it’s not so much the number of turbines they’re gonna be able to put in there is, but that these restrictions and these setbacks are becoming more and more prevalent at the county and city level. This, you know, we’ve been talking about this quite a bit, but you see them more and more in the news articles, particularly local news where the setbacks are getting really big two miles is a long ways.
Phil Totaro: Probably too long for, and, and keep in mind that a lot of these setbacks are done that way intentionally to try and slow down or stop project development in certain, you know, incorporated townships or you know, even, even in the unincorporated, unincorporated areas.
You know, 2,500 feet is a lot more than what we’re used to. Yes, turbines are getting bigger, but we, we still need to be able to cite projects where the wind resource is the best. And if we’re not able to do that, then it’s making projects on viable. Which again, I think is kind of the point that some of these people who are putting these Local restrictions in place.
I think that’s what they’re trying to do. They’re, I mean, imagine the state of Iowa where, like you said, I mean Mid-American is the biggest utility in the entire state. They’ve done more for the state. It’s billions of dollars in, in industry that’s been brought there as a result of them building all the wind and solar farms that they have over the years.
And now you have counties and townships throughout Iowa saying, no more, no more wind. We don’t like making money anymore.
Joel Saxum: That’s not to mention I think in, in Iowa, correct me if I’m wrong, but Allen, but I think there’s three different factories that produce blades and the cells and other products in that state as well.
Those like biting the hand that feeds, you know, Phil, one of the things I’d like to see is that these county governments or town board meetings or whatever is what are they citing for their information to pass the law, right? What are they saying? Like, we have 1,250 feet, we went to 2,500 feet. Why? Is it, is it flicker related?
Is it noise? Like, is there, has there been testing done or are they just saying like, what do you think Bob? I think 2,500 feet sounds good.
Rosemary Barnes: I think you can get an idea of what their intentions are if you compare these setbacks to other kinds of energy generation. Because I know in Australia for a while in yeah, certain parts of Australia, you could actually build a coal power plant closer to somebody’s home than you could build a wind turbine.
And I mean, it’s just, It’s, it’s ridiculous. Like no one, no one wants to live with a, a wind turbine in their literal backyard, but I would rather have a wind turbine in my backyard than have a coal pal plant in my backyard. You know, considering that those actually documented and, and proven that that’s bad for you compared to, you know, the idea that you might be annoyed at having to look at something like a wind turbine you know, it’s, It’s crazy the way that people just Yeah.
Single out one technology for this kind of treatment compared to the way that we are able to, you know, accept that we, we need other kinds of public infrastructure. I mean, I can’t see the logic behind it.
Joel Saxum: Yeah. I wonder if, wonder at some point in time if eminent domain will come into play, right?
Because if eminent domain in the US is. Based on the good for the, the good for the community or the good for the populace they can take people’s farms. Take like I was a, when I was a land surveyor, when I was young working for a civil engineering firm, we took a, a whole, there was like a 40 mile stretch in the middle of Illinois where every intersection was on a correction line.
I. And the public land surveys. It goes like, the road goes here and then it goes over 700 feet or so, and then the, and then you have to go up left, right. To stay on that highway. Well, it makes more sense if you get the main highways and you just kind of curve ’em and then join back up. Well, we took farms, we took I mean right through the middle of people’s cattle paddocks.
We went an apple orchard. We went and took all kinds of, there’s legal battles for all of it. But that’s based on eminent domain. What’s good for the people. And at some point, if, I would think if these are regulated utilities, one of these companies may be able to rise that up in a, in a lawsuit.
Rosemary Barnes: It just sounds like a really good way to have a huge culture war between people that, you know, want renewables and people that that don’t even, I would probably, you know, shy away from getting involved in that.
Joel Saxum: Yeah. I mean it’s, in the US it’s a way, I mean, we, there’s been times when. Shopping malls have been built using eminent domain, airports, highways, those kind of things. So casinos, yeah. So, I mean, and that’s a longstanding doctrine, and I don’t know if it’s been, I’ve never heard of it being used for renewable generation yet, but I could see that coming down the pipeline at some point in time.
Phil Totaro: Transmission. Yes, but not a renewables project, not generation even. Joel, even going back to your earlier question, where are they getting their information from? This is exactly what we were talking about a few weeks ago as well, which is a lot of this stuff is based on flawed and disproven. Information that has been out there from anti wind groups all over the place, and right now they’re the only ones doing the talking.
Years ago, we used to have people that were involved in grassroots, you know, community outreach and relationship building that doesn’t exist anymore. And so it’s leaving the independent power producers and project developers to twist in the wind. So
I’m not happy Australian climate change.
Allen Hall: Minister Chris Bowen suggests a possible tariff on imported steel and cement to prevent a disadvantage for local producers aiming to reduce carbon emissions.
Now, Rosemary, you have produced YouTube videos talking about. Green Hydrogen, green cement, right? Green steel this is right up your alley. So it seems like Australia’s gonna put some, bo some tax incentives or, or tax taxes, tariffs on outside steel and outside cement making such that Australia can have greener cement and steel.
Does. But does that make sense? If, if you’re trying to develop. So many things that are happening in Australia at the moment. Don’t you need to have some outside steel, some outside fertilizer, some outside cement to make things go well?
Rosemary Barnes: We have a lot of yeah, mo Most of our produced materials like that are coming from outside at the moment, and it’s been something that for, you know, decades Australians have.
Been annoyed that, you know, we don’t make those things anymore. There’s a whole bunch of different examples that, you know, it’s a kind of conversation that even non-energy geeks, non-engineers will talk about at barbecues and and stuff is how we will chop down our native forests. Send wood chips to Japan.
Japan sends us back paper. We, you know, dig up iron ore, send the dirt or you know, lithium rocks, whatever, send that to China. They process it and send it back to us. And it’s just, it’s crazy. I actually made a series of, of videos on this for the there’s a Australian manufacturing Oh, no, I can’t remember the name.
But you know, in an industry group that is you know, aiming to support the Australian manufacturing industry, and I made a series of videos about how the manufacturing value chain works and how if you are just doing the very first part of the, you know, the value chain and the, the mining just actually taking the rocks that you’re missing, the big part of the value, the, the value comes from the, the processing.
And you know, you, the more that you do to that. Material, the more value that you get out of it. And Australia used to add a lot of that value. Back in the day, you know, a long time ago, Australia had cheap energy and so we manufactured a lot of those. Those things. And then our energy prices got more expensive and it became cheaper to, you know, offshore to Asia largely like the rest of the world was doing as well.
And so we, yeah, we, we don’t do those things anymore. But now this is really similar to what I was saying before about what Northern Sweden is doing. You know, realizing that they have great renewably en renewable energy potential and that you can, you know, take advantage of that by getting industry to come.
That’s something that Australia could be doing too. You know, we have so many talks about growing a huge green hydrogen export industry where green hydrogen or any color of hydrogen is so hard to transport. You know, it’s, it’s just crazy. No one transports it today. If you need hydrogen, you tend, generally tend to make it very close to the place where you want to use it.
So we had this idea that we’re going to, you know, somehow overcome the chemistry and the engineering that dictates how inefficient that is to transport hydrogen. But no one’s looking at the really obvious thing that we could do, which is instead of, yeah, taking our rocks and dirt and wood chips and sending them overseas for them to process and.
Sell back to us. Why don’t we use our renewable energy potential to process that stuff onshore in instead, much easier way to, you know, kind of export the, the embodied energy and those products than, yeah, than hydrogen or you know, giant subsea cables. So I’m kind of really excited to see that possibility opening up.
I think I’ll be surprised if we do end up with tariffs because you know, we’ve got trade agreements with most of these countries and yeah, I think it’s more like the sort of thing that you say that you’re going to do to kind of get, I. The local people excited about, you know, some of the, the other aspects of it, ’cause it’s not so long ago in the, under the previous government, I’m pretty sure that they were opposing Europe’s plans to, you know, install a carbon border adjustment mechanism.
I. Because then we wouldn’t be able to sell them our, our dirty products anymore. So it’s, you know, I think the first step is to support other countries that want to clean, clean these industries up. And the main thing is just to have a separate price for the green, the green version of these products.
’cause in the first case, you know, there is gonna be a, a green premium for yeah, steel or cement that’s made without emissions. So if there is someone willing to pay more for it, then it will really support those industries. And for the most part, at least these the, the green versions of these products should eventually become cheaper than the, the fossil fuel versions.
But they just need that support in, to get to that point. There needs to be enough of a market for it that those industries can scale. And yeah, I, I think it’s one of the most obvious things that we should be doing in Australia. Talk about for decades. Glad to see that finally, you know, someone in the federal government is starting to lean in that direction.
Allen Hall: It’s sort of a one-way street here, right? Because a European Union is planning on creating these carbon border adjustment mechanisms in 2026, right? That’s gonna really hurt Australia immediately, and China and probably the wind turbine manufacturers in the EU that use a lot of Chinese components, right?
I mean this, this is just. This is just going to make things much more difficult. It’s not necessarily gonna change the way. Companies build these products?
Rosemary Barnes: I think it, I mean, it’s a, it’s a big incentive to change the way that companies build these, these products. And I, I think that there are so many other benefits to doing it that way that, you know, I don’t, I don’t see it having an overall bad impact for Australia.
I see it overall as an opportunity. There will be individual manufacturers that have, you know, invested a lot in their you know, existing manufacturing methods. That they can’t easily decarbonize, that will be hurt. But honestly, Australia doesn’t manufacture a lot of a lot of stuff. It is mostly you know, we are mostly digging stuff out of the ground and still chopping down native trees and that sort of thing.
So yeah, I, I would think it definitely overall falls into the opportunity kind of column rather than the than the threat column.
Allen Hall: Hey, Uptime listeners. We know how difficult it is to keep track of the wind industry. That’s why we read PES Wind Magazine. PES Wind doesn’t summarize the news. It digs into the tough issues, and PES Wind is written by the experts, so you can get the in-depth info. You need check out the wind industry’s leading trade publication PES Wind at peswind.com.
Invenergy, a leading developer of sustainable energy solutions announced the closure of its acquisition of American Electric Powers, roughly 1.4 gigawatt, unregulated, contracted renewables portfolio for hold your onto your seats, $1.5 billion. The acquisition was carried out by a number of large financial companies in including Blackstone infrastructure partners.
So this acquisition by energy, you know, makes them really large and as large player in the United States market for sure. Now, the weird thing about this is because the IRA bill is happening in the middle of this, of this transaction the need to have a way to handle the production tax credit. So they created a financial vehicle and I R G acquisition Holdings basically created a a $580 million commitment for those production tax credits to be rolled over to in Energy from AEP.
It sounds like Phil does, does that make sense? The production tax credits sort of a weird old system, right?
Phil Totaro: It’s, I think it’s based on the legacy ownership of the The production tax, credit rights, and the royalty payments associated with it. So I think this is just a financial mechanism where they’re paying for, in energy’s paying for the opportunity to claim that the PTC revenue associated with this project.
And any subsequent repowering of, of the project.
Joel Saxum: If in the audience we do have someone that is a PTC credit specialist for a law firm or something, reach out. ’cause we’d love to have a conversation. So, you know, we’re, we’re armchair experts about the PTC credits and we’ve read the bills and we kind of understand how the whole system works.
But to have a a get someone in here that is a true, true expert would be kind of exciting,
Allen Hall: I think. How does that play out in terms of the IRA bill also, right? Because there’s a lot of incentives in the IRA bill. Do those automatically roll over to Invenergy or does AEP have to delegate those or just transfer them over?
There’s, there’s a lot of, with the federal government, be involved in a lot of these financial transactions because of the tax credits. They must have some intrinsic value when you purchase the assets, right?
Joel Saxum: I would think they would just go right with them. I, I don’t understand why there’s a need for a vehicle, and that’s kind of why I’m a little bit lost here, is like whoever owns the assets, whoever’s producing the kilowatt hours of energy should get the credits.
That seems pretty basic to me, but there’s definitely something here going on. I don’t understand.
Allen Hall: Is this a repowering play, Phil, in the long?
Phil Totaro: The key to this is the fact that this asset portfolio according to AEP and Invenergy is the unregulated assets.
Meaning that presumably they’re selling most of the power on the merchant market. And you know, Repowering a a merchant a merchant fed plant is a, it’s a crapshoot basically. You know, you’re, you’re counting on the merchant power price being above a particular level in order for you to be able to make back your you know, your initial capital investment on a project.
And so if the merchant power price drops enough, then hmm. You’re, you’re in a position where you may not, you may have to repower multiple times, or you may have other need to be able to extract additional value out of your asset to be able to pay back the upfront capital that you spent on the construction or the repowering of it in the first place.
Joel Saxum: Phil, is there a situation where, where say, Invenergy takes over these unregulated assets? And then goes to, they may, they may be you know, on the merchant market and then says, you know what? We’d like to secure power purchase agreements for these. And then they could go into that, whatever sector would be, or, or even private power purchase agreements.
Does, is that, do you think we’ll start to see some of that just so they can safeguard their bottom line
Phil Totaro: maybe? The reason I’m hesitating about it is, That would obviously be ideal. Yes, they’re allowed to do it. First of all it would be ideal for them if they could, because obviously a fixed price contract is more predictable you know, et cetera, et cetera.
But the, the trick with this is that even the merchant market operators like your misos and your ear cots of the world, they want. More capacity taken out of the merchant market and into a fixed PPA, whether it’s corporate or utility, whatever. Because then it frees up more space in the merchant market where new projects that are in the consent queue can get built and a and approved.
So there’s, there’s every interest and incentive from a lot of the, the market participants to be able to, to do that. It’s just a question of demand. The utility, PPA market is fairly well saturated. And again, without additional consumer or industrial demand for, for electricity increasing, you’re not gonna see utilities wanting to strike more PPAs.
But the corporate power off take agreements is an interesting market because it’s grown, it’s continuing to, you know, and will continue to grow. And it could offer some of these companies that mechanism to get either a fixed price or some kind of, you know floor and ceiling type of hedge on the, the power pricing that they get off the, the merchant market.
So it could, it can offer an incentive. Yes.
Allen Hall: Commonwealth Wind, a 1200 megawatt offshore wind project off the coast of Massachusetts. Has been seeking approval from the Massachusetts Department of Public Utilities to scrap its contracts with the utility companies. The projects developer, Aine Grid has argued that it can no longer finance a project under the current contract pricing.
However, in a twist in the Massachusetts Department of Energy Resources has supported Commonwealth Wind’s request to terminate the contract. So we have two sort of Massachusetts agencies, one. The Department of Public Utilities that’s being very hesitant about canceling the contract. And another one, the Department of Energy Resources, thinking that it’s probably in the best interest to go ahead and terminate the contract.
With, with payment, right, Phil? There’s, there’s a bunch of money that comes along with the termination.
Phil Totaro: Yeah, it’s a little over $48 million, I think. But what’s interesting about it is the utility, you know, board wants to keep the agreement because the PPAs are like the best PPAs ever, right? They’re like, you know, around 70, $80.
And who wants to, you know, who wants to give up that kind of a deal. But if Avan grid can’t actually make money, then. There’s gonna have to be, I mean, we’ve talked about this on the show before as well. There’s gonna have to be some kind of concession provided. It’s also, you know, not to kind of shift gears, but it’s also what’s driven some of these changes in like New York and some of the proposed changes in other states as well, where they’re looking at contracting, but they’re saying, all right, look, you bid what you bid and you’re not allowed to increase your bid later.
Which is kind of fascinating because it’s like, alright, well then that’s gonna make for an even more competitive marketplace.
Allen Hall: Did you read that? Basically the PPA from New York? I saw an article and I couldn’t find it later, but it was, they’re looking at numbers like $125 a megawatt hour for offshore New York.
Does that sound roughly right?
Phil Totaro: Yeah. I mean, keep in mind, so we’ve got some of the projects in Massachusetts, we’re down around like, like I said, between like 77 and. I wanna say $82. You’ve got some of the ones in New Jersey that are, I wanna say between like 82, 80 $5. So they’re all, I mean, you know, and then again, New York Rhode Island, some of the, you know, and these are all like the newer projects.
Even the coastal Virginia offshore wind, I mean, a lot of them are down around the a hundred dollars megawatt hour range. But they’re presumably gonna have to go up. If inflation is impacting CapEx cost as much as it is, you can’t have CapEx cost go up by, let’s say 2020 5% and not adjust the PPA.
It’s, you know, there’s, I mean, part of it, you know, you can argue, well, maybe it’s just, you know, impacting margins a little bit more for the I P P, but in reality, some of them just can’t build projects. Those are the ones that have stopped.
Joel Saxum: Yeah. Margins. I think when we looked at it, like other week margins were between six and 8% is what they’re shooting for.
So if your, if your price goes up 20% on your CapEx, like that just shoots that in a foot, you’re underwater before you even put one piece of steel in the water.
Allen Hall: Where will the PPA prices eventually end up? Phil? Will they be 1 25, 1 30 pretty soon? Pretty standard. New York, Massachusetts, New Jersey.
All the way down to North Carolina, Virginia.
Phil Totaro: Well, it’s obviously gonna vary, you know, it’s, you don’t have to have PPA prices as high in the northeast, because in the northeast you’re, you’re talking about displacing a lot of dirty power with legacy PPAs that were well above a hundred dollars a megawatt hour.
The bottom line is we, we’ve projected that PPA prices were gonna eventually come down. To settle around, you know, $56 a megawatt hour long term, but that’s out by, you know, like 2035 kind of timeframe. Earlier than that, you’re gonna see it. It’s been spiking up this year and it’s gonna continue to spike up as long as interest rates remain where they are as well.
You know, Hey, federal Reserve, why don’t you guys get your act together and start cutting? Yeah, I’m trying to buy a house. It’s. The, the bottom line is I, they’re going up short term, but they’re expected to come down longer term. Like I said, we’re projecting somewhere around, you know, a market average in the United States around $56 a megawatt hour long term, but that’s out at 2035.
It’s gonna, you know, inch down and down and down to that level as we go. But it’s, it’s interesting because it also coincides with. Where, you know, onshore prices are you know, onshore, wind, solar, et cetera. If these are all relatively cheap, and this is, I mean, again, not to shift gears, but this is getting us into the challenge with the Gulf of Mexico auction.
If they have an overabundance already in onshore resources, wind, solar, and it’s dirt cheap. And even in ERCOT, they have negative pricing from time to time. Then why is anybody building offshore unless they have a specific need for that power? Like I could see the oil and gas companies wanting to build it because they’ll take the power, they’ll use it for their rig.
But we don’t need a more expensive power on the grid if it’s just unsustainable. And so going back to this thing in Massachusetts, that’s why this is happening. They’re just saying that it’s unsustainable.
Rosemary Barnes: I think the answer to that depends where we are on the energy transition. ’cause like, kind of like a split split, split it into two, two parts.
And the first part of the energy transition, it was like every clean megawatt hour is the same as any other clean megawatt hour. And so then you just want the cheapest electricity possible, which is, you know, solar or onshore wind. But more and more companies and some cities, including the other one where I live Canberra, starting to look at not just, you know, like matching the total volume of energy used in a year with power purchase agreements, but also, you know, 24 7 every hour of every day should be, should be matched.
And in that case, you are going to end up needing some more expensive sources like offshore wind or energy storage. I, I think that’s the reason why you could say, you know, you would, there is a market for these more expensive sources because I mean the, we’re not gonna get to a hundred percent renewables by, you know, just installing the amount of solar power that, you know, the world uses because we also use power at night, you know, so, The, the really cheap source of energy, that was great for the first part where we could just absorb more and more and more clean energy.
But as we move into the second phase of the energy transition, the, the hard phase, then we’re gonna, we are gonna need more expensive sources. And now we’re at like the, I think we’re at the first part of that where people are voluntarily saying, okay, it’s not enough to just, you know, buy power purchase agreements.
What we really need to do is make sure that there’s always clean energy available at every hour of the day because that’s you, you know, eventually when the whole world is, you know, zero emissions, that’s how it’s gonna have to be, obviously.
Joel Saxum: Yeah. And, and to, to back that up too, Rosemary, the what the areas that we’re putting, looking at, putting offshore wind in the Gulf are right next to major load centers.
Right? So if you can get a constant power near a major load center, that’s a lot different. Then have then plumbing in onshore wind from West Texas to Houston through the, through transmission because there’s not a whole lot of renewable generation around, like Houston say. Right. And the planned b o e m auction for the Gulf there is right off, right down the street from Houston.
So I think that there’s a, a bigger play there too.
Allen Hall: Up in North Dakota, Ottertail Power is planning to repower the Luverne Wind Project in Steel County, North Dakota. The Luverne Wind project is a 49 and a half megawatt facility. It currently uses 33 GE 1.5 XLE 82.5 turbines on site. It’s commissioned in 2009, but they’re in the midst of repowering.
They got their paperwork in to Repower. It looks like that’s going to happen. So Joel, they’re gonna move up to newer GE 1.6 90 sevens while keeping the same towers in the cells. That seems like a familiar pattern we’ve seen. Oh yeah, auto tails. Also consider Repowering their Langdon, Ashtabula. Farms, which are right next door actually.
So there’s, there’s a, a bunch of repowering happening in North Dakota, but. The Luverne Wind Project is our wind farm of the week. That’s gonna do it for this week’s Uptime Wind Energy podcast. Thanks for listening. Please give us a five star rating on your podcast platform and subscribe in the show notes below to Uptime Tech News, our weekly newsletter.
And check out Rosemary’s YouTube channel Engineering with Rosie. And we’ll see you here next week on the Uptime Wind Energy Podcast.
