(Editor’s note: This article about repowering the Altamont region of California is reprinted from our March 2004 issue. While repowering is a hot topic today, it’s interesting to look back and see how wind developers were grappling with the issue 15 years ago. As the article details the uncertainty around the production tax credit, it’s also illustrative of how little has changed over time.)
The granddaddy of wind farms in the U.S. – the Altamont Pass Wind Resource Area (APWRA), east of San Francisco – is on its way to getting a partial makeover. Developed in the early 1980s, APWRA is home to about 5,000 wind turbines with an installed capacity of approximately 625 MW. Once cutting-edge wind generating technology, many of these turbines today are showing their age in terms of operational inefficiencies and reduced availability.
The average capacity of 1980s-era turbines ranged from 60 kW to about 150 kW. In contrast, today’s wind turbines boast a capacity up to 1 MW or 2 MW, making a strong case for repowering the dinosaurs of Altamont Pass.
According to the California Energy Commission, the opportunity for increased generation through the repowering of older turbines exists throughout the state, as most of California’s increasingly obsolete, original turbine base falls in the 51 kW to 100 kW size range – far below today’s industry standard. In the 2003 Renewable Resources Development Report, the commission cites the California Wind Energy Association (CALWEA) in estimating “approximately 450-900 MW of existing capacity are good candidates for repowering” statewide.
However, project owners face many issues when deciding whether to repower turbines – not the least of which is the federal production tax credit (PTC) that expired Dec. 31, 2003. The main impact of the PTC is its effect of making prices in power purchase agreements more attractive. According to Nancy Rader, executive director of CALWEA in Berkeley, Calif., even if the tax incentive were renewed as it was written, project owners still would face a restrictive clause, known as the “California fix,” embedded in the old PTC. “The tax code was amended in 1999 to deny the tax credit to repowered projects, unless owners agreed with the purchasing utility to amend their contracts to reduce the purchase price for the incremental power produced,” she says. “That has given the utilities a lot of leverage in the negotiating process, which they’ve used to stymie repowering.”
Rader contends that the provision has prevented much repowering from happening. “Before 1999, 245 MW had been repowered. But in the four years since, only 23 MW have been repowered. The amendment has virtually brought repowering to a halt,” she says. Rader estimates that if the restrictive clause were removed, up to 450 MW of wind capacity might be repowered within three years.
Decommissioning while demand is high
Rick Koebbe, president of Power-Works Inc. in Boise, Idaho, agrees that the PTC is important in deciding whether to repower inefficient projects. But he also points to a project’s economics as another deciding factor. “We have 920 turbines in Altamont that are running at 98 percent availability,” he says. “Given that rate, there is no reason for us to repower now.” He predicts few, if any, projects will be repowered until the PTC is reinstated.
Despite the uncertainty surrounding the PTC, some of the project owners in APWRA have begun the process of repowering some of their projects. These companies, which include G3 Energy in Dallas; enXco, based in Palm Springs, Calif.; and FPL Energy in Juno Beach, Fla., and its partner, have begun the lengthy process. Specifically, G3 Energy and enXco, which jointly own the Buena Vista Project (formerly the defunct Windmaster Project), are planning to repower the 38 MW project this year. FPL, which owns 621 MW of wind capacity in the state and operates about 1,000 MW, is also looking to repower a portion of its Altamont capacity.
George Hardie, president of G3 Energy, says the original plan for the Buena Vista site had been to replace all 180 of the Windmaster turbines by mounting high-quality, used Danish turbines of similar size atop the Windmaster towers. In fact, 74 of the Windmaster towers were brought back to operational status by installing used Nordtank 150 kW and Danwin 160 kW turbines bought from another repowered project in Southern California. More would have been purchased had they been available at the time. “This was a cost-effective way to bring the project back to life,” Hardie says. “However, we were, and still are, only operating the project at about one-third of its total contract capacity.”
Now that California’s energy situation has stabilized, G3 Energy and enXco are moving ahead to repower the entire 38 MW project, including those turbines that were initially repowered, with new 1 MW Mitsubishi turbines. Total costs, excluding soft costs such as legal and accounting fees, will be about $38 million. Investment firm Babcock & Brown of San Francisco is assisting with the financing.
Because of the larger turbines, Hardie says the number of turbines on-site will be reduced from 179 to 38, greatly reducing the project’s underlying footprint and environmental impact.
Hardie explains they chose the Mitsubishi model because it is efficient and is the largest turbine allowed under the permitting “envelope,” as outlined in the Master or Program Repowering Environmental Impact Review (EIR) for the APWRA.
Both Altamont wind project operators and environmentalists are hoping that fewer, more modern turbines will reduce the number of bird deaths caused by the older turbines. The Center for Biological Diversity in Livermore, Calif., in January filed a lawsuit against FPL Group Inc. and turbine manufacturer NEG Micon, urging the companies to address the bird problem in APWRA. In the organization’s news release, it states, “The issue at Altamont is not wind power versus birds, but rather whether the wind power industry is willing to take simple steps to reduce bird kills.”
The 1998 draft of APWRA’s EIR states, “A reduction in avian mortality can be achieved by reducing the number of turbines in the area, eliminating all perch sites on turbines, reducing the rotational speed of rotors and avoiding certain topographical features when siting turbines.”
Both wind developers are seeking county conditional use permits, which are issued for 25 to 30 years. That process typically involves consulting with numerous local, state and federal regulatory agencies, such as the U.S. Fish & Wildlife Service, the California Department of Fish and Game, and the California Public Utility Commission. It’s not unreasonable to plan on anywhere from eight to 18 months to complete the process.
Finished by year’s end
Hardie adds that his company is proceeding on a “leap of faith,” assuming the PTC will be extended sometime in the next few months. “Our project may be viable without PTCs; however, the variable energy pricing component of our existing SO4 contract makes it difficult to efficiently finance a repower without PTCs,” he says. “Accordingly, it makes sense to wait to order the new turbines until the credit is reinstated.” Assuming the PTC is extended by the first half of 2004, Hardie plans to start construction in late summer and have the project finished by the end of the year.
Although those wanting to repower projects presently do not have the federal tax credit, they may be eligible to receive supplemental energy payments under California’s renewable portfolio standards, adopted in 2002. Under the standards, the capital investment to repower an existing facility must equal at least 80% of the value of the repowered facility in order to qualify.
The California Energy Commission is currently developing rules of implementation and admits in its Renewable Resources Development Report, “The stringency of these rules, and the likelihood of a generator meeting the 80 percent threshold, will be a factor in repowering decisions.”