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Innovation and risk at play -- Cluster of big Washington projects

In a windy corner of Washington's Klickitat County, high up on a ridge overlooking the Columbia River, three large wind stations are coming alive following years of development, innovative financing, some risky decisions, and a joint approach to gaining access to transmission lines. The three comprise a 205 MW project developed by a partnership of public utilities, a 450 MW wind plant by veteran developer Cannon Power, and a 94 MW project by Enxco, a second wind industry veteran from California. By the end of this year, close to 400 MW will be online with the build out to the full 700 MW in the years to come.

All three developers have contributed to the cost of a $40 million substation needed for wheeling to the wind power onto the electric grid. The investment in the substation, being built by the Bonneville Power Administration, will be recouped through transmission credits once wind power is being fed to the hungry regional market.

Of the trio, the 205 MW White Creek wind project steals the biggest headline. It is unique for two reasons. First, its lead developer is not a well-known commercial scale developer but a partnership of four local Public Utility Districts (PUDs) serving nearby load. The PUDs are all from the Last Mile Electric Cooperative and include Lakeview Light & Power, Tanner Electric Cooperative, Klickitat County PUD and Cowlitz County PUD. Each small utility saw the need to act proactively to secure new energy supplies in their region as rising prices and energy demand eat into their future power contract options, says Brett Wilcox of Summit Power, who has led project development for the PUDs.

Financing first

Second, because the PUDs are tax-exempt entities that cannot take advantage of the federal government's wind energy production tax credit (PTC), the developers took a trail-blazing finance approach. The PUDs did not want to relinquish their investments in the wind plant, which are likely to bring savings for customers, so needed to find a way to also access the PTC. They used their position as a late stage developer and owner of the project to strengthen their bargaining position when selling White Creek to outside equity investors. In what seems to be a US financing first, the PUDs incorporated purchase of a 20-year "power pre-pay" agreement for White Creek's output at lower rates than they could have found buying wind on the open market (story page 41). "It's a very unique project with a very unique financing structure," says Wilcox.

Cannon Power's Gary Hardke considers his 450 MW Windy Point project unique in its own ways. The company bucked the trend of inking a power purchase agreement (PPA) with a utility before ordering turbines. That is typically a prerequisite for a company to secure the financing for a bulk turbine purchase. But Hardke is playing the odds that waiting will net the company a higher price. "We have intentionally held off. We have lots and lots of interested counterparties but our perception is that the market is going up and there is a scare supply of good projects in that part of the world to meet demand. We're happy to finally be in a sellers' market," he says.

Strong demand is being driven by generally high prices among wind's competitors and mandates for renewable energy from California up through Oregon and Washington. Smaller electricity retailers in Washington have historically turned to the Bonneville Power Administration (BPA) for its vast and affordable hydropower resources to meet new energy demand. But BPA has made it clear to regional utilities that its resources are largely tapped out and they will have to look elsewhere for new power sources.

Turbines from Germany

Cannon will be receiving a mix of Siemens and Repower turbines and entering the early stages of construction at Windy Point well ahead of signing the power contracts now under negotiation. Up to six companies may eventually sign on to be off-takers for the power. The company has also committed to turbine orders with deliveries well into the future.

Of 350 MW now lined up in soft and firm orders, the bulk will be met by Siemens machines, but a firm 50 MW order has gone to German Repower, a newcomer on the US market, for its 2 MW unit. Hardke expects between 85 and 120 MW to be online by the end of this year spread between both makes. "We're trying to juggle how we deal with ever increasing turbine prices and we've decided to take the risk and lock and commit to a fairly good size volume of turbines -- even ones that are being delivered after the PTC could expire," says Hardke. At the moment the credit is set to expire at the end of the year.

The third wind project within the area is Enxco's 94 MW Goodnoe Hills development, which again uses Repower 2 MW turbines. The project, among the first to use Repower machines in the US, is currently nearing completion. Enxco ordered 150 MW from Repower back in June 2006, 48 MW of that for a project in California.

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