United States

United States

Contracts for major Midwest projects, utilities finally comply with renewables law and sign up for wind

With three wind projects announced last month--and another major deal expected within weeks--Iowa's installed wind capacity could exceed 175 MW within just a few years. Sceptics were quick to point out how often in the recent past large US projects have been announced, never to come to fruition. This time, with giant Enron now owning contract winner Zond, wind supporters are hoping the success rate will be higher.

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In the upper midwest of the United States, wind development seems poised to break out of Minnesota in a big way at last. With three wind projects announced last month -- and another major deal expected within weeks -- Iowa's new installed wind capacity could exceed 175 MW within just a few years. But as soon as the deals were unveiled, sceptics were quick to point out how often in the recent past large US projects have been announced, never to come to fruition. This time, with giant Enron now owning contract winner Zond, wind supporters are hoping the success rate will be higher.

Zond Development Corp signed the largest contract, a power purchase agreement for the equivalent of 112.5 MW of nameplate capacity with MidAmerican Energy Co, a utility headquartered in Des Moines. The deal, announced on March 11, is being called the biggest ever in the wind business by Zond and Enron. The Tehachapi based wind company is to supply MidAmerican with electricity over a period of 20 years from a wind plant of 45.3 average MW. The utility, Iowa's largest, serves 642,000 electric customers in four states.

Zond, chosen from among 18 submissions in response to the utility's request for proposals, says the project is expected on line by the end of 1998. According to the agreement, however, it has three years after regulatory approval of the contract in which to start supplying electricity. Approval is expected within three to six months. The company's vice president of operations, Bob Gates, says the project will consist of about 150 units of a new line of Zond wind turbines, the Z-750 kW or "750 Series." It will be built in the flat farmland of Buena Vista County in north western Iowa.

Zond will both develop and operate the project, which will cost $100 million. The price to be paid to Zond for the power delivered has not been officially divulged. Ken Karas, Zond's chief executive, told the New York Times that the project will provide power for $0.040-0.045/kWh before wind's federal tax credit, currently worth $0.016/kWh. MidAmerican's John McCarroll says that for the 20 years of the contract, customers will be saved 64% of what they would otherwise have paid under the state's controversial Alternative Energy Production (AEP) law. The AEP had required utilities to pay $0.0602/kWh over a period of 33 years. John Sayler, president of the Iowa Wind Energy Association, speculates with some confidence that Zond bid somewhere between $0.038 and $0.042/kWh.

Two smaller projects

In addition, Zond and Northern Alternative Energy Inc (NAE) of Minneapolis have both signed letters of intent with a second Iowa utility, IES Utilities of Cedar Rapids. Both wind companies will build and operate 9.75 MW plants, or about 3 aMW apiece, says the utility's Diane Ramsey. IES announced the proposed power purchase contracts on March 10. They were expected to be completed and signed by the end of March or early in April. The utility also said the two contracts will save its customers almost $5 million annually over the life of the agreements, compared with the AEP mandated price. "That will save our customers money while still encouraging alternate sources of energy," says Ramsey. According to the terms being negotiated for both announced wind plants, as well as for a third plant that will generate power from waste wood and paper, the projects must be built within the next nine to 30 months.

Zond's nearly 10 MW for IES -- again to consist of units from the variable speed constant frequency 750 Series -- will be built next year "very close" to its 112.5 MW plant for MidAmerican, in the northwest of the state, says Gates. The site is also near Buffalo Ridge in Minnesota, where that state's burgeoning wind development is centred and where Zond is to build 100 MW for Northern States Power (NSP) of Minneapolis under an earlier contract. The start date for this project has not been specified, but Karas told the New York Times that Zond would break ground on a "107 MW project" in Minnesota next month, suggesting that all three of its Midwest projects would be built at about the same time.

NAE's project -- to consist of 13 Micon 750 kW turbines manufactured largely at the Danish company's Minnesota facility -- will be adjacent to its existing five Windmatic turbines in Sibley, also in windy northwest Iowa. NAE's Greg Jaunich confirms his company will receive an average price of $0.045 cents/kWh over the life of the contract. The price will be "somewhat higher" in the earlier years although not as high as the $0.0602/kWh initially required under the state's AEP law, he says. NAE's project will be financed by a regional investment banking company, Mesirow Finance Inc of Chicago, says Jaunich. He adds the company has also agreed to finance other larger projects built by NAE. A first Micon 600 was installed by NAE in Sibley about a year ago and a second is due on line in May.

Another 50 MW

Adding to the likely capacity, IES announced also on March 10 that it anticipates signing a "third wind contract in the next several weeks." Since IES must buy 36 (average) MW of alternative power in total under Iowa's AEP law, the contract is expected to be for some 50 MW of installed wind capacity. IES is negotiating with Zond, confirms the company's Bob Gates. "But my understanding is, they're talking to at least two companies," he adds.

Furthermore, Interstate Power, another of the state's seven investor owned utilities, is also reportedly "negotiating with wind developers for its remaining renewable energy capacity," says the Iowa Sustainable Energy for Economic Development (SEED) coalition. And several municipal utilities, which are exempt from the AEP law, are right now negotiating to jointly finance three "large scale wind farms," adds the coalition.

The announcements come on the heels of much controversy over the AEP law. Although the legislation was passed as long ago as 1983, it has been resisted as unrealistic and costly, especially by MidAmerican.

Guardedly optimistic

"Apparently, MidAmerican realised they were not going to further delay the purchase of renewable energy," says Nancy Lange of SEED, commenting on the March announcement. "They had no choice but to comply with the law." Heather Rhoads of the Iowa Renewable Energy Association adds, "Finally, Iowa will begin to reap the economic and environmental benefits of renewable, home grown power. We are cautiously optimistic that affordable, green electricity will soon be part of the energy mix Iowans use on a daily basis."

Sayler of the Iowa wind association was guardedly optimistic about the likelihood of the projects being built. "I'm not aware of any pending legal or regulatory issues that would impede the projects," he says. "But we didn't see any problems after litigating for several years in 1988." He notes that MidAmerican still has a petition pending in the courts asking for judicial review of certain issues relating to AEP projects, which it presumably could revive, he says. But he also notes the utility's announcement seemed strongly worded enough to imply it will really proceed with wind.

Sayler, however, says he is disappointed that the utilities have so far chosen to go largely with one big company, rather than awarding smaller contracts to a number of bidders. And he questions: "Where's Zond's equipment?" Zond's 750 kW machine, the wind turbine bid in the MidAmerican and IES contracts, is still a prototype or in design. The 750 kW Z-46, the turbine scheduled for supply to NSP, is also still a prototype. It is unclear if even the rotor diameter is the same on the two machines.

The Iowa Utility Board last August had ordered both MidAmerican and IES to sign the mandated renewable energy contracts by February 9 of this year, a deadline that was then extended to March 11. Indeed, state senators last year even began calling for a doubling of the capacity required. But instead, MidAmerican filed a petition at the Federal Energy Regulatory Commission (FERC) to block the law's implementation. On January 29, FERC upheld the state's right to require a minimum amount of renewables, but said utilities could not be required to pay more than the avoided cost of buying electricity elsewhere.

Since MidAmerican already buys 10 aMW of renewable electricity from a landfill gas plant, the contract with Zond will allow it to meet the law's requirement that it buy 55 aMW of alternative energy from within the state, says McCarroll. Zond will submit the contract to FERC and MidAmerican will submit it to the Iowa Utilities Board for approval.

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