High cost brings high yield

By Sarah Doty

Post-Bulletin, Rochester MN

The price tag for wind turbines is anything but cheap. Erin Edholm, director of communications for National Wind, LLC., a wind developer in this region, said that a 1-megawatt turbine starts between $2 million and $2.5 million. For turbines that are 2, 3 or even 4 megawatts, the cost is an additional $2 million per megawatt.

In southeastern Minnesota, most of the commercial turbines are between 1 and 1.65 megawatts. In 2008 alone, Minnesota installed 180 megawatts, totaling between $360 million and $450 million for just the turbines.

But the turbine is just one of the many expenses accrued in its 20- to 30-year life.

Before the turbine is erected, years of time and hundreds of thousands and even millions of dollars are spent on wind studies, site permits and obtaining a place on the Midwest Independent System Operator (MISO) grid.

Depending on the size of the wind project, getting on the MISO grid, which includes interconnection studies and upgrades, can cost hundreds of thousands of dollars.

Landowner fees are another large part of the cost. Before putting up a tower, developers visit dozens of farmers or landowners and offer to buy or lease their wind rights. This gives the developers the option to build a turbine on that land. If the landowner agrees, a set amount of money per acre each year is paid to the landowner. If the developer decides to put up a turbine on that land, an easement agreement is executed. This allows the developer to build, and guarantees the landowner will receive a set amount, usually between $5,000 and $9,000 per turbine, per year.

That can add up for developers, with thousands of acres needed for a commercial wind farm.

Peter Tangren, a landowner in eastern Mower County who has 10 turbines on his land, also made sure in his contract that developers included contract language to ensure that he wasn’t left with wind turbines once they weren’t needed anymore.

"The major thing we wanted — and we got it in every contract — was that at the end of the day, when 30 years is up, or when the project is no longer economically viable, we wanted to know that they had the financial capability to take the thing down," he said.

Tack on the lawyer fees for negotiating the contracts, annual taxes, maintenance and repair costs, and the total cost of a large wind farm can run close to $1 billion.

Money generated

The cost of building a wind farm can be astonishing, but there are two reasons that the projects are still feasible. First is the money from federal production tax credits and second is the money generated by the energy produced.

The federal PTC is a set amount, currently 1.5 cents per kilowatt-hour generated, which is subtracted from taxes the developer would otherwise have to pay. The credit legislation was designed to allow enough of a cushion for most developers so they can pay for the next project with the money from a current project.

"Over 20 years you spend $4 million and are left with about $200,000 profit over the years," said Jeff Cook-Coyle, vice president of development for Nature Energies, roughly estimating the cost and revenue of a single 1-megawatt turbine. "That doesn’t include the production tax credit. That’s why production tax credits are important, because no one would spend $4 million to make $200,000 in 20 years."

Dan Juhl, who installed the first wind farm in Minnesota, agrees.

"Nothing in energy makes business sense without tax credits," he said.

The energy that is produced from the wind turbines is also a substantial amount, which allows the developers to pay the costs of the wind farm and also take in a little revenue.

According to Juhl, a 1-megawatt turbine generates between $175,000 and $200,000 per year just from electricity alone.

Where does the money go?

While the turbines generate a substantial revenue, Juhl is concerned that the money being generated by Minnesota’s wind is being taken away by international and national companies.

"We generate 4,000 to 5,000 megawatts from wind power in Minnesota," he said. "That’s almost $9 billion dollars that could stimulate our economy."

Instead, he says companies are "extracting tens of millions from our communities." He is working to change that with the development of Community-Based Energy Development projects.

But Cook-Coyle says that isn’t true. He says the Eyota-Viola project that he is currently working on — a 60-megawatt project in Olmsted County expected to be commercial in 2010 — will keep about $600,000 a year in Minnesota, "paid to Olmsted County residents and the taxes," he said. "So it’s not an insignificant amount of money at all."