Fox Islands offer cooperative model for wind power project

By Steve Fuller | Mar 20, 2009

Blue Hill — While wind turbines have proven to be a contentious issue in Waldo County and in other parts of the state, at least a couple of Maine communities are embracing the towering structures with open arms.

In July of 2008, members of the Fox Islands Electric Cooperative — made up of people with homes on North Haven and Vinalhaven — voted 382-5 to support building a three-turbine project on Vinalhaven.

"That's very unusual among wind projects," said George Baker, a professor at Harvard Business School, summer resident of Frenchboro and CEO of Fox Islands Wind, LLC.

Baker spoke Saturday, March 14, about the Vinalhaven wind project at the Blue Hill town hall.

Interest in wind power on the Fox Islands, which dates back to at least 2001, was prompted by several factors, including the islands' reliance on an 11-mile sub-marine power cable and an extremely high electric rate.

That rate currently stands at 28 cents/kilowatt hour (kWh), more than double the national average.

By erecting three, 1.5-megawatt General Electric turbines — the same as those in Freedom — islanders hope to generate the same amount of power over the course of a year as they would use.

The islands will not be self-sufficient, however, due to what Baker termed a "seasonal mismatch."

In the winter, wind speeds are generally higher and the population is smaller, meaning the island will often generate more power than it needs. This excess electricity will be sold to companies on the mainland.

In the summer, when demand surges and wind speeds tend to diminish, power will need to be imported.

Of the power that will be generated by the turbines, Baker explained, about half will be used on the islands while the other half will be sold. "We get to not buy half the power we've been buying," he said. "That's a big advantage to this project. It's part of what makes it work."

Another part of what makes it work are RECs — renewable energy credits. New England states require power companies to certify that a certain percentage of the electricity they supply comes from renewable sources. If companies can't meet those requirements on their own, they can purchase RECs from companies such as Fox Islands Wind.

"We can sell the renewable part of this energy to electric retailers in Massachusetts and Connecticut," Baker said. "There's a huge premium on green energy right now in New England."

The turbines are projected to save islanders about $537,000 annually in terms of power they'll no longer need to buy from the mainland.

The value of the electricity sold is expected to be $410,000, while the value of the RECs is projected to be about $396,000.

When those figures are added up, and $200,000 is subtracted to account for operating costs, it means that islanders should see a net benefit of $1.1 million annually.

Getting the project off the ground, however, is no small undertaking, particularly with regard to costs.

Baker said the total price tag is around $14 million — each turbine costs $2.5 million — while the total assets of the island's electric cooperative stand at about $10 million.

So how is the project being paid for?

Enter what's called the "Minnesota Flip" model, which essentially involves a third party providing a significant amount of money in exchange for a large ownership share of the project and lucrative federal tax credits.

Here's how that model works on Vinalhaven: Fox Islands Electric Cooperative can't be owned by anyone else, so a new company was formed — Fox Islands Wind, LLC.

Fox Islands Wind found an unidentified company — Baker would only say it is a privately held, Maine company — willing to provide a large amount of money.

For the Vinalhaven project, that amount ended up being $5 million. The privately held company will retain a 95 percent ownership stake in Fox Islands Wind, with the electric cooperative holding the remaining 5 percent.

The incentive for the company fronting $5 million is that it will receive federal tax credits for the project.

"They give us $5 million, and we give them credits that mean they pay less federal income taxes," Baker explained. For anyone with taxable income, he said, a tax credit is just like cash. The company, he said, will see an internal return of about 8 percent on its investment by using the tax credits.

The electric cooperative would not have been able to take advantage of those credits because of federal regulations. The 95/5 percentage split will then continue for the duration of the tax credits.

When the tax credits expire, the ownership percentages will flip, and the cooperative will be able to buy out the privately held company's share.

Fox Islands Wind is raising about $450,000 for the project and additional money is coming from Rural Utility Service, a federal agency with the goal of helping rural America meet its electric needs.

Baker said Fox Islands Wind will be able to secure a 20-year loan of about $6.8 million from the Rural Utility Service with an interest rate of about 3.6 percent.

Electric rates on the Fox Islands, said Baker, should drop by at least 2.5 cents in the first 10 years. Rates may fall by as much as 20 percent over the next two decades, if all goes well.

Although that may not sound like much to some people, Baker said islanders are just as concerned about putting an end to the volatility in electric prices as they are with seeing the price drop.

"What's more significant is that we're totally stabilizing those rates," he said. Islanders, he said, have had to deal with a "very scary pattern" in electric rates in recent years.

Baker said an island community is the perfect place to have such a project, because the costs and benefits are co-located — basically, in exchange for having the turbines the community will see lower, more stable electric rates.

When people on the mainland are told a wind project may mean lower property tax rates, he said, it doesn't seem to have the same effect. "I think people on Vinalhaven are going to love the fact that they'll flip a switch in their home and look out and see the turbines are spinning," Baker said.

Baker offered the audience of more than 50 people in Blue Hill general principles for what a successful wind project requires.

"Overwhelming" community support is vital, he said, pegging the amount needed at 75 percent or higher. "You have to put out good, solid environmental and technical data right up front," Baker said. "The financial consequences and risks must be fully disclosed and discussed."

Baker touched on issues that have proven to be sticking points for other projects. With regard to birds, he used a statistic often cited by other wind project developers that while the average wind turbine kills two to four birds a year, the average domestic house cat kills five.

Baker also talked about how turbines impact a view. "I think they're beautiful," he said, "but I know that not everybody agrees with me on this."

Baker said construction on the project is scheduled to begin in June, and the turbines could be up by the end of August and generating power as early as October.

If not finished this fall, the project will be operational by the spring of 2010 at the latest.

For more information on the Fox Islands wind project, visit foxislands.net/windpower/.
Comments (6)
Posted by: Greg Kibitz | Mar 22, 2009 11:55

Terri,

Creative folks design and build their own rooftop systems and I am sure if one looks around there are some for sale. One new product that is quite nice are rooftop solar attic fans. Keeps the attic cooler in the summer saving on a/c or other fans and after you buy it it cost nothing from then on.

Back in the late 80's I used to drive by a place where the guy had built a very nice vertical windmill out of a 55 gallon drum (halved and slid apart to make the two vanes). The thing was always spinning and I am sure it all paid for itself quite quickly. Now we all need to have such things on top of all building where there is decnt wind and we all know it blows a whole H of a lot around here, that is for sure, and always the most right after noon the same time the grid seems to see it A/C peak. Just as every home needs to be weatherized, each should be a art of the electrical generation grid, be it solar panels or small windmills.

Just remember you can get a million dolors by taking it from one person or a dollare froma million persons and though many fight against the idea of distributed generation, when you consider 200 million homes all with solar and wind generation on them, it suddenly sounds quite viable.

But we have to build all that stuff so tax oil & gas we must and subsidize wind and solar too. Else nothing will ever change. And when we fianlly get enough electric cars on the road we wil also have a nice big distrubuted battery to help store the excess energy off-peak.



Posted by: Greg Kibitz | Mar 22, 2009 11:44

Jim,

There are millions in funding in the proposed bond issue for Offshore Windpower R&D. However, nowhere have I seen anything for onshore implementation of existing technology like wind and soalr farms. And the Big $1.5B CMP transmission infrastrusture plan is just that, transmission infrastructure and yet no new generation be it onshore or offshore renewable.

As I keep saying, we can implement locallized wind and solar farms all over the state with that same chunk of dollars and thus ween ourselves off the dirty power that for the most part this new CMP electrical infrastructure will intead lock up into because its goal is to tie us into the old grid better, not link us with then next generation of internal localized green generation.



Posted by: TERRI S MACKENZIE | Mar 20, 2009 17:54

Can anyone tell me why the marine industry isn't producing small roof top wind generators for home use, like those used on boats?

Or are they?



Posted by: Jim Mays | Mar 20, 2009 17:17

Greg,

To date, the State of Maine hasn't spent a penny on offshore wind.



Posted by: Greg Kibitz | Mar 20, 2009 09:59

Wind Farms Everywhere!
The wave of the future, for sure!

I just don't get why we are pouring millions and billions into offshore wind power R&D (see last weeks Free Press or look up the Angus King Plan) when we clearly have plenty of land to build existing technolgy on right now without doing any wasted R&D. To me it is like the hydrogen fuel cell car. Always in the R&D phase and never really ready for implementation even when we have a perfectly viable means to use plug in electrics and solar arrays to charge them (see David Pogue in the NYT).

And I don't get why so many are just ignoring the distrubted solar alternative to the huge electric infrastructure plan (or shal I say, same as it ever was, just bigger but surely not better). We have to move off of gas, coal, oil and nuclear powered sources not enhance their necessity. By investing in this infrastrusture we are doing more to perpetuate the failed fossil-fuel and nuclear pardigm rather than replace it.

If too much demand during peak times is the problem then we have to lessen demand, not increase supply. Feed the beast and it keeps eating more and more. Starve the beast and it will eventually learn and.or invent ways to do without. Anyone who does not get the greater wisdom of distibuted wind and solar doesn't get what the real problems are or what the real solutions will be over the long term. Only wind, solar, tidal and geothermal are truly renewable (yes, even wood is not so great - seems to be renewable but sustainable forestyr is a myth becasue preserving virgin forests is barelky achievable now with the little wood we now use, so going to a whole lot more isn;t going to be any more sustainable either).



Posted by: Jack McGloughlin | Mar 20, 2009 08:40

These things are not as ugly as they are made out to be.
The times I drove through Palm Springs, I was always in awe. The sight of so many of those windmills was just amazing. My first time I could barely keep my eyes on the road, I was mesmerized by thier enormity and stature.



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