Manufacturers, suppliers expect good year with surge in wind construction
Friday, June 28, 2013 7:00 AM
Making the case for more wind production
The extension by Congress of the federal renewable electricity production tax credit for wind projects was a key reason MidAmerican Energy Co. seized the opportunity to expand its already-significant wind portfolio.
Improved efficiency and revenue sharing agreements will continue to make wind projects beneficial for MidAmerican customers, said Josh Mandelbaum, a staff attorney with the Environmental Law & Policy Center, a Chicago-based clean energy and environment advocacy group.
“One thing that MidAmerican should be credited for: They have figured out how to build wind to benefit their customers,” said Mandelbaum, who works out of the organization’s Des Moines office. Early on in its wind development projects, MidAmerican introduced a revenue-sharing plan so that proceeds from sales of wind-generated wholesale electricity could be passed on to its customers. The strategy is part of the reason that MidAmerican has been able to forgo rate increases for the past 16 years, Mandelbaum said.
In its filing with the Iowa Utilities Board seeking approval for the wind expansion, MidAmerican proposed an arrangement in which it would assume a Facebook option on a wind farm site and then develop it as part of the Wind VIII project. In exchange, Facebook would get renewable energy credits equivalent to the value of the transferred site. In another filing with the Iowa Utilities Board, MidAmerican plans to approve a “green energy rate” for Facebook and for other companies that may want to take advantage of it, among them Google Inc.
In its rate making case with the Utilities Board, MidAmerican must convince the three-member board that its additional investment in wind is a reasonable risk for the company as well as for its customers. The utility company is requesting an 11.75 percent return on equity, which given its estimated cost of equity of 10.8 percent, gives it a profit margin of between 100 and 150 basis points.
By the numbers:
Estimated investment by MidAmerican Energy: $1.9 billion
Share of MidAmerican Energy’s electricity portfolio from wind currently: 30 percent
Share of electricity from wind at project completion: 39 percent
MidAmerican’s wind energy ownership by end of 2015: 3,335 megawatts
State’s current installed wind capacity: 5,133 megawatts
Sources: MidAmerican Energy Co., American Wind Energy Association
When T.J. Rolfing says he’s invested in wind energy, he means personally as well as professionally.
Rolfing, a renewable energy specialist at Holmes Murphy & Associates Inc.’s Sioux Falls, S.D., office, has worked with wind energy companies for the past nine years, after helping to launch the insurance brokerage’s niche in renewable energy risk management. Shortly after he was hired by Holmes Murphy as a general insurance producer, he and a group of colleagues became private investors in a 9-megawatt wind farm in Minnesota.
“After going through the process of negotiating agreements, we realized insurance was a part of that mix, and that no one in the insurance world really understood what building and owning a wind turbine was all about,” Rolfing said. The ownership group’s enthusiasm led the West Des Moines-based insurance brokerage to launch a renewable energy division, which also secures coverage for ethanol, geothermal and other types of alternative energy projects.
Holmes Murphy is among dozens of Iowa-based companies hoping to benefit from a new wave of wind energy development in the state. With a window of opportunity opened by Congress’ renewal of the federal renewable energy production tax credit through 2013, MidAmerican Energy Co. announced in May that it will build more than 780 additional wind turbines in Iowa within the next two years, The flurry of new development will add 1,050 megawatts to MidAmerican’s generating capacity by the end of 2015.
Social media company Facebook Inc. said MidAmerican’s sizable wind-energy portfolio was an important factor in its decision to build a data center in Altoona. Although details haven’t been hammered out, Facebook hopes to earn renewable energy tax credits through an arrangement in which MidAmerican would develop turbine sites owned by Facebook. Facebook’s goal is to get at least 25 percent of its power from renewable sources by 2015.
In addition to the expected influx of construction work and additional property tax revenues from MidAmerican’s $1.9 billion project, the expansion will be a significant boon for manufacturers and suppliers across the wind supply chain. By selling the additional power in the wholesale markets, MidAmerican also expects to be able to return millions of dollars to its Iowa customers in the form of lowered electricity rates over the next several years.
On the heels of the wind industry’s turbulent ride through the financial crisis, the recent news resonated like the hum of the massive turbine blades churning out electricity on a gusty day.
“We absolutely love these announcements,” said Rolfing, who anticipates a significant ripple effect of additional manufacturing and development activity, not just in Iowa but also elsewhere in the United State and globally. “It stimulates the turbine manufacturers to produce turbines, and if there’s a larger supply out there, it can make smaller projects pencil out,” he said.
Though smaller projects may have fewer towers, they use the same size turbines as the big boys do, Rolfing said. “Where those big projects are, you’ll find economic growth within these industries,” he said.
The U.S. wind energy industry recorded its best year ever in 2012, with 42 percent of all new U.S. electric generating capacity coming from wind, according to the American Wind Energy Association. More than 6,700 new wind turbines were erected last year, with the capacity to crank enough amps to power the equivalent of 3.5 million homes. Overall, the United States finished the year with a total of 45,100 wind turbines, which collectively can power 15.2 million homes.
In January, Congress passed a one-year extension of the federal renewable electricity production tax credit, which provides a 2.3-cent tax credit for each kilowatt hour generated by qualified energy companies. To help the companies get more turbines in place, the legislation removed “placed in service” deadlines and replaced them with deadlines that use the start of construction to determine eligibility.
Goian North America LLC, which in 2008 located its first U.S. plant in Ankeny to service elevator and lift equipment for wind tower operations and construction, is among the Central Iowa wind supply chain companies poised to benefit from MidAmerican’s expansion.
“It definitely increases our possibilities,” said Chris Gagnon, Goian North America’s project manager. From its Central Iowa warehouse, the company supplies parts for all of its customers and maintenance for customers throughout the Western Hemisphere, among them Acciona Energy and MidAmerican Energy.
Goian, which has previously bid on MidAmerican projects, tries to capitalize on the convenience of its Central Iowa location to land regional projects like these, Gagnon said. Currently, MidAmerican is testing three Goian prototypes for climb-assist systems for its towers, “so it looks very good for us to get business,” he said.
As MidAmerican ramps up its wind turbine expansion project, Gagnon hopes the utility chooses to invest in increasing the productivity for workers at its existing turbines. Because the majority of MidAmerican’s towers are equipped with ladders rather than lifts, Gagnon said he hopes to stay busy over the next five to six years providing upgrades to those operations.
Another Greater Des Moines manufacturer, EFCO Corp., hopes to see a good bump in business from additional construction of wind towers as well. The company’s admittedly unglamorous role in the construction process is to supply and build the forms used to shape the concrete footings for the steel towers. However, the push toward increasingly higher towers could mean a far larger role for EFCO in the future, said Martin Howes, the company’s senior vice president of sales and service.
“It really depends on the decisions made by designers in that area,” he said. “As these towers get taller, then it’s more likely these towers will be built out of concrete. We would hope to have some opportunities to participate. ... We’re certainly optimistic those opportunities (for concrete towers) could arise.”
Good for the industry
In neighboring South Dakota, Rolfing noted that the prospect of additional wind turbine construction prompted a stateside move by a Canadian manufacturer, Marmen Inc.
The company is locating its first U.S. tower production facility in the southeastern South Dakota city of Brandon, where it expects to begin production this summer. Marmen moved into a facility that had been built by a Wisconsin-based wind tower company that never used it. It hopes to employ 250 people when the plant is fully operational next year.
“It’s extremely expensive to transport and move (the towers),” Marmen’s president, Patrick Pellerin, said earlier this year when the project was announced. “So, if you want to be a big player in that area, you have to be very close.”
At Goian North America, Gagnon currently has a handful of projects underway or pending in the United States and Canada; the real boom is in South America, where nine wind projects and about 100 non-wind elevator projects are underway. The company also covers maintenance on 600 turbines in the Americas for Acciona.
“I really hope the third and fourth quarter turn out to be (as busy as) they look like,” he said, because it all may quiet down again if the production tax credit is not renewed for 2014. “With MidAmerican having projects through 2015, that’s good for the industry.”
The unpredictability of whether the federal production tax credit will be renewed from year-to-year has made it difficult for wind energy producers to plan projects, said Holmes Murphy’s Rolfing, whose firm diversified to other areas within the industry when activity slowed during the recession. “We shifted to the business-to-business contractors, operations contractors and the manufacturers,” he said.
“It’s been difficult for wind producers to budget long-term, not knowing what Congress is going to do,” Rolfing said.