November 7, 2013

Westar wind farm first in wave to beat tax credit deadline

Westar Energy announced Wednesday that it has signed a contract with Apex Clean Energy to buy 200 megawatts of electricity from a wind farm Apex will build in Oklahoma south of Arkansas City.

Westar Energy announced Wednesday that it has signed a contract with Apex Clean Energy to buy 200 megawatts of electricity from a wind farm Apex will build in Oklahoma south of Arkansas City.

It’s one of the first of a big wave of expected wind farms in Kansas produced by the renewal this year of a federal tax credit. But just how much of a gain will become clear only next year.

That’s different from 2012, when the tax rules required that wind farms be completed by Dec. 31 to qualify for the break. There was an immense flurry of activity as developers installed 1,441 megawatts of capacity, more than doubling the state’s wind-power capacity to 2,713 megawatts.

But federal tax rules written into the bitterly fought “fiscal cliff” deal developed in Congress late last year effectively give utilities and wind-farm developers until the end of 2015 to complete projects, as long as they start this year.

That’s why construction is expected to begin on a large number of projects across the country in the fourth quarter, according to the American Wind Energy Association. Utilities are asking developers across the nation to build more than 4,175 megawatts of new wind energy capacity.

In Kansas, only one major wind farm, Buffalo Dunes with 250 megawatts in Finney, Grant and Haskell counties, will be completed this year. Otherwise, developers don’t have to start pushing dirt for months, if not a year or more, said one developer. The contracts to build a wind farm will only have to be signed by the middle of next year.

Until then: negotiations, phone calls, e-mails, meetings and rumors.

“I know that Kansas projects are being pushed hard, but I just don’t know what will end up crossing the finish line,” said Kimberly Svaty, a spokeswoman for the American Wind Energy Association in Kansas.

Production Tax Credit

In 2012, it appeared that Congress would let the 2.3 cents per kilowatt Production Tax Credit subsidy for wind power lapse at the end of the year.

That led utilities and developers into an epic rush to get projects done by the end of December. It also meant that by the fall, planning for wind projects was ramping down in anticipation of a halt in demand.

When the credit was renewed for 2013 by Congress, companies didn’t race to restart the whole wind-farm development process. The legislation was written to allow developers to start construction in 2013, but didn’t require they be finished until Dec. 31, 2015. The Internal Revenue Service clarified exactly what that meant: Construction work must commence in 2013, or a developer must have spent 5 percent of the cost of the project.

What that means in real terms, said Matt Riley, CEO of Infinity Wind Power of Santa Barbara, Calif., is that by Dec. 31 of this year, a developer can place an order and write the check to a turbine manufacturer for, say, 10 percent of the turbines he will eventually need – and everything else can be done later. Even where the turbines will be installed doesn’t need to be set until next year.

There are more than a dozen wind-farm proposals for Kansas floating around, just waiting for a utility to sign a contract, said Svaty.

Utilities still have time to solicit developers, and developers still have time figure out which wind-farm plan is the right one.

Riley said he expects manufacturers to deliver in the spring the turbines ordered this month and next. The power purchase agreements will be signed in the summer and fall of 2014, which will determine where and how big the wind farms will be. Only in the winter of 2014-2015 will the bulk of construction begin. The wind farms must be complete by the end of 2015, with a few exceptions, he said.

That allows developers to hunt around for the best deal financially, he said. Kansas has a tax exemption for wind farms, but other nearby states also offer incentives.

“That keeps the pressure on Kansas to stay competitive with Oklahoma and Nebraska because these projects can be moved,” Riley said.

Westar project

As the efficiency of wind turbines has improved, wind energy has become more attractive to utilities.

In August, Westar Energy said it was looking for 80 megawatts of capacity. On Wednesday it pulled the trigger for 200 megawatts in the Kay Wind project, set for completion in late 2015.

Don Ford, director of Renewable Business Solutions for Westar, said the utility had received bids from wind-farm developers for as low as $25 per megawatt hour. The cost across all of Westar’s power generation is $23 per megawatt hour, he said. Those prices include capital costs.

“It’s a little bit higher, but it’s getting close,” Ford said of wind power.

He said turbines are becoming more efficient. In central and western Kansas turbines that used to produce at 40 percent of their capacity can now produce 47 percent to 55 percent.

Westar cited the low cost of wind energy for its investment in the Kay Wind project. Part of the cost is how close the farm is to existing power lines. The Kay Wind project will sit on about 18,000 acres near one of Westar Energy’s recently constructed high-voltage lines.

Westar currently has about 700 megawatts of renewable energy in its generation portfolio.

In a statement, Mark Ruelle, Westar’s CEO, said the project will benefit the Kansas economy because construction and operations crews might stop in nearby Arkansas City, although the lease payments will go to Oklahoma landowners.

Kansas City Power & Light, the state’s other big utility, said that it is seeking at least 50 megawatts of wind power. But most of the wind farms now being considered in Kansas would supply power to utilities in states to the east. Buffalo Dunes, for example, is contracting to supply power to Alabama Power Co.

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