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Sunday, October 16, 2016

Are Met towers Iberdrola’s Golden Goose?

The recent negotiated settlement between the Town of Clayton and Atlantic Wind/  Avangrid / Iberdrola exposed the energy developer’s real interest in their lawsuit with Clayton. For sure, Iberdrola has no interest in blocking or stopping Clayton’s effort to revise their plans and zoning laws. In fact, they agreed to another de facto moratorium, e.g., they gave Clayton another six months to plan and revise. Must be they feel any plan Clayton develops, no matter how well framed and founded, will not inhibit or stop any plans Iberdrola has for their Horse Creek project. They obviously don’t feel threatened by any plans or zoning laws that Clayton may put up as a defense to the development proposed by Iberdrola 

Clearly Iberdrola’s principal interest are met towers. The piece they wanted and got was for the town to move ahead with the consideration and approval of their met tower requests. Iberdrola must have nearly a decade of wind data in the can from their old project proposal, so why the intense interest in getting new information? What has changed other than the winds around Depauville and Clayton?

During past open houses by wind companies that proliferated our area a few years back, we were told wind data was needed to verify the wind farm location was adequate for development and to also assist in the localized placement of individual turbines. However, the wind companies failed to inform us that there was another purpose, just as important as the others, and that was to secure financial backing. The financial part of wind farm development has been subject to growth, development and innovation, much the same as turbine development. The new innovations, called proxy revenue swaps, are long-term hedges, e.g., insurance, to protect investors against annual lapses in wind production and ensure a constant annual revenue stream.

These swaps will attract investors to Iberdrola’s Horse Creek project because they ensure a constant stream of revenue in a world of variable winds and intermittent renewable energy generation. Swaps are great for Iberdrola and investors, but they have a requirement that brings us back to Clayton and the recent court settlement related to met towers.

In a recent article in Power Magazine 1 it describes what is needed for the new innovations in wind farm development and financing:

“Obviously, weather-related hedging depends heavily on predicting the weather, and predicting the future requires understanding of past trends. But many of the factors affecting wind and solar plant performance—such as solar irradiance and highly localized wind speeds—haven’t been measured to the degree necessary to make accurate predictions of output, until relatively recently, which means the data quality hasn’t been good enough for this sort of risk assessment. And it’s also taken advances in computing power and data mining to make use of the information. Put another way, the number crunching simply hasn’t been up to the task until the past couple of years.

Now we begin to see why Iberdrola was in such a rush to get approval for met towers in Horse Creek, e.g., the new financial models require much more refined wind data and lots of it. Without this information today at Clayton, Orleans, Lyme and Brownville Iberdrola is dead in water financially.

It also seems likely that a single year of data at Horse Creek won’t be enough to satisfy those investors who would negotiate Horse Creek’s proxy revenue swaps. The Power Magazine article goes on to state, “ Worse, there is a growing consensus among experts in the field that reliance on only a few years of data, or even a single year, in forecasting renewable plant output places project owners at considerable risk of over- or under-performance in the long term.  Maybe this helps explains Iberdrola’s rush to get met tower approvals and to begin collecting wind data. It also forewarns town officials that these met tower requests, once approved, will be up in their town for a very, very long period of time. In fact, the new innovations also include forecasting wind data locally in short time frames that can assist operators in matching output to market pricing and also to fine scale grid balancing and operation. Met towers today are far more important to development and operation of a wind farm than just 10 years ago, and this explains best why Iberdrola is so interested in getting approvals for the met tower requests that they would even grant Clayton another six-month moratorium.  Notice, too, there was no moratorium on met tower installation and operation in the agreement.

Finally, understanding a little more of why a developer is so determined to get met towers approved, up and running should help planning boards guide how they grant these approvals, if in fact they do approve. First, permits should be for no more than a year at a time and fees should be substantial enough (e.g., $3,000 to 5,000/yr) to cover not only administration costs of the planning board, but to cover potential legal costs for the future. Boards should not be tempted to grant a permit for a tower that may be inappropriate in size and location, but one the developer states will be in place only temporarily. Think long-term, not temporarily.

Finally, don’t litter the landscape with met towers, regardless of the pleas by Iberdrola. I would think Clayton would have a good argument approving only a single met tower, since Iberdrola will undoubtedly be making similar requests to three other towns included in their project footprint.
In conclusion, met towers are an increasingly important component of wind farm development and operation. Given the importance to developers like Iberdrola, the town should expect them to push to more than the need, taller than they need, and longer than they need. Planning boards need to consider if such requests are in the best interest of their communities. 

Guest reader contribution.

Articles and links related to Proxy Revenue Swap Schemes:
Allanz Risk Transfer
Power Magazine
Additional links

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