Distributed Generation

Overall Project Objectives

May 20, 1998

Primary

• Develop information that serves as a common foundation of knowledge for the NWCC and others to understand and discuss issues associated with furthering the adoption of distributed wind power;
• Develop a description of the benefits, costs, and technical requirements associated with developing wind projects in a distributed model;
• Describe past and current European utility and government policy drivers, and market, industrial, and social characteristics that encouraged and are encouraging European distributed wind models and contrast these to the current U.S. market and policy climate;
• Describe where distributed wind is constrained or encouraged by market, institutional, or regulatory factors;

Secondary

• Identify attractive generic combinations of economic, technical, and social characteristics for distributed wind applications in the U.S.;
• Develop information required to identify specific opportunities for distributed wind systems on a preliminary feasibility level; and
• Identify technical options that can enhance distributed value of wind projects.

Big Picture Evaluations (new since previous meeting)

• Technical Potential - How much can be integrated into the grid?
• Economic Threshold - What is the requirement for substantial market penetration?

Major Changes in Statement of Work

• Combined data collection effort into a single task
• Eliminated duel "A" and "B" tracks for tasks and streamlined categories

• Task 2
  • Added emphasis on:
    - Key Drivers; and
    - Best Practices for effective distributed project implementation
  • Added analysis of interconnection requirements relative to applicable standards

• Task 4
  • Clarified approach to describing opportunities for enhancing distributed utility benefits: more summary and overview, no detailed analysis.

Primary Roles of Team Members
 

Status of Data Collection

• U.S and European literature review - 95% completed
• U.S. interviews and project data collection - underway (25%)
• European interviews and data collection - 95% completed

European Contacts
 

Costs - Some Key Findings So Far

• Projects costs are not very sensitive to number of turbines in 1-10 range
  - Discounts tend to be offset by higher project development,
    transaction and design costs
• Competition vs subsidies: price margins of equipment are thought to be low
  - Negotiation range appears to be up to 10% in Germany, much lower
     in Denmark
  - However, excess costs thought to be potentially reflected in land
    costs
• Interconnection costs:
  - Germany: Utility levies substantial charge to increase grid capability
    (200-400 DM/kW, or $120-$235/kW)
  - Denmark: Costs spread among all utility ratepayers.
• Perhaps some insights into thresholds or excess margins
  - Anecdotes, changes in land costs due to recent policy/planning
    changes
  - Possible (expected) future reductions in subsidies

Costs - Some Preliminary Elements For Report
(see also Tom Wind Slide)

(Note: Statement of Work still applies)

• Provide a menu of economic data
  - Cost by turbine size
  - O&M cost by size and average age of turbine in 1996
  - Typical project cost breakdowns by amount and percent
  - Size of subsidies and electricity rates
  - Typical costs (and range) to interconnect to the grid and strengthen the grid
  - Typical costs (and range) and payment terms for land
• Threshold COE for substantial market penetration - Preliminary Concept: Combine following data ranges to calculate scenarios for threshold:
  - Project costs, including interconnection
  - Resource levels
  - Distributed benefits
  - Competitive price targets.

Infrastructure

• Major differences between U.S. and European manufacturers for O&M
  - European manufacturers have existing tradition of dispersed field
    maintenance and apprenticeships that train skilled workers.
  - O&M capability determines pattern of market growth - need to be
    close to a central facility, especially in early stages of market, to
    develop user confidence and keep costs low.
  - Current Saying: "Manufacturers can now make replacements faster
     than journalists can take a picture of the failure"
  - Therefore, proper approach to O&M may be a key issue in
     successful development of U.S. market.
• Owners and Manufacturers organizations were ready to form as soon as policy began to be created
• Project size - mixed responses - one manufacturer representative did not care whether projects are large or small, another source suggested that larger projects are preferable
• However, all agree that predictable, steady production (100 units/year minimum) is a desired goal.
• Central versus distributed may be of secondary concern. Distributed market demand may help smooth out production costs.

Financial - Key Types of Data Collected

• Origins of lending community acceptance
• Types of lending institutions
• Terms, rates, and collateral
• Lower Legal requirements - more voluntary and organizational checks and balances
• Effect of Restructuring financial sector in Denmark
• Subsidies
• Tax issues, incentives and strategies

Policy - Some Key Findings

• Who gets benefits and who bears costs - impacts on near-term and long-term public acceptance, and therefore, market penetration
   - Utilities have had difficulty in sighting windfarms
   - Acceptance of offshore project improved dramatically when private
      ownership was added.
   - Perception is favorable when public is involved financially, often not
      favorable when no financial involvement
• Form of ownership/financial participation is the key.
• Lower U.S. population density may simplify problem of visual and noise "costs" compared to Germany and Denmark.
• Grass roots lead the lobbying, but major events (oil crisis, Chernyobl) catalyzed national policy changes.
• Currently, some support wind in DK for environmental reasons and some because of jobs and balance of trade.

Policy - Preliminary Elements for Report

• Lessons learned: Comparison of U.K., Danish, and German policies
   - Policy aim was private ownership, not explicitly "distributed"
     applications
   - Distribution of costs and benefits is the key - both need to be
      treated at the generation site
   - Subsidy levels not based on calculation of threshold requirements
• Description of policies and resulting effect in market place - changes in policy have yielded insights.
• Discussion of policy combinations

Local Identity and Social Impacts - Some Key Findings

• Cooperative Tradition
  - Project establishment - sharing of information and other assistance
    (organizations)
  - Wind Turbine Owner's Association provides leverage to owners and
    incentive to manufacturers
  - Public reporting of performance increased user confidence and
    manufacturer
  - Planning - National/regional planning is needed, but "Planning also
    occurs when farmers talk to each other"
• Cooperatives will be a key for the Mid-West - infrastructure and tradition are present
• Local financial benefits are more important than pride of ownership or self generation.
• Public support has increased in polls
• Many in DK say visual impact is too much - new planning is aimed at reducing impact.
• Large versus small turbines impacts many things: economics, visual, fair sharing of benefits & costs, risk, financing, interconnection, etc.
• "There is always a story" behind every project.

Local Economic Impacts

• Some key findings from Europe:
  - Local governments like the additional revenues. ("Wind energy is
     like cheese or butter.")
  - Farmers able to diversify, creating more stable industry and local
    economy.
  - Since large turbines are big percentage of a single farm cashflow,
    encouraging cooperatives is favored by the government because it
    decreases the risk of farm failures.
• Focus of report chapter will still be a literature review and interviews for the U.S.