Turbine questions await answers
Well before Jamestown residents vote on a referendum to fund a Taylor Point wind turbine, the town plans to present them with an updated picture of the potential impacts on the town and its balance sheet.
The referendum will be posed as a ballot question on Nov. 5. It will ask the voters if the town should, or should not, issue up to $6.5 million in bonds to finance the turbine.
The most obvious impact of the turbine will be visual, which means the town will have to update the previous photo simulations of a turbine at Taylor Point. That’s because the earlier simulations depicted a smaller windmill than the one the town would now build.
Similarly, revenue projections for the more powerful turbine also have to be updated, and this will be a particularly complicated job because of the many different financing scenarios.
The roughly $6 million cost of the turbine has already been trimmed by $750,000, thanks to an American Recovery and Reinvestment Act grant. Jamestown has also requested a $500,000 grant from the R.I. Renewable Energy Fund, but the state has yet to announce its decision on that request.
The simplest financing scenario for the bulk of the purchase and construction costs would be a 20-year municipal bond. Town Administrator Bruce Keiser told the Press that, given Jamestown’s Double-A credit rating, the coupon rate for the bond could be as low as 3.5%.
At this point, it’s impossible to say how much debt the town would actually incur because, among many other reasons, a turbine has not been selected. The town is proposing to build a 1.5- to 1.75-megawatt turbine, but proposed changes to capacity limits in the state’s netmetering law could make it advantageous for Jamestown to build a larger turbine.
Under that law, municipalities can sell the surplus electricity they produce from renewable electricity sources after generating the amount of electricity required to power town-owned facilities.
Currently, the law limits municipal net-metering to renewable energy sources with a total capacity of 3.5 megawatts, but there are reportedly proposals to raise or eliminate the cap – in which case it might be advantageous for Jamestown to build a larger turbine because the town would produce more saleable electricity.
However, it remains to be seen if any changes to the cap will be enacted in time to affect turbine selection before the ballot.
But additional questions must be answered before Nov. 5, as well.
For example, the town plans to determine if it would be advantageous to partner with a business (such as a renewable energy developer or a financing institution) that would finance and construct the turbine in return for some of the revenue.
Keiser said that a private developer would have access to enormous renewable energy tax credits that would allow a 30% write-off of project costs, thereby increasing the revenue flowing to the town – although the developer would obviously keep some percentage of the additional revenue that results from the write-off.
The developer, Keiser added, would also have the ability to depreciate the turbine by 20% each year, providing an additional $700,000 in savings.
“So, a partnership is certainly worth looking at,” he said, adding that full ownership of the turbine would probably revert to Jamestown once the developer exhausted all of the available tax benefits.
“The pivotal question,” Keiser continued, “is whether the financial options available to a developer are potentially more lucrative than the bonding options available to the town. We don’t know at this point. But there is a certain appeal to having a private developer assume the responsibility and the initial risk – and handle all the planning, installation and project management.”
Keiser said the town will solicit bids from consultancies to evaluate the partnership option – among other scenarios – while updating the financial analysis previously performed for the Jamestown Wind Energy Committee.
He acknowledged that there probably won’t be enough time to pursue an agreement with a private developer before Nov. 5, in which case – assuming that a partnership is clearly in the best interests of the town – the ballot question could conceivably be withdrawn. If that were to happen, Keiser said, the terms of a proposed partnership would probably be put before the voters at a special financial town meeting at some point down the road.
Still another financing option for the town would be a Clean Renewable Energy Bond underwritten by the Internal Revenue Service. A CREB would be interest-free – or very low-interest – and could cover the entire cost of the turbine project.
However, a CREB has to be paid off in 15 years, which would increase the town’s monthly debtservice payments to a level that begs a comparison with the monthly payments to service a traditional, low-interest 20-year bond.
“Because you’re paying back a little more interest and principal each month,” Keiser said, “a 3.5% rate over 20 years might not be that much greater proportionately. So, these marginal differences have to be costed out.”
The CREB program has expired for FY2010, and Congress has yet to re-authorize the program for FY2011.
Keiser is hopeful, however, that Congress will act before the Nov. 5 ballot.
“In fact,” he said, “we’re reaching out to our entire congressional delegation to express our interest in the CREB program, and to get additional guidance on what the [reauthorization] timeline may be.”
Keiser noted that yet another financing option emerged during a conference call with a First Southwest renewable energy expert in New York City.
First Southwest is the town’s financial advisor. Its renewable energy expert, Keiser said, “told us that there are also ‘Build America’ bonds issued by the federal government at a zero-percent interest rate. I don’t know if those bonds are issued by the Dept. of Energy or Treasury, but [the expert] will be looking into that program for us.”
In the meantime, the town will look into the possibility of selling electricity to a utility other than National Grid.
“We have to find out if the [netmetering] statute allows us to do that because it would give us the option of finding a better deal from some other utility,” Keiser said.
The answers to all of these questions – or as many of them as possible – will be presented by Keiser to the Town Council, or at a special council workshop, around the middle of September.
As part of the presentation, council members and town residents will be shown photo simulations of a 1.5- to 1.75-megawatt Taylor Point turbine from several vantage points around the island. Although the Wind Energy Committee provided such pictures in its Feasibility Study, the turbine depicted in those pictures was an 800-kilowatt unit, which is smaller than the unit that the town would build.
It’s safe to say that it will likely be easier to form an opinion on the appearance of the windmill than it will be to compare the options for financing it.