The future of Vineyard Power (VP), a community-owned energy cooperative, may hinge on the continuation of Federal tax credit incentives for renewable wind-energy projects and the ability to compete with larger developers for wind-farm sites in Federal waters.
About 35 people, including staff, board of directors, and general members, attended a special meeting of the organization at the Katharine Cornell Theatre on Thursday, February 10.
VP was first developed by the Vineyard Energy Project to help the island achieve the energy goals of the Martha’s Vineyard Island Plan. It was incorporated in 2009 and now has 1,027 members. Membership shares started at $50 and increase quarterly until 2015, at which time a membership will cost $975. The co-op’s August 2010 business plan calls for constructing 16 ocean-based wind turbines in an offshore location agreeable to Vineyarders
VP treasurer Ron Dagostino provided an update on the organization’s finances and also its financial challenges.
He said he was “flabbergasted” when Cape Light Compact (CLC) recently announced its lowest electricity prices since 2005, at 7.71 cents per kilowatt hour for residential customers through July. CLC, a public regional energy services organization, is authorized by the 21 towns of Barnstable and Dukes County to choose the electric supplier for the residents and business of Martha’s Vineyard and Cape Cod.
“That’s really bad for us,” Mr. Dagostino said. “For people who are trying to put up offshore wind, it’s really difficult to create a project that is sustainable and financially viable in that environment.”
A critical factor for any electricity supplier is the uncertainty of being able to get a stable electricity price over a long period of time, he added. VP’s financial model assumes that when its offshore wind-farm project comes online, members will pay a rate for electricity that will stay the same for 20 years, Mr. Dagostino said.At the beginning of the project, however, he cautioned that VP members may have to pay more than CLC’s prevailing rates in order to pay investors back at a reasonable rate of return.
VP’s proposed offshore wind-farm project will require about $190 million in capital costs, Mr. Dagostino said. The plan is to fund half the project through a low-interest U.S. Department of Agriculture (USDA) Rural Development grant, and the other half by tax equity investors who put up $95 million in return for tax credits and cash flow.
If VP pre-sells renewable energy credits, Mr. Dagostino said the company would not have to raise all $95 million. On the other hand, he added, “We don’t want to pre-sell too much because that depresses the return to investors. Our financial model should guide that decision.” The standard rate of return for tax equity investors in the wind energy industry is about 10 percent after tax, Mr. Dagostino said.
For the last four to five months, he said he worked to verify and fine-tune VP’s financial model, created by board chairman Paul Pimentel. Since information put into the model was not very flexible, Mr. Dagostino said he created a more detailed version and sent it out for peer review. He also asked another wind-energy developer to comment about tax incentives for renewable wind-energy projects to make sure VP is on the right track.
“One of the things that the financial model has told us is that certain Federal tax incentives, if those were the only tax incentives that were available to us, we would have to seriously consider whether this project is financially viable,” Mr. Dagostino said.
The American Recovery and Reinvestment Act of 2009 granted an investment tax credit to large-scale wind-energy projects that would benefit VP’s future offshore wind-farm plans. Although the tax credit recently was renewed for another year for projects that are under construction by the summer of 2011, that would be too early for VP’s plans.
“There are a lot of variables to take into account and to keep an eye on what’s going on and see if the financial model is flexible enough to say okay, what does that do to us; is that a knockout punch or is there something else that we can do?” Mr. Dagostino said.
Testing the watersIn the meantime, VP president Richard Andre said over the next few days, members would receive an email asking them to authorize the board to apply for lease blocks in two areas of Federal waters near Martha’s Vineyard proposed for commercial leasing for wind-energy projects.
One is in the Massachusetts Request for Interest (RFI) area about 12 nautical miles south of Martha’s Vineyard and Nantucket, and the other to the west in an area of mutual interest (AMI) between Rhode Island and Massachusetts.
Mr. Andre said VP and others have asked that they be given preference as community-owned projects in the site-selection process, since they do not have the deep pockets that large-scale wind-energy developers do.
Mr. Andre said he has asked Island members of the Massachusetts Task Force involved in selecting the areas and elected representatives to submit comments in favor of VP regarding the RFI before the February 28 deadline. He asked VP members to do the same.
Tyler Studds, director of collaborative and spatial planning, presented a map of the RFI and AMI that identifies lease blocks VP members and the Island community would consider suitable to bid on. The map incorporates the results of two surveys he conducted last April and this month. Respondents listed wildlife, cost of electricity, visual impact, and fishing as most important in regard to the impact of offshore wind farms.
Solar initiativeIn other news, VP has created a solar initiative, using the same financial model created for its wind-energy project, Mr. Dagostino said. It will be further developed in March.
Mr. Andre said the solar initiative has always been part of VP’s business plan, but because of a staff shortage, the organization had focused on wind-energy development. “Although we’re technology-agnostic, it’s impossible to reach industrial scale electrical production — renewable electrical production — from anything else but large wind,” he said. “So solar is going to play as a nice mix, but it’s just going to be that.”
Recent changes in state incentives make solar energy investments extremely attractive, Mr. Andre said. He suggested that modest income from the solar initiative could be used to cover ongoing expenses.
VP’s objective would be to create one mega-watt of solar P-V energy production over the next two years, through a combination of a large-scale project, possibly on 10 acres, and small residential projects.
Advertised as an information session on selecting VP’s wind-farm location, last week’s meeting was open to the public for the first hour and then closed and reconvened in executive session. Board member Bill Lake said the purpose was “to discuss some specific projects that may involve either competition with third parties or negotiations with third parties.”