In mid-March, NPPD announced that it reached a 20-year power purchase agreement with Midwest Wind Energy facility that will pave the way for construction of Nebraska’s largest wind farm near Bloomfield. (See page 12 for more details)

Dave Rich, NPPD’s renewable energy development manager, recently sat down with Energy Insight and discussed some of the most frequently asked questions regarding this project.

How does renewable energy, particularly wind-powered generation, fit into NPPD’s corporate strategy?
NPPD’s Board of Directors recently revised the District’s Strategic Plan to state: “NPPD will evaluate all forms of renewable resources feasible in Nebraska and incorporate them in the total mix of NPPD-owned generation and contract purchases with a goal of achieving 10 percent of our energy supply for NPPD’s native load from renewable resources by 2020.” Wind power, as a renewable energy resource, would continue to be part of meeting that goal.

Why did NPPD seek proposals for additional wind-energy development in July 2007?
The addition of wind-powered generation will further diversify NPPD’s energy resource mix and provide a hedge against rising fuel costs at our other generating facilities and against higher energy market prices. By going this route, NPPD gains additional renewable energy in our portfolio mix that compares favorably with the cost of NPPD owning and operating such a project.

How many proposals were received, and which ones did NPPD agree with which to negotiate?
Seven developers submitted a total of 10 proposals. Of those, NPPD has been negotiating with three developers for up to 150 megawatts. In early March we finalized the first of these proposals securing an agreement with Midwest Wind Energy for its Elkhorn Ridge Wind Facility near Bloomfield. This project will generate 80 MWs. NPPD plans to use 40 MWs of the output and sell the remaining 40 MWs to other Nebraska utilities.

What is a power purchase agreement and how is that different from NPPD’s other existing agreements for power?
With a power purchase agreement, NPPD receives the output from a facility but the facility is neither owned nor operated by NPPD. Instead, NPPD only pays for the energy received and does not have any debt to finance the construction of the facility or take on any operating risks associated with ownership. In the case of the wind PPA’s, NPPD pays only for energy produced and delivered and also receives the renewable energy credits associated with the wind farm.

Who are the other Nebraska entities that will purchase the output?
We are in discussions with Omaha Public Power District, Lincoln Electric System, Municipal Energy Agency of Nebraska, and the city of Grand Island regarding their combined purchase of 40 megawatts from the Midwest Wind Energy facility. These utilities are also interested in purchasing half of the planned output from the second developer, with whom we are currently negotiating.

When will the agreement with the Elkhorn Ridge Wind Facility take effect?
The contract was effective as of the signing date and will be for 20 years from commercial operation, with the option for NPPD to purchase the facility at the end of 10 years and 20 years. Obviously, if NPPD purchases the facility at the end of 10 years, the contract would not run for the second 10-year term.

What is the cost impact to NPPD’s customers by adding this additional generation resource?
The short-term rate impact of the first project is an increase of less than ½ of 1 percent for NPPD’s share. The long-term rate impact will depend on future climate change legislation, fuel escalation and the market price of energy.

Why does NPPD support partnering with private entities in the development of new wind-powered generation in Nebraska and why not build and operate our own wind farm? What are these various credits that are available for wind-powered generation?
There is a cost savings by purchasing from private developers who can take advantage of the Federal Production Tax Credit (PTC) (two cents per kilowatt-hour escalating over a 10-year period) and provide wind-powered generation at less cost than NPPD can build it. Private developers who take advantage of the tax credits can reduce the price of the project by 30-40 percent, allowing NPPD to negotiate a lower price with a power purchase agreement than a self-build option.

What are the risks that NPPD faces by using private developers if they fall short of terms as outlined in the contract agreement?
The major risk falls to the private developer for construction and operation. If the facility does not generate the projected kilowatt-hours, the developer has the risk. If NPPD fails to meet the deadlines for a temporary or permanent substation interconnection which results in the developer failing to meet a commercial operation date before the PTC expires on Dec. 31, 2008, and the PTC is not extended, NPPD would pay a penalty. Or, as an alternative to this penalty, NPPD has the option to purchase the facility.

What types of turbines is the entity planning to build? Are they similar to the ones installed at Ainsworth?
Utility-sized turbines are being proposed, which will likely be in the 2.5 to 3 megawatt range (Elkhorn Ridge will be 3 MW Vestas turbines), compared to the 1.65 MW Vestas turbines currently operating at Ainsworth.

Why doesn’t NPPD expand the Ainsworth facility?
NPPD will continue to evaluate the expansion of the Ainsworth facility.