New life for distributed wind
While distributed wind has not had much success in the United States, new technology from Alpha 311 could potentially revitalize this sector.
The Alpha 311 turbine is a small, vertical-axis wind turbine, about six feet tall. It was originally designed primarily for roadside use. It relies on the breeze created by passing cars to cause the turbine to spin and produce electricity. It spins like a merry-go-round around a pole.
The roadside application opens the door to wind power in areas that might not otherwise be hospitable to wind turbines due to a lack of wind or space for more traditional turbines. One such area is the northeastern United States, where solar has thrived but wind turbines on land are less common. Traffic along the interstate highways could drive small turbines embedded in light poles to produce electricity during the day. Wind tends to be more active at night, so the turbines could take advantage of the higher wind levels at night when there is less traffic.
While roadside installations are arguably the most innovative use for the turbines, they can be installed anywhere. They can also be mounted on top of poles to pick up real breezes. These turbines are a different design from the roadside units, but they still follow the same basic principles. They are a little over two feet tall. The O2 Arena in London announced a deal with Alpha 311 in March 2021 to install 10 such turbines around the arena.
Alpha 311 says that one turbine can generate as much power in a day as 215 square feet of solar panels. Each turbine costs around $26,000 to make, according to published reports. The company says the cost will fall once the turbines are able to be mass produced. Many components of the turbines are made with recycled plastic that is in turn recyclable.
The technology has not been certified yet in the United States by the American Clean Power Association (formerly the American Wind Energy Association) or the ICC-Small Wind Certification Council.
A number of other companies make competing models of vertical-axis turbines.
Distributed wind has failed to take off on a large scale in the United States. The US Department of Energy Pacific Northwest National Laboratory (PNNL) reported that only 18 megawatts of distributed wind came on line in the United States in 2019, the most recent year for which there is published data. Only 1.4 megawatts of the 18 megawatts were small wind turbines of 100 kilowatts or less in size.
Based on PNNL data, the levelized cost of energy for large turbines was approximately 7¢ a kilowatt hour in 2019, compared to 24¢ a kilowatt hour for small turbines using a conventional design. PNNL estimated that vertical-axis turbines had an LCOE of 11¢ a kilowatt hour in 2018.
The attractiveness of distributed wind depends on government policies. The technology is not yet cost effective to build without state and federal incentives.
Like distributed solar, it also relies on "net metering" policies, which differ from state to state, to help the economics. Net metering is a means of crediting customers for excess energy produced by a distributed solar or wind project. If the project produces more electricity than the customer uses, then the customer is permitted to sell that excess electricity to the local utility and receive a credit on its electricity bill. The customer meter essentially runs backwards. Utilities complain that this forces them to buy electricity at the retail rate for which they could pay less in the wholesale market.
While many states permit net metering, the programs often focus specifically on distributed solar rather than distributed wind. Solar costs have plummeted in the last decade, whereas the cost of small wind turbines has remained fairly stagnant. The lower cost of solar has encouraged states to focus even more on solar, which in turn results in incentive programs that reduce solar costs even further. Historically, distributed wind has not been able to compete with distributed solar from a cost perspective.
According to US Department of Energy data from 2018, the most recent year available, Texas, Iowa and Minnesota are the top three states for distributed wind. Distributed wind, in this case, includes large turbines located on an individual's or company's property for use by that individual or company. For small wind specifically, the top states are Iowa, Nevada and Alaska.
If the Alpha 311 turbines revitalize the distributed wind sector in the United States, then some users will inevitably want to finance large-scale deployments with third-party debt and tax equity.
They can look to residential rooftop, C&I and community solar projects for guidance.
Developers of these types of projects in the United States rely on master tax equity facilities and back-levered debt. A tax equity investor agrees to fund monthly tranches of projects that satisfy a checklist of items, up to a maximum dollar amount for the entire portfolio or through an outside funding date, whichever is reached first. The back-levered debt then funds after the tax equity portfolio is put in place. The debt may take the form of securitized debt in the private placement market.
C&I projects are generally located on the property of the electricity customer. "C&I" refers to the commercial and industrial customers for such projects. The O2 Arena in London is a good example of how the model could work for distributed wind. If the O2 Arena were located in the United States, then the arena could qualify for an investment tax credit and accelerated depreciation taken on a front-loaded basis over five years if it owned the turbines. These two tax benefits could be worth as much as 44¢ per dollar of capital cost. Alternatively, a third party developer might retain title to the turbines and enter into a long-term power contract to supply electricity from them to the arena. The developer in that case would raise funding.
Community wind projects are potentially more complicated due to state policies. Under the community wind model, a developer would own turbines to which local businesses or residents would subscribe. The electricity would go to the local utility. It would grant the subscribers bill credits for their shares of the electricity generated and the customers can use to offset the cost of electricity they buy from the local utility. Such projects are highly dependent on state law, as they must be located in a state that permits "virtual net metering" or otherwise has a program specific to community wind or community renewables projects. "Virtual net metering" is the method by which subscribers receive a credit for a portion of electricity produced by a wind turbine that is not on their property.
Community solar, by way of comparison, has thrived in states with virtual net metering policies that also offer incentives. (For more details about community solar programs, see "Community solar: current issues" in the October 2019 NewsWire.) For example, Massachusetts has a Solar Massachusetts Renewable Target (SMART) program under which utilities make direct payments to solar projects meeting certain criteria that are accepted into the program. There is an adder for features like storage. Massachusetts also has a permissive net metering and virtual net metering policy.
The Massachusetts net metering policies apply to both wind and solar, but the SMART program applies only to solar. As a result, even though community wind is feasible in Massachusetts, it may be difficult for it to compete with community solar.
Anyone looking to finance distributed wind projects should be aware that financiers tend to be uncomfortable with new technology risk. The technology must be thoroughly vetted, and even then the financiers may try to shift some of the technology risk back to the sponsor by adding extra protections in the financing documents.
Wind studies are a prerequisite for financing utility-scale wind projects. Anyone seeking financing usually needs at least two to three years of wind data. If Alpha 311 turbines are used for a roadside project, then financiers will almost certainly want a credible traffic study and data on adjacent wind speeds. The study would have to take in account increasing congestion on US highways, leading to slower traffic speeds, and the potential impacts of driverless cars and trucks.
Government entities that own the light poles have other sources of financing not available to the private sector. The cost of such financing would have to be compared to financing run through the private sector. Usually the ability to claim large tax benefits if the equipment is privately rather than publicly owned is enough to tip the scale.