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HomeMy WebLinkAboutresolution.council.053-98 ,~ ,~ (\ ....~, RESOLUTION NO. 5~ Series of 1998 A RESOLUTION AUTHORIZING EXECUTION OF A LETTER OF INTENT TO PURCHASE WIND ENERGY BY THE CITY OF ASPEN ELECTRIC UTILITY. WHEREAS, the City of Aspen wishes to support the further development of wind energy to reduce its commitment to purchase of fossil fuel power; and WHEREAS, the City of Aspen City Council has reviewed the proposed letter of intent to purchase the power output from a 600 kilowatt wind turbine to be constructed at medicine Bow, Wyoming; and WHEREAS, the proposed letter of commitment specifies that an agreement must be negotiated and presented to City Council as a purchaSe power contract before any binding financial or contractual commitments are made on behalf of the City of Aspen's electric utility; and WHEREAS, there has been submitted to the City of Aspen a letter of intent to purchase wind energy, a true and accurate copy of which is attached hereto as "Exhibit A"; NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF ASPEN, COLORADO: That the City Council of the City of Aspen hereby endorses development of wind energy and approves the execution of a letter of intent to purchase energy from a wind turbine to be constructed at Medicine Bow, Wyoming, a copy of which is annexed hereto and incorporated herein, and does hereby authorize the Mayor of the City of Aspen to execute said letter of intent on behalf of the City of Aspen. INTRODUCED, READ AND ADOPTED by the City Council of the City of Aspen on the /3 ~ t7~' John S. Bennett, Mayor 95. ~ r", r ('- I, Kathryn S. Koch, duly appointed and acting City Clerk do certify that the foregoing is a true and accurate copy of .that.resolutionadopted by the City Council of the City of Aspen, Colorado, at a meeting held on the day hereinabove stated. 2 (""'.. , C01{B COMMUNITY OFFICB FOR RESOURCB BFFICIBNCY P.O. BO'(9707, ASPBN, CO 81612 (970) 5449808; '(IX 5449599 TO: Amy Margerum, City Manager John B~ett, Mayor Rachel Richards, Jim Markalunas, Jake Vickery & Terry Paulson, City Council FR: ,Randy Udall, CORE Director RE: Wind Power Here is the additional information on the proposed wind power purchase that you requested at the, Brown Bag in June. This memo summarizes the proposal and analyzes its rate impacts. AN OVERVIEW With the support of Phil Overeynder and Bill Earley, CORE proposes that . Aspen Municipal Electric Utility sign a 20-year contract to buy electricity from a new 600-kilowatt wind turbine to be installed in Wyoming. The energy would be wheeled to Aspen across existing transmission lines. The output of this turbine will vary from year to year, but should average about 1.5 million kilowatt-hours. That represents about 2% of Aspen Municipal's annual power needs. Although a final price has not been negotiated, the City woUld need to pay the owners of the turbine about 4.2 cents/ki1owattChour to make the project eccJnomics viable. (\ RATE IMPACT What upward pressure ~ould the proposed wind purchase place on Aspen Municipal's rates? Bill I1arley and PhilOvereynder have examined this closely. According to their analysis, the City currently pays $0.016 per kilowatt-hour for electricitY purchased from its wholesaIe supplier, the Municipal Energy Agency of Nebraska (MEAN. ) Assuming that the wind power would cost $0.O<l2/kwh; the differ~ce--$0.0259/kwh-represents J:!re winli "premium.", , . .' If the annual production of a wind turbine is 1,500,000 kwh; as we project, this proposal would " increase the City's wholesale power costs by $3 8,850 per year. But that's not the whole story. The .wind turbine may have a "capacity" value to the City of approximately $3,600 per year. (Quantifying the exact capacity credit Will be difficult until the turbine has operated it few years, . but $3,600 seems reasonable.) This would lower the-added cost of purchasing wind power to approximately $35,000 per year. To put these numbers into perspective... ~. .. .. Th~ City utility spends about $2.6 mi11ionper year on electricity. . Ifwind increases the City's power bill by $~5,000, that represents a 1.35% increase. . The $0.016/kwh that the City pays MEAN for 'spot market' power is very low. If the spot market price trends higher, as experts expect, the annnal wind premium will decrease. , . Although no rate bike would be needed to cover wind',s added cost, $35,000 is equivalent to $1.12 per Aspen Municipal customer per month. Or about 3.5 cents per customer per day. . Although Wind power is more expensive than the current spot market price, it's in the range of what the City now pays for its Maroon Creek and Ruedi hydropower. On the other hand, when theRuedi bonds are paid .off, that power should get much cheaper, where.as the wind coSt will stay fixed for a 20-year period. . , Finally, if the City wants to buy wind power, the 4.2 centstkwh we propose to pay is an excellent price. Colorado Springs, in contrast, is paying about 6 cents.. (\ 0- 0- ENVIRONMENTAL BENEFITS If$35,000 is the cost, what are the benefits? By directly' offsetting energy from a coal burning power plant, this 'Wind turbine would, keep 3;3 million pounds of carbon dioxide, the chief greenhouse gas, out of the air each year. Qverthe life of the contract, that equals 66 million pounds of avoided carbon dioxide. , THE- OLDEST MUNI IN COLORADO Those are the numbers, but what about the big picture? Everybody sees the world differently, but from CORE's perspective this is an exciting opportunity. Aspen Municipal Electric was founded iD. 1903. Ninety-five years later, we have the oldest municipal utility in Colorado. For many decades, long before Aspen was famous, the City generated all of its electricity from renewablenydropower, "white coal." In the same way that Aspen City salutes skiing and music and art and the natural enviroument, we should celebrate our clean power heritage. Tooay, about balfthe City's power comes from hydro, 'most of that generated by City-owned turbines at Ruedi Reservoir and Maroon Creek. The remainder comes largely from coal plants.. As we enter the "Climate Change Century," CeRE encourages the City Council to green the City's energy mix. The proposed purchase of approximately 1.5 million kilowatt-hours of wind power.per year would be.a significant step in the right direction, displacing about 2% of the City's current coal consUmption.' . WHY NOT MORE HYDRO? Hydro is,):he world's premier renewable energy rest,lirce. Hydro is clean, renewable, and reliable. Bill Earley and Jim Markaluna:s have identified untapped hydro sites that might be developed in an environrnenta1ly'sound manner. Taylor Reservoir is one example. With persistence and patience, these sites probably could be developed. CORE is all for it. But permitting new hydro sites could take years. Furthermore, insta1lin", a turbine at Taylor would cost perhaps $5 million. As a result, the power from a new hydro plant would probably be more . expensive than wind. In contrast, our wind site at Medicine Bow, Wyoming is already permitted, with a substation and transmission line in place. We can install a turbine and be producing power within 12 months. " WIND IN A GLOB,4L CONTEXTWinrl is the world's fastest growing energy resource. Since 1990, the Germans have invested $2 billion in wind plants. Installed global wind capacity is now 7,600 Megawatts; (Colorado consumes about 5,000 MW of electricity.) The European Union hopes to install an additional 40,000 Megawatts by 2010. Wind turbines are now Denmark's second largest export; the Danish wind industry is larger than the Danish fishing industry. Fora number of reasons~advances in turbine design, declining cost of energy-wind is the ascendant renewable technology. Good wind sites are more widespread than good hydro sites and the world's wind resource dwarfs its untapped hydro opportunities. ' WE ARENOT ALONE If Aspen bought wind, it would not be setting some radical precedent, Rather; it would bejo~ a growing list of municipal utiIitieswho have begun harvesting wind power. They include Traverse City, Michigan; Ft. Collins, Colorado; and Moorhead, Minnesota. In Iowa, a state with few indigenous energy resources, nine municipal utilities are collectively . . . building a wind farm. They include Waverly, Cedar Falls, Algona, Fonda, Montezuma, Ellsworth, 'Estherville, and Westfield. The last has just 85 customers. , . NEXT STEPS If the City agrees to buy wind power, the'next challenge is to find someone to own and operate the wind turbine. There are two keys to getting 4.2 cent wind power. The first is an excellent wind site. We have that in Medicine Bow, Wyoming, The second is inexpensive capital. Because wind turbines are all capital, finance costs represept up to 70% of the energy price. A ~. ,I"""'. r- typical win.d project is financed with a mixture of investor equity and bank liebt.,In a typical deal, 'the investors get 15-20% annual returns. (This sounds usurious, but about two-thirds of those returns Cornem the form of tax credits and tax deductions.) To actually be able to sell the City wind for 4.2 cents; we've got to find cheaper money. . , . ' To that end, CORE has been working with the Land and Water Fund of the Rockies, a Boulder"' based energy; group, and'fonner Colorado' Public Bti1itles Commissioner Ron Lehr to raise. the $650,000 needed to'purchase a turbine. Our goal is to s.ell shares in the turbine to a "green . inveStors" group willing to take fiIore 1)10dest returns of 6-8%.' In effect, 'these green investors would be partnering with the City and the environment to make this deal possible. CORE recent1y received a $50,000 grant from Louisiana Pacific Corporation to support this work. . , , LEGAL STRUCTURE Nothing is final, but after tiUking with annmber ofla)\'yefs, it now appears that the green. investors groUp, would be organized as a nonprofit cooperative association, whose legal structure would reseIllb1e that of a credit uInon .or rural electric cooperative. (More' than 120 million Americans belong to some form of coop.) The coop would own the turbine and bear the technology risk. The cooperative's members would oWn shares in the turbine and r~ceive , modest 6-7% dividends on their capital investments. . The City would only pay for the power that the turbine generated. : ~o power, no pay. LETTEk OF INTENT There is no point in forming a cooperative association to buy and install a wind turbine. unless' we have a con\mitment from the City to buy the electricity the turbine would gei:Ierate. A nonbinding letter of intent would formiilize the City's commitment to purchase wind power and provide the cooperative a justification for raising the money and moving ahead. /I.. draft copy of that letter of intent is attached. . l1MEUNE If the City Council agrees to move forward with this proposal, CORE;s goal would be to form the cooperative association this summer, raise the money this fall, order the turbine next winter, and have it installed and running by next summer. / o LETTER OF INTENT TO PURCHASE WIND ENERGY To further the development of renewable energy and the greening of its electricity mix, the City of Aspen intends to negotiate a contract to buy wind power. The eXact terms of a wind power purchase agreer:::mt will be negotiated with the wind provider. However, the following general conditions have been established and endorsed by the Aspen City Council. . THE CITY OF ASPEN 1) The City of Aspen and its municipal electric utility desire to buy the entire output of a new wind turbine with a nominal installed capacity of 600 kilowatts and an annual energy output of approximately 1.5 million kilowatt-hours. . . 2) The City will purchase that power for a 20-year period, . 3) At a price in the range of 42 cents per kilowatt-hour, delivered at 'Medicine Bow, Wyoming. 4) The purchaseshal1 not raise Aspen Municipal Electric Utility's annual power costs by more than $35,000 per year. This calculation shall be based on the City's cost of buying an . equivalent amount of energy from the Municipal Energy Agency ofNebra,ska. The calculation shall also reflect the wind turbine's projected capacity value of $3,600 per year. r 5) The City will not have an ownership stake or financial interest in the wind turbine. The turbine owner shall be responsible for financing, insta1ling, owning, operating, insurlng; and maintaining the turbine for the life of the contract. 6) The City supports the efforts of the Community Office for Resource Efficiency (CORE) to form a nonprofit cooperative association to purchase and own the wind turbine. This support does .not preclude other ownership arrangements. 7) Any contract negotiated by Aspen Municipal Electric Utility and a wind developer will be submitted to the Aspen City CQuncil for its review and approval. Wind energy project developers who have the ability and desire to provide wind power under these general conditions should contact Bill Earley, Director, Aspen Municipal Electric Utility. Sigut./..- I~~ JoL::nett, Mayor City of Aspen 130 S. Galena Aspen, CO 81611 f""""'. 130 SOUTH GALENA STREET. AsPEN, COLORADO 81611- . PHONE 970.920.5000 ~, FAX 970.920.5197 }"inted on Recycled paper