Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

Update on Thunder Spirit wind farm. Project sold to MDU.

Birds that are at risk of finding out why turbines are called slice-and-dicers. Pictures courtesy of DollarPhotoClub.com.

Birds that are at risk of finding out why turbines should be called slice-and-dicers. Pictures courtesy of DollarPhotoClub.com.

The Million Dollar Way quotes a press release from Montana-Dakota Utility without a link. MDU has purchased the Thunder Spirit wind farm project from Allete Clean Energy. MDU currently has a commitment to buy all the electricity from the project on a 25 year contract. Now MDU owns the wind farm.

Project consists of 43 towers with rated capacity of 107.5 mW. Cost is reported in the press release to be $220M.

At cost of $220M for 107.5 mW, that works out to $2.05M/mW.

Keep in mind in the upper plains the average capacity of wind farms is about 34%. See EIA graph here. Peak is about 43% in fall and low is about 21% in the late summer for about 2 months. The upper plains have a flatter capacity curve than other regions. Looks like about 40% can be achieved for half of a year.

Theoretical output (also called nameplate) is 107.5 mW. Average output will likely be 36.6 mW (107.5 x 34%).

So the actual cost for each mW of actual average output would be:

  • $6.0M – 34% – average over course of a year
  • $5.1M – 40% – average for about six months of year
  • $8.2M – 25% – my guess on average output other 6 months of year
  • $10.2M – 20% – output for two months of year

So if the average output is around 40% for six months of the year, let’s assume that is what MDU is planning for their power needs.  At my guess from the graph of 25% realization for the other six months of the year, that means MDU will have to dedicate a natural gas plant as backup to provide on average 15% of the rated capacity (40% – 25% = 15%).

I will guess the actual output at the low point and average for six high months as follows.

Windy six months of the year:

  • 43 mW output from Thunder Spirit
  • 0.0 mW output from standby gas plant

Least windy two months of year:

  • 22.6 mW – output from Thunder Spirit (107.5 mW x 21% capacity = 22.6)
  • 20.4 mW – output needed from backup natural gas plant to fill in the time the wind isn’t blowing but for which MDU has planned to generate 43 mW

That means MDU needs to build or dedicate 20.4 mW of backup capacity which will only be used part of the year. They will either have to take a plant off-line most of the year or build a new plant.

At cost to build advanced combined turbine of $671K / mW (from post to be published in a few days), MDU will have to commit $13.7M of capital for backup.

That means the total cost of to generate a capacity of 43mW would be:

  • $220M – buy Thunder Spirit
  • $14M – backup capacity turbines
  • $234M – total
  • 43 mW – average output
  • 5.4M / mW

In contrast, MDU could have just built turbine plants for $0.7M / mW. That would be only $30M instead of $234M. Good thing MDU has so much extra cash lying around that they can commit $204M more than necessary to acquire that amount of capacity. Hmmm. I wonder if that requires a $204M write down the day the deal is closed. Will ponder that later.

This morning the Dickinson Press reports the sales price was $200M. I won’t recalculate the above numbers. I have made so many assumptions that a 10% swing in purchase price isn’t going to change my conclusion: the wind farm is quite wasteful.

Initial construction

Yesterday’s Million Dollar Way post (linked above) says the construction cost was $300M. Link for the article is broken. Copy of an article I archived on 10/11/13 says the cost was $300M for 75 turbines. That would be $4M each.

Purchase price of $220M for 43 turbines would be $5.1M for each turbine. At $200M, would be $4.65M each. Can’t find in my archived articles any comments on the rated capacity as designed, so I’m not sure whether the installed towers are the same as was initially planned. My hypothesis is Allete made a nice profit. Perhaps cleared $28M or $48M ($4M x 43 = $172M; $220M or $200M – 172M = $28M or $48M). If my loooong string of assumptions are close to accurate, that would be profit as percent of cost in the range of 16% to 28%.

What do you think? Where have I made bad assumptions or incorrect calculations?

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