Power play | Inventive financing and an ambitious scope make the Fox Islands wind project a model for other communities

On the ferry that travels between Vinalhaven Island and the mainland, it’s common to see passengers and ferry workers wearing ball caps embroidered with three wind turbines. And as the ferry moves closer to the island, it becomes easy to see — on a clear day — the structures that have inspired the hats. Three white, spindly spires with long rotating wings tower above the scrubby pine forest.

If the caps are any indication, locals are proud of their new wind project. About 750 of them have been sold at $20 apiece, enough to pay for the grand gateway to the island’s wind site. There, three tall granite blocks stand, like Stonehenge monuments, in a scaled-down configuration of the turbines further up the hill.

“I don’t think we’ve yet fully grasped what this means for our community and other communities [that] we took control of our energy use. Or what it means for the rest of the state and the nation,” Vinalhaven resident Adam Lachman says during a recent trip to the turbines, wearing the seemingly ubiquitous ball cap.

For nine months now, at least 1,700 Vinalhaven and North Haven residents have been powering their homes and businesses with more than 11,000 megawatt-hours of wind energy generated by community-run turbines. Despite some neighbors complaining about unbearable turbine noise, the $14.5 million project, by other islanders’ accounts, has been successful, according to a voluntary survey the island’s electric co-op sent out to 1,447 ratepayers in May. Thirty-five percent responded, and of those, 53% said they remained supportive of the project, 42% said they were more supportive, and 5% said they were less supportive. Already, energy rates have fallen by about 3 cents per kilowatt-hour and will stabilize at roughly the current rates for the next 20 years.

A number of other communities are taking note. Although it took a lot of work and many meetings with a bevy of lawyers and donors, the project’s creative financing scheme is translatable to other towns, according to George Baker, who oversees the island wind project. At this point, Monhegan and Swan’s islands are the furthest along in their wind exploration, although Camden, Rockland, Blue Hill, Peaks Island, Chebeague Island, Isle au Haut, Matinicus Island and other communities have expressed interest, according to Suzanne Pude, community wind director at the Island Institute in Rockland.

Swan’s Island is considering a roughly $5 million, 1.5 megawatt turbine, just one-third the size of Vinalhaven’s wind project. Voters approved an initial $50,000 feasibility study last spring. The island now would have to finance a successful phase two study, and a wind turbine wouldn’t be erected until 2011 or 2012. In Monhegan, residents in 2009 voted 82 to 25 to pursue wind power. The island, which has electricity rates of 70 cents per kilowatt-hour, would require only one 100-kilowatt turbine. But after completing its first wind study, plans for launching a more rigorous $350,000 phase two study have stalled. The island might be able to siphon cheaper electricity if it winds up as the closest island to a planned massive offshore wind venture in Maine. That prospect, combined with the possibility that a small community-owned turbine would become redundant, has put off potential investors, according to Katy Boegel, chair of the Monhegan Wind Committee.

To help defray islands’ exploratory costs, the Island Institute has said it will raise money to fund at least half of a project’s initial feasibility study, which costs between $50,000 and $60,000. “It is very important that there is large community support,” Pude says. Broad-based support appeals to funders and helps push things along even if opposition springs up, she adds.

Fox Islands’ crisis

The average electricity rate on Maine islands is roughly three times the national average of about 9 cents per kilowatt-hour and twice as high as the New England average of 14 cents per kilowatt-hour, according to the Island Institute, because many islands, with their tiny populations, must pay for expensive underwater cables to mainland power grids.

And for some time now, residents of the Fox Islands — made up of Vinalhaven and North Haven — have been anxious to find a way to control those costs. When oil prices spiked a couple of years ago, “Older members [of the island] said they were choosing between their medical payments and their light bills,” resident Lachman says.

Renewable energy has seemed the most promising solution. In 2001, the Fox Islands Electric Cooperative — the power utility for North Haven and Vinalhaven — brought in scientists to test island wind speeds. Two locals even bought land on Vinalhaven in 2005 to preserve it for a future community wind farm. In 2007, things began to speed up when two non-residents started working on behalf of the Fox Islands to transform the small community into a model of renewable energy.

George Baker, a Harvard Business School professor, is a summer resident of Frenchboro on Long Island, which lies about 15 miles east of Vinalhaven. In 2007, he took a sabbatical from his tenured position, and before settling into his academic work, decided he would investigate the economic feasibility of wind power on Maine’s islands. He realized early on that the concept was like a $20 bill lying on the ground that no one had picked up. “Why hasn’t it happened already?” he wondered.

Baker spent the rest of his sabbatical researching the issue, and at the end of the year, told his dean he needed to take a leave of absence. “Sorry,” he recalls saying, “I’m going to keep working on this thing.” He still hasn’t returned full time to the university. In fact, he is now vice president of community wind at the Island Institute and CEO of Fox Islands Wind LLC, the entity behind the Fox Islands’ wind project.

At about the same time, Tufts University graduate student Suzanne Pude was finishing her master’s thesis on how to bring wind power to island communities, using a case study on Monhegan Island, where she had spent many summers working seasonal jobs.

The two were introduced, and met up in Boston for informal meetings to discuss the logistics of community-owned wind projects. Never — not once — did Baker, Pude or the Fox Islanders consider inviting a developer to build a moneymaking enterprise there.

“These communities are used to being independent and self-reliant,” Pude explains, her short brown hair ruffling in the breeze on the exposed deck of the Vinalhaven ferry. With fog enveloping the boat, the captain repeatedly interrupted conversations with an ear-splitting horn. She continued, “Having a private developer put up a project for their benefit and not the islanders’ benefit, and not selling at the lowest possible price, was not going to happen.”

Members of the Fox Islands co-op, in a vote of 383 to five, in July 2008 agreed to bring community wind power to Vinalhaven. Today, sea winds turn the blades of three 389-foot turbines on a former hillside granite quarry, generating year-round energy for the two islands.

“No one is making any money,” Baker says. “One hundred percent of economic benefit flows back to Vinalhaven and North Haven.”

In local hands

The only way Vinalhaven and North Haven residents would allow a wind project on their shores is if it remained in the hands of locals. Pude says the islands have such high energy bills that they need to reap whatever economic benefit they can from the turbines. But the islands also needed to find a way to pay for them.

At the outset, they were faced with a problem: The Fox Islands Electric Co-op is a nonprofit. And most private developers pay for costly renewable energy projects with tax credits, which are useless for a nonprofit that doesn’t pay taxes.

To get around this, Baker devised Fox Islands Wind LLC, a for-profit entity. “Fox Islands could both share tax credits with an investor and be able to get a [Rural Utilities Service] loan, and no one has ever done this before. The innovative part of this was how to combine the renewable energy tax credits with a federally guaranteed loan,” Baker says.

Diversified Communications in Portland — owned by the Hildreth family that has long ties to Vinalhaven — stepped up as the tax equity investor and contributed $5 million to the overall $14.5 million cost.

Baker says the communications company will receive a series of tax benefits over the next few years for 99% of the $5 million invested, earning an internal rate of return of about 15%. A Diversified Communications representative did not return phone calls seeking comment.

“They took on quite a bit of risk,” Baker points out. “Had the project been delayed, their returns would have been substantially lowered. But they are delighted that it has benefited the community and they made a good return on their investment.”

Fox Islands Wind has also received a $9.5 million loan from the USDA’s Rural Utilities Service. The loan will be paid back over the next 20 years, at an interest rate of 4% or less, according to Baker. The turbines themselves, sold by GE Energy, have an expected lifespan of two decades.

Before all this could happen, however, the islands had to spend about $350,000 in pre-development for engineering, legal and environmental services. Baker says the money was raised as contingent promissory notes from a small group of optimistic individuals and foundations, with a 10% interest rate.

The loans — made a little over a year ago — will be paid back in the next few weeks, Baker explains, after the permanent financing closes. “If anything went wrong, if the project never got finished, those people would have lost their money,” he says.

Community pride

On a hot August day, Baker drives Fox Islands Electric Co-op’s old pickup truck to the ferry terminal to bring visitors to the wind site for a tour. As he heads out in the truck, he launches into anecdotes to describe the turbine construction last year. When the first mammoth blades were delivered by barge to the island wharf, 100 or so islanders met the boat and broke out into a cheer. Trucks with 140-foot beds inched along the narrow island roads at 5 miles per hour. At one point, one of the trucks slipped off the road, tying up traffic for a couple of hours. Stuck drivers got out of their cars and traded keys with the people coming in the opposite direction to get to where they needed to go.

Not stopping his stories for a minute, Baker pulls the truck into the 73-acre wind site and waits for people to show up. Advertised locally, most of the tour attendees are either year-rounders or seasonal residents. By 3 p.m., about 100 people had arrived, many wearing the Fox Islands Wind ball caps.

Baker stood on one of the granite entrance stones, the turbines spinning with graceful ease behind him at about 10 miles per hour. They were mostly silent, other than emitting a hum from their gear boxes. Evidently, when the winds blow stronger, the noise disturbance increases, according to some neighbors. The community held a meeting on Aug. 19 to address these complaints.

Baker, his speech filled with facts and figures, told the crowd that the electric co-op had been paying between 9 and 10 cents per kilowatt-hour before the turbines started operating last December. Now that rate is down to about 6 cents per kilowatt-hour. Islanders have paid an average of 25 cents per kilowatt-hour between December and June, which includes a transmission fee and some other charges, according to the electric co-op. But the base energy rate will stay fixed at 6 cents, and move down to less than 5 cents over the next 20 years as the project is paid off and the loan interest rate decreases.

The rate of energy generation, however, is uneven. The wind blows more strongly and consistently in the winter, when the island population decreases, and more weakly and intermittently in the summer, when the population increases. So in the winter, the island makes excess energy, which it sells back to the grid. This income, which came to $115,171 between January and June, helps offset the $700,000 to $800,000 turbine operating costs, which include interest payments on the loan. Also, in the summer, the co-op has to buy more energy from the power companies. However, Baker explains, the net energy production by the turbines — about 11,600 megawatt-hours — is greater than the islands’ need of roughly 10,600 megawatt-hours a year.

Eventually, the island is also looking into heating homes with electric thermal units, which store heat in dense ceramic blocks. Islanders are also considering powering electric cars with the excess energy rather than selling it back to the mainland grid.

As Baker stands at the base of the turbine, the islanders listen, occasionally craning their necks to stare at the bulky blades rotating above. Dick Littlefield, a summer resident, politely answers a reporter’s question about his interest in the turbines.

“We have to be energy independent,” he says, as Baker wraps up his talk and the crowd wanders back to the gates. “It’s very important for our country.” The islands also needed to control their energy bills and help prevent climate change, he adds. “All these things came together for this wonderful project,” he says.

Rebecca Goldfine, a writer based in Dresden, can be reached at editorial@mainebiz.biz.