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Glossary

Accelerated Depreciation With accelerated depreciation, wind projects can reduce the assessed value of their equipment on their financial balance sheets over a shorter period of time than other real assets.
Aggregation Bundling several wind energy projects together so that they are treated as one larger project (when purchasing turbines, interconnecting, or maintaining a project, for example,) in order to spread out costs over more turbines or projects. This can have the effect of improving project economics.
Alternative Minimum Tax (AMT) AMT can be thought of as a different tax system with different rules and deductions; taxpayers must compute their taxes under both the regular tax and AMT rules and then pay the greater of the two. The purpose of the AMT is to prenvet those in the higher tax bracket from getting by from year to year tax free.
Anemometer A device used to measure wind velocity as part of a wind resource assessment study. Cup anemometers are the standard type used today, with 3 cups spinning on a vertical axis. The anemometer typically is installed on a guyed tilt-up tower at the anticipated location and height of the potential wind turbine.
Anemometry Equipment The set of meteorological measuring and logging devices used to collect wind data for a wind resource assessment study. Equipment set typically includes: tower, anemometer, wind vane, temperature sensors, heating device, and data logger
Asset/Equity Ratio Total assets divided by shareholder equity. The asset/equity ratio is often used as a measure of leverage, or how well a project utilizes investment capital to realize return for investors.
Attractive Nuisance A hazard that is likely to attract children, who are unlikely to fully comprehend the danger posed by the hazard. A landowner may be liable for injuries to children caused by the hazard even if the children are trespassing.
Avoided Cost The rate that utilities are required to pay independent power producers according to the Public Utilities Regulatory Policy Act (PURPA). Avoided cost is the simply the cost that the utility would have incurred for producing the same amount of power. This is not a favorable rate to recieve as an independent power producer.
Business Metrics A system of parameters or other quantitative assessments of a business that can be measured periodically and systematically. Business metrics are often used to keep track of how well a business is meeting its objectives.
Clean Renewable Energy Bonds (CREBs) A CREB is a special type of tax credit bond providing rural electric cooperatives, municipal electric utilities, and government entities (including tribal councils) the equivalent of an interest-free loan for financing qualified energy projects.
Cogeneration The simultaneous production of heat energy and electrical of mechanical power from the same fuel in the same facility. Cogeneration is achieved through the capture and recycle of rejected heat that escapes from an existing electricity generation process.
Commercial Scale Wind Refers to wind energy projects greater than 100 kW where the electricity is sold rather than used on-site. This category can include large arrays of 100 or more turbines owned by large corporations, a single locally-owned wind turbine greater than 100 kW in size, or anything in between.
Commissioning The process of connecting the turbine to the transmission lines and making sure it is operating within its normal or defined parameters.
Community Wind Locally-owned, commercial-scale wind projects that optimize local benefits. Locally-owned means that one or more members of the local community has a significant direct financial stake in the project other than through land lease payments, tax revenue, or other payments in lieu of taxes.
Community-Based Energy Development (C-BED) 2005 Minnesota law requiring Minnesota utilities to establish tariffs for wind energy projects meeting specific requirements for local ownership. The tariff sets a framework for negotiation of power purchase agreements between utility companies and qualifying community-based energy projects where the payment for energy in the first 10 years of the project is higher than in the last ten years.
Cost-of-Service Ratemaking A system for establishing prices in which a utility is reimbursed for the legitimate costs it encounters in serving customers, plus a specific percentage for profit.
Covenant A promise in an indenture, or any other formal debt agreement, that certain actitivities will or will not be carried out. The purpose of a covenant is to give the lender more security. Covenants can cover everything from minimum dividend payments to levels that must be maintained in working capital.
Coverage Ratio A type of accounting ratio that helps measure a company's ability to meet its obligations satisfactorily. A coverage ratio encompasses many different types of financial ratios. Typically, these kinds of ratios involve a comparison of assets and liabilities. The better the assets "cover" the liabilities, the better off the company is.
Debt Service Coverage Ratio (DSCR) The ratio of net operating income to the amount of money that is required to make regular debt payments. A DSCR of greater than one means that the project is taking in enough income to cover payments on loans. A number of less than one means that the project will have to dip into reserves or other financial resources to cover debt payments.
Debt vs. Equity An amount of money borrowed and owed by one party to another is considered debt. For example: bonds, loans, and commercial paper. Equity is a term whose meaning depends very much on the context, but in general, it refers to ownership in any asset after all debts associated with that asset are paid off.
Debt-to-Capital Ratio A measurement of a company's financial leverage, calculated as long-term debt divided by long-term capital. Total debt includes all short-term and long-term obligations. Total capital includes all common stock, preferred stock, and long-term debt.
Decommissioning The process of dismantling a turbine and restoring the site to pre-project conditions.
Demand The amount of electricity drawn from an electric system at a given time, measured in kilowatts.
Demand-Side Management (DSM) The process of managing the consumption of energy. DSM programs include, for instance, offering discounts on new, high efficiency appliances so that consumers get rid of their older, less efficient models.
Depreciation An accounting method used to attribute the cost of an asset over the span of its useful life. The cost, of a portion thereof, can be assigned as a loss on the project's balance sheet to reduce the tax base of the project.
Deregulation As it pertains to the electricity industry, deregulation is the process of opening up electricity markets to competition between power producers with the notion that competition will help lower electricity rates for consumers.
Discount Rate 1) The interest rate that an eligible depository institution is charged to borrow short-term funds directly from a Federal Reserve Bank. 2) The ineterest rate used in determining the present value of future cash flows.
Distributed Generation A small-scale power generation technology that provides electric power at a site closer to customers than the central station generation. The term is commonly used to indicate non-utility sources of electricity, including facilities for self-generation.
Distribution Cooperative An electric cooperative that purchases wholesale power and delivers it to consumer members.
Distribution System The poles, wires, transformers, breakers, fuses, and other associated equipment, used to deliver electric energy from a bulk power supplier to the consumer. Typically, the distribution system is defined as power lines and associated equipment where the operating voltage is less than 69 kilovolts.
Dual Line Feed A dual line is a second, redundant transmission line connecting a turbine to the grid that allows your project to generate power even if the first line is taken out of service.
Due Diligence Do your homework! Due diligence means that you have looked at a particular investment from as many angles as possible to best understand the risks, rewards, and opportunity costs. Lenders, investors, contractors, and equipment suppliers will be much more willing to work with you if you can demonstrate that you know the lingo and understand the industry.
Easement The right to use the real property of someone else for a specific purpose.
Electric Cooperative A form of utility in which all users own shares. Electric cooperatives are common in rural areas that are expensive to serve because of long distances between users. Frequently, the government contributes in various ways to rural cooperatives to reduce costs to individual owners/users.
Energy Policy Act of 1992 (NEPA) A federal statute that, among other things, established additional forms of non-utility generators. It also permitted non-generator-owning municipalities to purchase wholesale electricity, thus opening the door to municipalization, which allows municipal governments to take control over providing electric service to electric consumers.
Energy Policy Act of 2005 The first time since 1992 that the federal government revisited national energy policy. The Energy Policy Act of 2005 included an extension of the Production Tax Credit (PTC) through the end of 007, the creation of Clean Renewable Energy Bonds, and many other provisions.
Environmental Impact Statement (EIS) A thorough study of each proposed electric utility project with potential for significant environmental impacts. Includes evaluation of alternatives and impact mititgation.
Environmental Quality Board A state agency that adopts environmental rules, monitors their effectiveness, and revises them as appropriate; provides technical assistance to interpret and apply rules. (This varies from state to state).
Escrow A financial instrument held by a third party on behalf of two other parties in a transaction, The funds are held by the escrow service until the service receives the appropriate written or oral instructions or until obligations have been fulfilled by participating parties. Securities, funds, and other assets can be held in escrow.
Farm Bill, Energy Title, Section 9006 For the first time in U.S agriculture policy, the 2002 Farm Bill included an energy title that established a variety of programs to support farm-based renewable energy grant and loan guarantee program administered through the U.S Department of Agriculture - Rural Development.
Federal Energy Regulatory Commission (FERC) An independent regulatory agency within the U.S Department of Energy that has jurisdiction over interstate electricity sales, wholesale electricity rates, natural gas and oil pipeline rates, and gas pipeline certification. It also licenses and inspects private, municipal, and state hydroelectric projects and oversees related environmental matters.
Flip Models/Flip Dynamics One example of a business model structure which brings in a tax-motivated equity partner to effectively own the project during the period when the PTC and accelerated depreciation are available (i.e., the first 10 years of the project's life).
Generation and Transmission Cooperative (G&T) A power supply cooperative owned by a group of distribution cooperatives. G&Ts generate power or purchase it from public or investor-owned utilities, or from both.
Geographic Information System (GIS) A system for capturing, storing, analyzing, and managing data and associated attributes which are spatially referenced to the earth.
Green Energy The process of selling the "green" or environmental attributes of a product.
Green marketing The process of selling the "green" or environmental attributes of a product.
Grid A network of power lines or pipelines used to move energy from its source to consumers.
Hertz (Hz) A standard unit of measurement: its units are 1/seconds. Typically used in the electricity industry to describe how many times an electrical signal repeats itself over the course of one second. Example: The electricity in the United States has a frequency of 60 Hz. This means that the signal of the U.S Electric System repeats itself 60 times per second.
Hub Height The height of the tower where a wind energy conversion system is mounted measuring from the ground.
Independent Power Producer (IPP) An electricity generator that sells power but is not owned by a utility.
Independent System Operator (ISO) An independent third party responsible for maintaining secure and economic operation of an open access transmission system on a regional basis. An ISO provides availability and transmission pricing services to all users of the transmission grid.
Installation Costs All the expenses required to construct and get a turbine up and running including but not limited to foundation construction, laying of electrical wire, crane, labor, and other associated costs.
Interconnection The process of connecting an electrical generator to the electrical power grid or the physical location of the connection of an electrical generator to the electrical power grid.
Interconnection Agreement A legally binding document that defines the technical and contractual terms under which a generator can interconnect and deliver energy to a transmission operating utility’s system.
Internal Rate of Return (IRR) A financial calculation that compares the present value of a project’s expected revenues with the present value of its expected costs. The IRR calculation is used to determine the discount rate at which the two values are equal. By doing this calculation, investors are able to see the project’s expected rate of return.
Investor-Owned Utility (IOU) A utility owned by private investors as opposed to one owned by a public trust or agency; a commercial, for-profit utility as opposed to a co-op or municipal utility.
IRS Private Letter Rulings A notice from the IRS that makes a ruling on how a particular portion of the tax code applies in a specific instance for an individual or business. Many community wind projects have asked the IRS for rulings on the ability of the project’s business structure to take advantage of the production tax credit (and other tax advantages) in a way that is within the law.
Kilowatt (kW) The basic unit of electric demand, equal to 1,000 watts.
Kilowatt-hour (kWh) A unit of energy equal to 1,000 watt-hours. The basic measure of electric energy generation or use. A 100-watt light bulb that is left on for 10 hours uses one kilowatt-hour.
Limited Liability Company (LLC) A type of business structure in which owners are not liable for things that go wrong that are not the owners' responsibility. This offers owners some legal protection in case of accidents and disasters.
Load The amount of electric power drawn at a specific time from an electric system, or the total power drawn from the system. Peak load is the amount of power drawn at the time of highest electrical demand. Or a device or aggregation of devices that are connected to an electrical system that consume electrical power.
Maintenance Reserve Account The reserve account of cash balances set aside to cover a project's maintenance and repair expenses.
Megawatt (MW) Equal to 1,000 kilowatts or 1 million watts.
Megawatt-hour (MWh) Equal to 1,000 kilowatt-hours or 1 million watt-hours.
Merchant Refers to wind projects where a private contractor builds a new facility without a power purchase agreement and guaranteed revenue stream. In a deregulated power market a merchant wind projects sell their electricity at spot market prices.
Meteorological Tower ("Met Tower") A tower used at a potential project site which has equipment attached to it which is designed to assess wind resource. Generally a met tower will have anemometers, wind direction vanes, temperature and pressure sensors, and other measurement devices attached to it at various levels above the ground.
Midwest Independent System Operator (MISO) The independent system operator for the Midewest. http://www.midwestiso.org
Minnesota Flip The Minnesota Flip is a business model designed to help local wind project owners with minimal tax appetite pair up with a larger entity that has a more substantial tax burden.
Modified Accelerated Cost-Recovery System (MACRS) Businesses can recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. For solar, wind, and geothermal property placed in service after 1986, the current MACRS property class is five years.
Multiplier Effect The term “multiplier effect” as it pertains to the local economy and wind project development describes how increased spending in one part of a economy starts a chain reaction that results in an overall increase in economic activity.
Municipal Utility ("Muni") A utility owned by a city to supply utility services to residents in that city. Generally, surpluses in revenues or over-expenditures are contributed to the city budget.
Nameplate Capacity The maximum output rating of a wind generator. A wind turbine that has a 1 MW nameplate capacity will produce 1 MW of power when operating at it’s rated output.
Net Metering and Net Billing The concept of net metering programs is to allow utility customers to generate their own electricity from renewable resources, such as small wind turbines and solar electric systems. The customers send excess electricity back to the utility when their wind system, for example, produces more power than they need.
Net Present Value A common financial concept (and a critical component of Minnesota’s C-BED tariff), reflecting the idea that having a given amount of money today is more valuable than receiving the same amount of money in the future. C-BED requires utilities to determine the net present value of their rate schedule using the standard discount factor that they apply to their other business decisions.
Network Resource An electrical generator that can provide support to the system in terms of real or reactive power supply, spinning reserve, or other services that the system operator requires to keep the system operating in a safe and reliable manner. Generally wind projects can only qualify as an energy resource because of their non-dispatchable nature, i.e.
Non-Utility Generator (NUG) A generator that is owned and operated by an entity which is not a regulated electric utility.
O&M (Operations and Maintenance) Agreement The contract for operating and maintaining a project which defined terms, fees, schedules, and other details.
Off-Peak Power Electricity supplied during periods of low system demand.
Off-Taker The purchaser of the electricity from a wind project, for example: a utility company.
Pad Mount Transformer A electric transformer that is mounted on the ground as opposed to a pole mounted transformer. A pole mounted transformer is mounted on a pole that holds electric power lines.
Pass-Through Entity A business structure that allows tax credits and operating gains and losses to be allocated to the owners of the business rather than the business itself, which prevents the income of the business from being taxed twice.
Passive Income Certain types of income, as defined by the IRS, such as rental income or income from businesses, in which the earner serves only as an investor and is not actively engaged in running the investment as defined by the IRS. See Passive Tax Appetite.
Passive Tax Appetite Income from certain types of investments qualifies as passive income. Tax paid on this income is considered passive tax. To take advantage of the Federal Production Tax Credit (the PTC) and Modified Accelerated Cost Recovery System (MACRS), you or a project partner must be paying taxes that fit into this category of tax liability.
Payments-In-Lieu-of-Taxes (PILOT) Negotiated payments between the local taxing authority and a wind project. These payments compensate for excessive use of infrastructure in the area while developing the project and allow the local community to benefit from wind energy development.
Peak Demand The greatest demand placed on an electric system; measured in kilowatts or megawatts; also, the time of day or season of the year when that demand occurs.
Peak Load The amount of electric power required by a consumer or a system during peak demand; measured in kilowatts or megawatts.
Plat Drawings A map showing politically defined sections and townships that shows who holds the deed to the parcels of land contained within.
Power Curve The instantaneous power output of a specific turbine design at various wind speeds. Used with wind resource data to determine the potential for electricity generation at a project site.
Power Purchase Agreement The contract to buy the electricity generated by a power plant. Securing a good PPA is often one of the most challenging elements of wind project development.
Pro forma Comprehensive financial analysis of a business or project.
Pro rata In proportion to, as determined by a specific factor. Example: tax credits are allocated to project owners in direct proportion to the percentage of the project they own.
Production Tax Credit (PTC) Provides the owner of a qualifying facility with an annual tax credit based on the amount of electricity that is generated. By focusing on the energy produced instead of capital invested, this type of tax incentive encourages projects that perform adequately. In 2007, the rate for the PTC is 1.9¢/kWh. The PTC increases from year to year based on the consumer price index.
Public Utility Commission (PUC), Public Services Commission (PSC) or Utility Board A state government agency responsible for the regulation of public utilities within a state or region. A state legislature oversees the PUC by reviewing changes to utility laws, rules, and regulations and approving the PUC's budget. The commission is usually made up of Commissioners appointed by the governor or legislature for a specific term which varies from state to state.
Public Utility Regulatory Policy Act (PURPA) A federal law passed in 1978 that requires electric utilities to purchase electricity produced from certain efficient power producers (frequently using renewable or natural gas resources). Utilities purchase power at a rate equal to the costs they avoid by not needing to generate the power themselves.
Reactive Power Support This is the production of reactive power to maintain stability on the transmission system. Power on the system comes in two main types: the first is the power that is actually delivered to end users, and the second is reactive power, which is power provided to the system to maintain the system, rather than for end-use consumption.
Renewable Energy Credits (RECs) The “green” or renewable attribute of electricity that is generated utilizing a renewable energy resource. A wind turbine that produces 1 MWh of electricity has produced 1 REC which, in some electricity markets, can be sold separately from the electrical power.
Renewable Energy Production Incentive (REPI) A federal production payment of 1.5¢ per kWh that is made available to new qualifying renewable energy generation facilities. However, since the REPI involves spending of federal funds, money must be appropriated annually by Congress.
Renewable Portfolio Standard (RPS)/Renewable Electricity Standard (RES) A minimum renewable energy requirement for a region's electricity mix. Under an RES, electricity suppliers are required to provide some percentage of its supply from renewable energy sources. RPS proposals frequently ease that requirement by including a tradable credit system under which electricity suppliers can meet the requirement by buying and selling renewable energy credits (RECs).
Restructuring The process of changing the structure of the electric power industry from one of regulated monopoly over electrical customers to one of open competition between power producers for customers.
Rural Electrification Administration (REA) An agency of the U.S. Dept. of Agriculture that makes loans to states and territories in the U.S. for rural electrification and for providing electricity to persons in rural areas who do not receive central station service.
Setback A term used in siting and permitting for the construction of structures that refers to the distance from the base of the structure to existing easements, roads, buildings, bodies of water, or other geographic or man-made structures or property lines.
Shadow Flicker Shadow flicker occurs when the blades of the turbine rotor cast shadows that move across the ground and nearby structures.
Sound Power Strength of a sound source, measured in A-weighted decibels (LWA). Typical sound power values for wind turbines (which can be obtained from the turbine manufacturer) are in the range of 90-105 dB(A), LWA. (The measurement is A-weighted to account for the sensitivity of human hearing.)
Sound Pressure Sound level measured at a receptor (e.g., a neighbor’s house, a microphone). Sound pressure decreases proportionately to the square of the distance from the source and can be affected by prevailing wind direction, topography, temperature, barometric pressure, and other factors.
Southern Minnesota Municipal Power Agency (SMMPA) SMMPA is a company that generates and sells wholesale electricity, primarily for its eighteen member municipally-owned utilities. The member municipally-owned utilities are located mostly in Southeastern and South-central Minnesota. SMMPA website: www.smmpa.com
System Benefits Charge (SBC) A required fee (also known as a public benefits charge) from all electricity customers to fund programs that are in the public interest that may or may not be competitive in a deregulated electricity market.
Tariff A standardized set of terms for generation, purchase, transmission and/or delivery of electricity on a utility’s system, a state, region, or country. The term is commonly used in electric utility rate making in North America. The term is also commonly used in Europe. In this context tariffs are not taxes or customs duties on goods crossing international borders.
Tenor The term or life of a contract, similar to maturity.
Three-Phase Distribution or Transmission Lines Electrical power lines that carry electric energy from one point to another in an electric power system, using three power lines, to transmit three different electrical signals. The phases, or electrical signals, required for most large rotating machines which are used in many manufacturing processes and for many commercial/large wind turbines. The U.S.
Transmission The transfer of electric current from a power plant to a destination that could be hundreds of miles away.
Turbine A device for converting the flow of a fluid (air, steam, water, or hot gases) into mechanical motion that can be utilized to produce electricity.
Unbundling The process of separating a service into component parts (generation, transmission, distribution, ancillary services, etc) to allow customers to choose where to buy each service separately. Utility unbundling, overseen by regulators, generally requires utilities to ensure that the price of each service accurately reflects the cost of that service (plus a margin for profit).
Wake Losses The space behind a wind turbine that is marked by decreased wind power capacity due to the fact that the turbine itself used the energy in turning the blades. The wind behind the turbine, in its wake, is less effective at generating energy for a certain distance in the downwind direction due to turbulence created by the upwind machine.
Watt A unit of electrical power: 1/1000 kW
Wheeling Transmitting bulk electricity from a generating plant to a distribution system across a third party's lines.
Wind Power Class A way of quantifying on a scale the strength of the wind at a project site. The Department of Energy’s National Renewable Energy Laboratory defines the wind class at a site on a scale from 1 to 7 (1 being low and 7 being high) based on average wind speed and power density to offer guidance to potential developers as to where wind projects might be feasible.
Wind Rose A wind rose shows the direction and the frequency of that direction that the wind blows at a particular location. Wind roses are used in wind projects to portray the amount of energy that comes into the wind project from various directions.
Wind Shear A term and calculation used to describe how wind speed increases with height above the surface of the earth. The degree of wind shear is a factor of the complexity of the terrain as well as the actual heights measured. Wind shear increases as friction between the wind and the ground becomes greater. Wind shear is not a measure of the wind speed at a site.