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Wind Project Feasibility Study Public Meeting
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Anne Thomas
Posted 16/11/2014 16:41 (#1481)
Subject: Wind Project Feasibility Study Public Meeting


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The meeting yesterday at Fortrose Theatre had a good turn out with about 70 people with a cross section of views from very positive through curious and undecided to negative.
We had a presentation from Martin from Transition Black Isle about why a small group of volunteers have been devoting a lot of time and effort to this project which we hope will benefit the Black Isle.
The main benefits are Community benefit of potentially around £500,000 and carbon reduction, providing low carbon energy for potentially around half the needs of the Black Isle.
We heard that the upcoming ballot of the Black Isle community was to decide whether the community wanted to to take the opportunity to build a wind scheme on this site. It is not a vote on whether or not there will be a wind project there. There are plenty of commercial developers who would be interested in using the site if the community votes 'no' and they might well want to develop a bigger scheme. A speaker from Udny Community Wind Turbine shared what had been achieved with around £100,000 a year funding from a smaller scheme. It inspired me to see what could be done.
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Anne Thomas
Posted 18/12/2014 07:56 (#1488 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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People aren't nearly so negative about wind farms as David Cameron thinks. http://zerocarbonista.com/2014/12/17/david-cameron-mythmonger/
They are much more negative about fracking with good reason, which is why the current Government is spending millions trying to convince people that fracking is a good idea. Given the choice I'd much rather a turbine than a fracking well in my back garden, which is why we've got one. A turbine that is. It is a good feeling to be sending more electricity back to the grid than we use. The turbines we're proposing will probably supply about half the current electricity needs of the Black Isle. Coupled with energy efficiency and other renewables we could conceivably be carbon neutral like the Isle of Samso in Denmark which is a similar size. Solar panels on roofs and the odd micro-hydro generator could make up the rest. Heat pumps replacing direct electric heating together with insulation could reduce demand but heat pumps replacing oil like ours did could end up increasing demand but would still cut our overall carbon footprint.
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Tom Heath
Posted 5/2/2015 18:52 (#1492 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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I’m a retired Engineer who is generally neutral on wind power and I wasn’t at the public meeting but I’ve just had a quick read through the feasibility report prepared by Atmos Consulting and without going into the detail of the report noticed two things which must call any conclusions from the report into question. First an electrical efficiency of 98% is assumed in the energy yield calculation. This might well have been provided by Enercon (the proposed supplier) but manufacturers typically quote efficiencies when the generator is operating at full capacity and given that the average output of the proposed plant will be 30% of rated or less the average efficiency of the generator will be much less. Without detailed data I can’t be precise about the likely average efficiency but it may well be as low as 85%; much less than the 98% assumed. Just as important the generator is only the first part of the electrical system, Between the generator and the grid there needs to be an inverter (sometimes called a frequency converter) and a transformer. Inverter efficiencies are similar to those of the generator and the transformer loses another percent or so. The net effect of this is that the overall electrical efficiency may only be around 72% and also that the plant output (for this reason alone) would be less than 75% of that assumed. This would also mean that the revenue from the plant would reduce by a quarter making the projected surplus for the community a gross overestimation and almost certainly suggesting that the plant will make a significant loss. The last thing we want is for a project designed to benefit the Community is for it to lose money and require a reduction in local services.
Equally worrying is Table 14 Financial Analysis Results. In this table an IRR (Internal Rate of Return) is quoted together with a non-zero NPV (Net Present Value). Since IRR is often defined as the rate of return required to give zero NPV both numbers cannot be correct so that the entire table must be called into question.
It is also noteworthy that there is no specific allowance in the costs for an Environmental Assessment which would be required for any planning application. In my recent experience this is unlikely to cost less than £250,000 and has to be spent before any planning application can be made. I would suggest therefore that given the obvious deficiencies in the feasibility study so far (and who knows what might be found on closer reading) the study needs a much closer examination before the March vote to decide on further expenditure on the project is likely to be worthwhile.
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Martin
Posted 6/2/2015 09:52 (#1495 - in reply to #1492)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Interesting thoughts, Tom. I am responding as a member of the Black Isle Community Energy working group.

Dealing first with the bits I understand best, the NPV in the feasibility study is based on a discount rate of 8%; none of the IRR's is 8%, so naturally the NPV is non-zero. The NPV is a bit of nonsense of course, it's only relevant where an organisation has multiple projects to chose between. But clearly there's no need, on this count, to question the table.

Regarding the EIA costs, you are right that they are not separately detailed, but the total development costs to financial close are set out as £494,484. The working group did some preliminary work on the likely development costs, and came up with a slightly lower figure, and we have also taken informal advice elsewhere. All three sources suggest a likely cost to financial close of £450,000 - £500,000, including the EIA - so again, I don't think there is any reason to doubt the feasibility study.

I'm not so confident of my ground on electrical efficiencies, but in general terms turbines have a power curve which shows their output at different windspeeds; my understanding is that this is the 230V 50 Hz output from the inverter (it would be bizarre to quote an output in terms of the torque developed in the rotor mechanism, so I can't believe there's any need to adjust for generator losses!). The power curve inevitably takes account of operating efficiencies at different wind speeds. Atmos have combined the turbine power curve, adjusted for the specific gravity of the air at the hub height, with an estimated wind speed distribution curve, to give a total annual output. I had assumed the losses then applied to this (the 98% electrical efficiency) are to allow for resistive cable losses, but I may be wrong about that. What I can say, though, is that the feasibility study was reviewed by another member of the working group who is an engineer working in the wind energy sector, and he concurred with Atmos' assumptions and their assessment that the yield estimate was conservative. Unfortunately the working group member concerned is working abroad at present, but I don't think your observations give any reason to doubt the feasibility study.
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Tom Heath
Posted 6/2/2015 18:35 (#1496 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Martin….
Thanks for your considered response to my concerns. It’s stimulated a few further thoughts and comments:
1) Discount rate is not the same as IRR (IRR is the discount rate required to give a zero NPV as stated on page 32 of the feasibility study). As printed table 14 simply doesn’t make any sense. In the text there I reference to a discount rate applied….but applied to what and how? Is it investor’s capital and if so is the intention to guarantee the investors a return with the community taking all the risk? That doesn’t seem sensible.
2) What is the “Average Annual Income”. Is it the expected revenue from the plant? The surplus after loan repayment, operating costs and taxation ? The residue after loan repayment, operating costs, taxation and payment to investors? All of these questions may be irrelevant but without a clear description of the financial model it is hard to give credibility to any of the numbers.
3) For reference IRR is used not only as a comparison between projects but also as an absolute measure of a project's value. In terms of looking at the benefit to the community neither the discount rate nor the IRR are not actually relevant the only thing that matters is what funds might pass to the community and the associated risks of the community making a loss.
4) With respect to the electrical efficiency I was, prior to retirement CTO of the Wave Energy Company Wavegen and spend a lot of time looking at electrical system losses. First of all the power curve published by wind turbine suppliers has nothing to do with electrical efficiency but is only a statement of the delivered electricity in a given wind speed. I am advised by a former colleague with extensive experience in wind project development that quoted performance curves are usually measured at the generator terminals and as such would include generator losses but not inverter and transformer losses. Unless the turbine supplier can confirm otherwise it would be safe to assume that the 98% electrical efficiency used is extremely optimistic.
5) A final point is to ask why it is assumed that local investors would accept a lower return on their capital than a commercial developer. Would it not be possible to discuss with the Forestry Commission and a Commercial Developer a deal where the Developer does all the work but the Community is guaranteed an income? Even if this income were lower than might be possible (if all went well!) it would be well worth it to avoid a potentially high financial risk to the Community.
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Martin
Posted 7/2/2015 09:41 (#1497 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Tom,
1) The IRR, as you say, is the discount rate at which the NPV is zero. The NPV figures quoted in the table are those calculated with a discount rate of 8%. The NPV would only be zero if the IRR was also 8%. The discount rate is applied to all projected cash flows, i.e. income from electricity sales, operating costs, finance costs and loan repayments. My background is in finance, and to my mind table 14 is pretty clear.
2) The average annual income is the average cash surplus after finance costs and loan repayments. It is assumed that no tax is payable because any surplus will be paid as a charitable donation to the community trust which owns the operating company.
3) There's a double negative that has crept into your comment here, so I'm not sure what you are saying. My point was that the NPV is generally used by businesses to compare possible projects and decide which one to pursue. We have only one possible project, so the NPV isn't really relevant. I think the IRR is relevant, but most people find the average annual income an easier concept to understand.
4) I'll investigate the point about electrical efficiency.
5) I don't understand this point, I didn't think we had assumed local investors would accept a lower return - but maybe I'm being confused by the word "investor" which I would take to mean those who wish to put some money into the scheme, for a return. If you mean the community trust, then I think that might accept a lower return than a commercial business, because it has no need to pay dividends, and no need to demonstrate profit growth to support its share price. There are possible joint venture models along the lines you suggest, and those have not been ruled out although I think it is important that the community retains a high degree of control over the development, and that might make a joint venture more difficult. I don't think the turbines could possibly be erected if there was a high financial risk to the community; at the moment there is quite a high risk that the project won't work, but that's always the case with early-stage developments. As work progresses the current uncertainties will become more certain - and as that happens it will either become clear that the project is viable, or if it isn't, it will be abandoned (with no cost to the community, apart from the time of a few volunteers, and arguably even that will have been educational!).
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Tom Heath
Posted 7/2/2015 16:01 (#1498 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Posts: 7

Hi Martin....It looks like we could discuss this for ever and not necessarily agree so I won't go further into any detail at this time (and you're right my 3rd point above with the double negative doesn't make any sense which is what you get for changing your mind halfway through a sentence and being a bad proof reader of ones own writing).

The key question at the moment is of course whether one should vote in March for or against further money being spent on developing the project to the point where there is sufficient certainty for an investment decision. I feel that I don't yet have enough confidence in the feasibility study to be able to say yes which is why I was looking for more information. To that end I would ask:

a) Is the financial model available for review (if so where).
b) What are the next stages of the study and what is the spend profile.
c) Who will be paying for the continued project development?

Thanks for taking the time to respond.
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Martin
Posted 7/2/2015 17:33 (#1499 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Hi Tom,
There does seem to be something about discounted cash flows that leads to disagreements between engineers and accountants!

Sorry, but the financial model isn't available for review. We have taken the view that it isn't very helpful to get into detailed debate about the minutiae of financial projections, given the high level of uncertainty. The consultants' figures based on Contracts for Difference and the "estimated" wind speed (i.e. assuming no wind protection zone around the turbines) show a £984k average annual cash surplus over the project life. We think that is enough to indicate a reasonable chance the scheme will give a substantial income for community use, whilst accepting the uncertainties at present.

There's a Gannt chart towards the end of the feasibility study (Appendix B) which shows the consultants' suggestion for the next stages. There is a Scottish Government loan scheme, CARES, which provides up to £150,000 to cover the costs of taking the project to planning. The loan is written off if the project fails to get planning permission or if it becomes clear it isn't viable; if the project goes ahead, the loan carries interest at 10% and is re-financed at financial close.

Hope that helps.
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Tom Heath
Posted 11/2/2015 21:11 (#1502 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Posts: 7

Martin...Thanks once more for your reply..... I question whether £150,000 is anywhere near enough to get the project to the planning stage and for me the Feasibility Study is riddled with inconsistencies and apparent errors. I'm extremely concerned that you are unwilling to release the financial model as that must be the basis for any rational decision as to whether the project will be a benefit or a liability to the community and it is concerns about the accuracy and the self consistency of the financial projection of the Feasibility Study which caused me to write to this Forum in the first place. It would be nice if Consultants always got their numbers right. Unfortunately history shows this not to be the case.
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Martin
Posted 11/2/2015 22:27 (#1503 - in reply to #1499)
Subject: Re: Wind Project Feasibility Study Public Meeting


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We have taken advice from Community Energy Scotland and Local Energy Scotland on the £150k, and they both seemed to think it was adequate. There are certainly a few things in the feasibility study with which we might take issue, but overall we thought it gave a reasonable picture. You will appreciate that, given the early stage we are at, the final turbine layout will never be the one the consultants suggested, and the finances will need a great deal more work. In our view the conclusion to draw from the study was that there are no obvious insuperable hurdles which would rule out the proposal, so it is worth pushing ahead - provided, of course, that is what the community wants.
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Tom Heath
Posted 12/2/2015 23:18 (#1504 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Posts: 7

Martin. For clarity I would like to say that in principle I’m not against wind energy and for all I know the proposed project might be profitable. If a credible set of figures showed that the community would benefit then I would almost certainly support the scheme and therein lies the difficulty. I received a flyer from you asking me to vote for the scheme and a second flier fron the no windfarm group asking me to oppose it. Not ureasonably therefore I looked at the feasibility study and found what seems to me, as a reasonably experienced project engineer, a number of things which I didn't understand and which coukld significantly influence the profitability or otherwise of the scheme. In some areas such as the IRR/NPV question I am extremely confident that the report is wrong. Dependent on how the financial calculations were performed other queries I’ve raised (for example the assumed electrical efficiency) may be irrelevant but again without those calculations it is impossible to judge whether this is the case or not. So I guess in summary I am not anti the project as such but I am anti further spending until my concerns are allayed. It is not acceptable to hide behind the conclusions of the Consultants (Consultants have been wrong too often for that!) and since you don't seem willing (for reasons I don't understand) to release the financial model I guess you are by default driving me into the no camp. I find this a little sad but having said my piece I now intend to stay quiet until after the vote. Thanks again for your responses and may the result work out well for the Community whichever way it goes.
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Martin
Posted 13/2/2015 11:31 (#1505 - in reply to #1504)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Tom, I agree with you this is sad! We have already debated the IRR/ NPV issue, and I really don't understand your problem there, but if you want to give me a call I'm happy to talk it over. PM me and we can exchange numbers (I appreciate that you are an experienced project engineer, but I also have relevant and senior expertise in project evaluation). I haven't had a response from Atmos about the electrical efficiency, but I can confirm that the approach used by them is consistent with at least one other wind developer's internal project evaluation methods.
The reason we are unwilling to engage in a detailed debate about financial projections is simply because the project is not sufficiently developed to sustain that level of debate. There are some in the community who are not interested in arguing the case, but simply want to use anything they can to discredit the proposal. (You can see this very clearly from the photographs in the "no" leaflet - the rotor diameter should be 35 metres, and the tower height 65 metres, so using that information it's clear their photomontage exaggerates the height of the turbines (by about 60 metres, we think). The mock-up with Big Ben is even clearer, Big Ben is 96 metres tall, compared with the proposed turbine height of 100 metres.) Given the uncertainty about windspeeds, which in turn leads to uncertainty about the most appropriate turbines and layout, we think releasing the financial projections won't add a great deal to most people's understanding, but instead will lead to an argument about details that neither side can predict.
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Martin
Posted 24/2/2015 21:11 (#1506 - in reply to #1505)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Sorry, there's an error there, that should say the rotor blades are 35 metres long, i.e. the diameter is 70 metres (71 to be precise). And just to clarify the electrical efficiency point, the standard adjustment for losses on big schemes seems to be 97%, but I have been advised that 99% is more likely for a small project like this. That suggests the 98% used in the feasibility study is prudent.
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Tom Heath
Posted 24/2/2015 21:41 (#1507 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Posts: 7

Martin....I'm reluctant to post again as I didn't want to appear negative all the time and we didn't seem to be moving towards any agreement as to whether the feasibility study was a realistic assessment of the scheme. Unfortunately your last post forces me back to the keyboard. I have no idea who is giving you advice but the number you have just quoted is nonsense if it refers to the efficiency of the full electrical power train; just look up the efficiency curves for any electric motor and inverter system and you will see how far off the mark it is. If it doesn't refer to the full power train then what is the point in quoting an unrepresentative number? If it relates to the grid connection transformer alone then it is realistic but that is only one small part of the system. As I said in an earlier post the "efficiency" might be irrelevant if the power curves are the basis for the power output estimate but again,if this is the case, then what is the point of quoting a spurious efficiency. The problem remains that unless you reveal the calculations of energy generation and financial return we only have your faith in the feasibility study on which to form a judgement as to the likely merit of the scheme. Unfortunately the more I read the less impressed I am with that study. I would stress again that I didn't want the source detail of the study to condemn it but to form a considered view as to whether the conclusions of the consultants were on balance reasonable (every feasibility study has contentious elements in it and different consultants have different views hence the need to study the calculations as well as the conclusions!) It's a shame I wasn't able to form my own view on the assumptions used in the various calculations before returning my voting slip. As ever I admire your enthusiam and drive in promoting the project and look forward to the right development.
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Martin
Posted 24/2/2015 21:54 (#1508 - in reply to #1507)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Tom, I appreciate your motives, and I regret that the debate over this project has become so polarised that we can't have a sensible debate about the detailed profit calculations. And we can't pick and chose to whom we might release the detail, for obvious reasons. Regarding the electrical efficiency, of course you are right that the 98% factor doesn't allow for losses in the full power train, it is just resistive cable losses. Anyway, I'm pleased that you have returned the slip, however you voted, and thanks for your interest. Maybe if the ballot is positive we may have an opportunity to continue our discussions in less heated circumstances!
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Martin
Posted 2/3/2015 15:20 (#1510 - in reply to #1508)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Tom, just to draw a line under the electrical efficiency point, I have finally had confirmation that the the power output warranted by the turbine supplier is on the MV terminals of the step up transformer (which they also supply) and there should be no further reduction in output to account for inverters, transformers or other pieces of turbine equipment. The 98% efficiency factor quoted covers losses in the cabling between the turbine and the metering point at the control building. Hope that clears things up.
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Tom Heath
Posted 2/3/2015 18:52 (#1512 - in reply to #1481)
Subject: Re: Wind Project Feasibility Study Public Meeting


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Posts: 7

Thanks Martin...that issue seems to have been cleared up. Presumably there will be more financial information availableif the project gets to the stahe of seeking investment and maybe we can discuss the numbers further at that time.
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We are part of the rapidly expanding worldwide Transition Towns movement. The Black Isle is a peninsula of about 100 sq miles ENE of Inverness in Scotland, UK.


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