We find ourselves in the middle of one of the greatest wealth transfer periods of all time. Those with wealth must decide whether they want to make transfers, and if they do, they must decide how much, to whom, when and in what structure?
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It’s a problem for other companies in the energy economy as well, including solar-equipment manufacturers and smart-grid component developers.
“It’s not unique to this one business,´ said Neal Lurie, executive director of Colorado Solar Energy Industries Association. Fragmented utility rates and rules are “part of a large problem within the burgeoning energy marketplace in Colorado,” he said.
The uneven playing field is forcing tough choices for companies, and “making it harder for entrepreneurs to operate in Colorado,” Lurie said.
The pending relocation comes as VanDyne SuperTurbo gears up for a major growth spurt, thanks to contracts with the Army and one of the world’s largest truck-engine makers, Cummins Inc., among others.
To prove out its technology, VanDyne technicians have to run engines for thousands of hours. The process consumes lots of diesel fuel, but the company can offset its costs and impact on the environment by returning unused energy produced by the engines back to the power grid.
“With all our engines going, we have up to 3 megawatts of power we could put back out to the grid and sell,´ said Mark Herbst, chief operating officer for VanDyne.
The company would like to stay in its location on the west side of Interstate 25, but both Fort Collins and Loveland, cities served by the Platte River Power Authority, are hamstrung in their ability to accept and pay for the company’s power because of contract terms with the power authority.
“You’d think, from a business-generating point of view, anyone would want to buy (the power) back,” Herbst said, “but you have differences in dealing with power districts, and some are more heavily regulated. At the end of the day, these (power-purchase) deals are bigger than VanDyne alone.”
The company uses technology that CEO and founder Ed VanDyne helped develop at Woodward Inc. in 2009. Essentially, the technology boosts vehicle efficiency. Initial tests have shown that a VanDyne superturbo-charged SUV could get 35 miles per gallon while using a smaller engine than existing models. With a financing round closing soon and key contracts in place, the company is looking to consolidate its three lab and office locations, which are now spread around Fort Collins.
Ed VanDyne anticipates his company will spend roughly $1 million on fuel in conducting its tests. But the costs – and environmental effects of burning a small fortune in diesel – can be partly offset. The energy produced by the engines can be returned to the electric grid through what is known as “net metering.”
This approach allows utilities to reduce their own power production when there are available sources, such as renewable energy from solar panels or windmills.
Over the past year, VanDyne executives have met with Fort Collins Utilities and Loveland power officials to try to hammer out an agreement to send the energy from its engines tests back to the grid. But the terms of the contract that created the Platte River Power Authority have scuttled progress.
The four cities – Fort Collins, Loveland, Estes Park and Longmont – that are part of the Platte River service area are bound by the terms of the power authority’s contract with the Rawhide coal-fired power plant, which came online in 1984. The cities buy power produced at Rawhide at the price it costs to generate, and then set their rates based on transmission costs.
The agreements give the cities some of the lowest utility rates in the state and the country. But the terms also mean the cities must meet their demands via Rawhide, limiting the municipal utilities’ ability to negotiate with a company like VanDyne.
“That extremely low rate is obviously favorable to the consumer,” VanDyne said, “but it makes generation of power going back onto the grid compete against the coal-fired power plant.”
Based on the company’s discussions with the utilities and the power authority, VanDyne estimated his company could get about $15 per megawatt-hour, or about $350,000 a year, for its net metering.
But that’s a lot less than what Poudre Valley Rural Electric Association — which serves parts of Larimer and Weld counties outside city limits and gets its supply through Tri-State Generation — has suggested it would be able to pay.
VanDyne would receive about $45 per megawatt-hour, or $1.2 million annually for its metered power if it moved into Poudre Valley’s service area. That would more than pay for the company’s diesel costs, and is about triple the offer from Platte River-powered cities.
“Anytime you can get more energy onto the system, you can help meet demand,´ said Myles Jensen, Poudre Valley’s external affairs manager. “It would support business by helping to lower power bills, and I’m sure they’ll bring in jobs.”
Indeed, Ed VanDyne said the company plans to add 150 jobs over the next three years.
Incentives to stay
Herbst said Fort Collins and Loveland utilities and business-development staff “bent over backward” trying to keep VanDyne but that, in the end, “their hands were tied.”
Betsey Hale, the Loveland business development manager who met with the company, expressed frustration over the move.
“Anytime we can capture something that can develop locally, that’s so much easier” than recruiting an outside company, she said.
Hale said cities such as Loveland should develop other incentives and “get creative” in order to land businesses that have profiles similar to VanDyne’s. Loveland is finalizing an economic incentive policy as the city prepares to woo new clean-tech companies for the Rocky Mountain Center for Innovation & Technology at the former Agilent campus. Perks will likely include cash-for-jobs credits for new businesses in the city.
In the meantime, VanDyne officials said the difference in metering rates have sealed the company’s decision to relocate.
Herbst said VanDyne has looked at nearly 15 sites in Windsor and other parts of Larimer County served by Poudre Valley Rural Electric, with plans to be in a new location this summer.
“We’d much rather stay here (in Fort Collins),” VanDyne said, “but it’d be $700,000 we’d lose. We’re now at the point where we’re pretty much only looking into the PVREA area in order to optimize our cash flow.”