Business Development Opportunities through “Behind the Meter” Cogeneration Projects.
A Case Study Presentation
By
Michael Martin, Ph.D, Assistant Professor of Marketing
Fort Hays State University
Tim Speno, President & CEO
E2E Summit
Fort Hays State University
Fort Hays State University, located nearly halfway between Kansas City & Denver in
Northwest Kansas, is a model of innovation and fiscal responsibility as an institution of higher
learning. Fort Hays State was the first campus in the state of Kansas to have fully mediated
classrooms where professors and students could engage with technology throughout the learning
process. For over twenty years, the university has improved access to higher education through
its distance learning initiatives, becoming an example for other institutions attempting to grow
enrollments in shrinking market areas in the face of declining resources for education. As a
leader in online education, Fort Hays State has truly gone global, becoming the first American
university to be granted approval by the Ministry of Education to offer a bachelor’s degree in
mainland China.
While high schools in Western Kansas have consolidated and small towns have continued
to decrease in population, Fort Hays State University continues to update facilities and construct
new buildings, including the FHSU Indoor Athletic Training Facility, and the Center for
Networked Learning, expected to be completed in fall of 2014. So with the challenge of a
shrinking market area and reduced funding for higher education, the University has been
successful in reducing costs and also raising capital in order to complete projects that will benefit
FHSU and its stakeholders into the future. This model of fiscal responsibility, especially in the
area of energy management, makes the university a likely place to be able to complete a project
for wind energy and do it in a way that makes good business sense.
Like other institutions of its size, Fort Hays State has seen increased demand for electricity.
With the installation of computer servers, a campus-wide wireless network, and remodeling of
the Memorial Union and other campus buildings comes an increase in the use of electronics
which lead to those increases in demand for power. While new construction may be more energy
efficient, turning unused space into used space and increasing traffic flows through buildings will
help increase the aforementioned demand. FHSU began looking at energy management systems
(EMS) in the mid-1990s with two buildings on campus, Tomanek Hall and Sheridan Hall. The
university was interested in reducing costs associated with energy prior to that, but EMS became
more viable on a larger scale during that period. As time progressed, the institution began to
increase its energy management program to include building diesel generators to utilize during
peak usage times; peak demand shaving. The construction of these new generators that helped to
manage that peak demand saved the university nearly $200,000 per year when combined with
other energy management initiatives. The ability to realize these savings gave Fort Hays State
the capability to create a source of funding for the wind energy project. In addition, FHSU has
been a leader in terms of managing supplier relationships and cost control across academic and
non-academic departments.
The Business Case for the FHSU Wind Project
As evidenced by its “Affordable Success” strategy in the early 2000’s, the university has
sought to provide the highest quality education while keeping tuition costs down. Keeping
tuition increases below 10% per year while other Kansas Board of Regents institutions raised
tuition as much as 25% helped to cement FHSU’s reputation as an institution that provides
tremendous value to its students. During the years 2002 – 2007, Fort Hays State as the only state
university in Kansas to see a decrease in operating costs per student credit hour. The university
has saved over $1.5 million by consolidating some of its education departments, as well as
completing construction projects and software development in-house instead of hiring outside
employees. FHSU has also controlled costs by also developing online courses in-house.
Ultimately, the business case for the project was built on FHSU being a consumer of
energy, not a producer. Like other places, energy costs at Fort Hays State have continued to rise.
Some of this cost at FHSU can be attributed to an aging and dated electrical system, which has
high upkeep and maintenance costs. Fort Hays State has taken the lead in energy management,
beginning with energy management systems built in 1996. The University was spending roughly
$2.4 million per year prior to starting their own energy management initiatives and then
beginning a relationship with Chevron in 2004 to manage energy usage in additional buildings
on campus. By initiating this type of monitoring and control, the institution was able to save
around $350,000 per year on average. Moving into the construction of diesel generators to
handle peak demand and beginning peak demand shaving using additional diesel generators in
2004, the university continued to reduce energy costs. Through construction of the wind turbines,
the institution expects that the energy generated will meet over 95% of the energy used by the
campus, and the current projected savings from using wind energy is $700,000 to $1.6 million
annually.
The justification for building wind turbines and generating electricity is founded in the
meticulous nature of the FHSU business model. Operating efficiencies are gained from
experienced leadership making timely, well-planned decisions and a focus on meeting
institutional goals while carefully allocating resources. As the examples listed above suggest,
fiscal responsibility at the institutional level leads to a low debt ratio and the ability to think in
terms of self-sufficiency with respect to project investment. Another game-changing element of
the FHSU scenario is that the university did not have to rely on government assistance (and the
often cumbersome requirements it presents) in order to achieve its goal of energy independence.
Wind Energy at Fort Hays State University
The Kansas Board of Regents (KBOR) adopted a policy on sustainability in 2008 and
required its institutions of higher education to respond with a sustainability report. FHSU is
proactively involved in environmental issues, as well as educating students on the value of
service to the community, and the requirements for being a responsible civic member in the fastpaced, global environment. The university also recycles waste oil, fire extinguisher powder,
refrigerants, batteries, toner, and a number of other materials including paper, of which 8.5 tons
per month have been sent to the city recycling center. From a strategic perspective, FHSU
includes sustainability as part of its planning process, as all renovation and new construction
projects are designed to provide the most efficient energy use as possible amid scarce resources.
With respect to utilities at FHSU, modern steam separators were installed to run steam
boilers more efficiently. These boilers have been maintained so that they will burn fuel sources
more effectively, using less natural gas and fuel oil, which reduces emissions. In FY2010, the
university saw decreases in electricity usage for three of the larger buildings on campus due to
efficiencies gained from summer program reductions, accurate facility scheduling, and set back
strategies that reduce usage during periods of low building activity. Additional savings were
realized with adjustments to lighting with the use of special reflective lenses and a conversion to
energy efficient T-8 lighting technologies, as well as occupancy sensor lighting controls.
Greening measures at FHSU with respect to utilities include replacing older air chillers,
condensers, and rooftop units, optimizing operation of boilers, expanding the energy
management system, and conversion of HVAC equipment to variable speed technologies.
Additional measures include wall insulation of exterior masonry walls and window technologies
that apply thermal, low E glazing to improve aesthetics as well as performance.
The construction of the FHSU Wind Project became a reality due to a number of factors.
The planning for the FHSU wind farm goes back several years to when FHSU was experiencing
success (cost savings) in energy management and peak shaving activities. Necessary to the
process are the opening wind assessment to determine the wind resource at the site, which
turbine models might perform best at the site, and the basic financials of the project. The report
generated with this information can serve as a go/no-go document to the institution. Another
important development in the pursuit of an energy project such as this is the county/city zoning
issues that arise. The FHSU project faced serious opposition upon the initial attempt at the
project. There was a prohibitive wind ordinance within 3 miles of the city, so the project had to
be developed outside of that (at 3.5 miles). The county commission had previously denied a
larger wind farm with lasting repercussions. The county wind ordinance was written for this
larger wind farm and the small project development plan written for the FHSU project had to be
written to the same exacting standards. The plan was approved by the county zoning board and
subsequently approved unanimously by the county commission. An election had taken place
during the early stages of the project and the composition of the county commission changed,
allowing the project to move forward.
As indicated by information provided through interviews with several key players in the
FHSU Wind Project, the management team was critical in making the project a reality. Dr.
Edward Hammond’s years of experience in managing change and leading the university through
twenty years of innovation was very instrumental in making wind energy a reality. In addition,
the team that is assembled around Dr. Hammond has expertise in various areas that made the
project go more smoothly. A thorough understanding of the legal issues of this type of project is
necessary to its success. A land lease was negotiated with the landowner, and also three
easements necessary for widening the roads for transport, and a Roads Agreement with the
county. Mike Barnett, Vice-President for Administration and Finance knew that a wind project
would not be pursued if there was no financial viability to it, and access to land for the turbines
and trench to carry power to the campus was a tipping point in making the project a reality. The
wind data that is critical to being able to green-light a project of this magnitude was already
being gathered at FHSU. A larger Met tower, able to measure wind at three levels, was
constructed as part of the FHSU wind project and Dr. John Heinrichs, Department Chair for
Geosciences at FHSU requested meteorological equipment for enhancing the existing FHSU
weather station. The ability to measure wind at three levels provides very valuable data to the
project and helps to ensure that the measurements taken by the turbines are indeed credible.
While the Met tower exceeds the height allowed within the 3 mile COH purview, the height
limitation was overcome by the tower’s use a weather station. Dr. Heinrichs’ expertise in this
area provides further credibility to the project and additional research/partnership opportunities
going into the future. As mentioned earlier, FHSU has been proactive in reducing its utility costs
using energy management systems as well as peak shaving activities. Keith Dreher, Manager of
the FHSU Energy Division, has over 20 years of experience with power generation and utility
construction and maintenance at the University. His knowledge of the systems and hands-on
experience working with energy management and peak shaving are also significant in making a
successful transition to cogeneration. Dana Cunningham, FHSU Architect, also has experience
planning various building projects at Fort Hays State and has a strong understanding of the
process and what to consider when bidding construction for various campus ventures.
According to Wayne Hildreth, partner at WECC, projects of this nature have “many
moving parts” and when facts and issues are presented with solutions, a project can be
successful. The expertise of the FHSU team was enhanced by the capabilities of WECC, a wind
energy consulting company based in Oklahoma. WECC provides turnkey solutions for wind
energy projects by providing specialized resource analysis, wind measurement with data analysis
and reporting, project design and planning, financial modeling, economic impact assessment and
wind resource mapping. In addition, WECC also provides project development, project
management and engineering services. When coupled with the team assembled by FHSU to
make wind energy a reality, this specific project expertise was very valuable. WECC actually
acted as a representative of the project owner (FHSU) and was the catalyst that helped the project
go more smoothly. WECC created and presented the Development Plan for political approval,
drafted the RFP for Balance of Plant and assisted with contractor selection, was instrumental in
land acquisition, utility negotiations, and with negotiating the Turbine Supply and Operations
and Maintenance Agreements. While other projects of this type might involve an engineering
firm that contracts out the different activities to third party providers, increasing the total cost of
the project. WECC was able to provide testing services and other project assistance, representing
the FHSU owners, and reduce some of the typical costs associated with wind projects. Another
way WECC provided expertise was in the vetting of study providers and wind turbine
manufacturers. Using a study from a company that may not be absolutely bankable can be a
critical mistake in that incorrect data will drive costs up and possibly end a project before it gets
any traction. The use of a unique wind energy consultant like WECC also helps an owner get all
parts of the project completed in a more favorable time frame without missing crucial elements
of the process. The first study, the Preliminary Wind Resource Assessment helps to set the stage
for the project and can also be go/no go indicator for the owner. Again, FHSU already had good
data concerning the wind at the site it was considering for the turbines, so the project was ready
to move forward. WECC provides oversight in getting the proper tests done, the zoning
permissions completed, and the actual construction of the wind farm. They helped the FHSU
owner at each step in the process and ultimately helped the owner reduce its costs.
According to Dr. Edward Hammond, FHSU President, an energy project has three major
components: politics, technology, and finances. The political realities of this type of project exist
at the city, county, and state level, as well as a corporate level with the local utility company. The
city and county had experienced some difficulty with a previous wind project and there were
definitely wind energy opponents seated in local government. Eventually, the landscape changed
and wind energy became more acceptable, garnering the support of the county commission.
Constructing an energy project of this magnitude would have to involve workng with the Kansas
Corporation Commission. The KCC has regulations in place that prohibit more than one utility
from operating in a geographic area. Since Midwest Energy is the local utility, Fort Hays State
had to find a way to be able to build the wind farm to produce energy and stay within the rules of
the KCC by generating power from the wind without being considered a utility. Dr. Hammond’s
experience in dealing with the political aspects of his job was instrumental in making the project
happen and WECC also assisted in discussions concerning this political environment. Dealing
with the local utility also presented challenges. The local utility has been a partner of FHSU for
many years and the wind energy project affected their business. In this case the company was
concerned about energy being created by FHSU back-flowing into its system and creating a
safety issue for its linemen. The University and Midwest Energy are still working on completion
of interconnection requirements of the new systems to ensure the necessary protections are in
place, and have agreed to interim measures.
Technology is another critical component of an energy project. Fort Hays State has
leveraged technology its benefit for twenty years, both in the classroom and in its management of
energy. By entering into agreement with Chevron, FHSU was able to use power much more
efficiently and realize savings of $350,000. The institution continued to be a leader in energy
management with the installation of gas generators for peak shaving, in which FHSU transferred
generation during peak usage periods in order to reduce the amount of electricity taken from the
utility. The peak shaving initiative greatly reduced FHSU’s energy costs once again and set them
up for further efficiencies from using wind power. Now the University has developed a 2-turbine
wind farm of 4MW in nameplate capacity to generate power with the goal of making FHSU less
dependent on the local utility and subsequently realizing tremendous cost savings. This
renewable energy project will also provide learning opportunities for FHSU students and help to
create educational partnerships with community and technical colleges.
The third major consideration in an energy project is the financing of the project. Fort Hays
State has been able to finance wind energy without having to rely on government funding or
private investment. The University was able to leverage significant cost savings from energy
management and peak shaving to pay for the cogeneration project. FHSU was in a good financial
position with respect to energy and was able to show its ability to control costs by proactively
changing the way it uses energy over the past two decades. It was a natural step for FHSU to
move even further toward energy independence by pursuing cogeneration. According to Dr.
Hammond, even with the “do nothing” scenario, Fort Hays State would be spending $2.4 million
for energy. The savings with the wind project could be as much as $1.4 million per year for 10
years after a total investment of $11.4 million, with the life of the project rounding out to around
25 years with proper maintenance of the equipment. Even with a lower estimate of $1 million in
cost savings annually, the project still works. Again, the ability of FHSU to keep costs down
through energy efficient operations helped to make this project a reality.
Moving Forward with Wind Energy at FHSU
With the pending completion of the FHSU Wind Energy Project comes additional
opportunities for forward thinking energy solutions. One of the more prevalent arguments
against wind energy is the challenge in storing the power. Fort Hays State is currently looking at
storage solutions available through a large manufacturer and is considering which alternative will
work best with its system. The University is also looking at a microgrid as the next step in selfsustaining energy as a means to efficiently manage disparate sources of energy, storage and
campus building controls. The idea behind the microgrid is that it would allow a small project
like the FHSU wind farm would be able to manage its power more efficiently and not have to
rely on the larger local power grid. It is very important that the Energy Division team at FHSU
work through the management of the wind energy and any challenges that it presents before
undertaking the construction and management of a microgrid. The University is exploring the
microgrid opportunity with a vendor as well, but a decision has not been made on when or how
that part of the project might be completed.
As mentioned previously, FHSU has opportunities to use the wind project as a catalyst for
expanded learning opportunities. The farm serves as a model that could educate students from
the high school level to the graduate level and attract students to Fort Hays State. One way this
might be accomplished is by leveraging existing community college and technical college
partnerships to provide an increased number of courses and programs at FHSU. There are
already discussions with Cloud County Community College to use the Fort Hays State wind
turbine generators as a live laboratory for their existing and impressive wind energy program.
Dodge City Community College is another partner that would be able to benefit from additional
course offerings.
Now that FHSU has found a way to harvest wind power to produce its own electricity, the
next step would be to look to the sun and invest in solar energy. While costs for solar power are
high and there are still some challenges associated with its successful implementation in this
setting, it’s definitely on FHSU’s radar for future projects. It’s expected that the University will
continue to use energy efficiently and create an opportunity for the exploration of solar energy in
the not too distant future. In any case, the institution continues to serve as an example in fiscal
responsibility and energy efficiency to other colleges and universities in the state of Kansas and
beyond.