Many Utilities Embrace Wind Energy

By Ken Silverstein
Director, Energy Industry Analysis[News Item from Reuters] FPL Group, the largest producer of wind energy in the United States said it is in the process of adding about 600 megawatts of wind-powered generation at sites across the country.

Analysis: Many utilities understand that going green makes good business sense. Renewable energy can supplement their portfolio fuel mixes while allowing them to meet their contractual loads. Providing a valuable market service and better serving shareholders or stakeholders are compatible—something that about 200 utilities nationally of all types have discovered.

Utilities that sell wind power report that between two percent and five percent of their patrons will take advantage of the offering and shift some percentage of their total use to the renewable source. Average homeowners may use 1,000 kilowatts per month. If they redirect half of that, they would pay about $7.50 extra a month.

FPL Group, for example, has 78 wind facilities in operations in 15 states that generate 5,500 megawatts of electricity. Just this week, it entered into an agreement with Albuquerque, N.M.-based PNM to develop a 204-megawatt wind generation facility that will get underway later this year and take six to nine months to construct. FPL Energy will build, own and operate the New Mexico Wind Energy Center that will consist of 136 wind-powered turbines on a site in the eastern part of the state. PNM will buy all the power generated under a long-term contract.

"This project represents a significant step forward in reducing our reliance on fossil fuel generation," says PNM Resources CEO Jeff Sterba. "For PNM, the Wind Energy Center will provide a long-term, competitively priced power source both for New Mexicans and for the wholesale power market in the Southwest."

PNM will ask the New Mexico Public Regulation Commission to approve a voluntary tariff that will allow its retail customers to buy wind-generated electricity for a small monthly premium. Any surplus wind power will be sold regionally on the wholesale market. The company says that not only does the move diversify its fuel mix but it also sees prospects in being able to sell any excess power on the wholesale market.

Other utilities notice the same potential. In the case of FPL, the 600 megawatts of additional wind capacity that it is adding is all under long-term contract. The buyers: PacifiCorp Power Marketing, Basin Electric Power Cooperative, Alliant Energy Group and Exelon Corp.

"We will continue to look for opportunities to expand our wind portfolio to meet the growing demand for clean, renewable energy across the country," said Jim Robo, president of FPL Energy.

Breaking Barriers

Worldwide, utility-scale wind turbines produce about 17,000 megawatts today—a fraction of the total generating capacity. In the United States alone, the total generating capacity coming from all power sources is about 770,000 megawatts. Non-hydro renewable sources are estimated to be less than two percent of that number. Still, the use of wind generation is increasing: In 1999, wind farms generated about 4.5 million kilowatt hours compared to 3.1 million kWh in 1995, says the Department of Energy.

The barriers to entry, however, are daunting and include the lack of transmission capacity to bring the electricity generated from remote locations to residential sections. Wind farms are furthermore capital intensive and estimated to cost noticeably more to build than natural gas-fired generation. At the same time, wind does not blow on demand and because of that "inefficiency," it takes longer to recoup an investment.

That's why wind power is still more expensive than traditional fuel sources. It's also why some utilities are reluctant to embrace it. But as wind technology has matured its costs have declined. Combined with tax credits, wind is now becoming very affordable with consumers.

A decade ago, wind power cost between 25-30 cents a kWh to generate. With federal subsidies, the cost is now about 5 cents a kWh, making it almost as competitive as coal and natural gas. One of the aims of federal and state policy is to increase its usage, which will create an influx of new investment in new technologies. As the industry gains economies of scale, new methodologies that cost less will come to the fore.

The U.S. Senate has a provision in its energy bill now waiting to be reconciled with the House's version to require investor owned utilities to generate at least 10 percent of their power by 2010 from renewable sources. Meanwhile, the U.S. government does grant a tax credit of 1.5 cents a kWh for electricity generated during the first 10 years of operation for a wind plant. And the U.S. government funds the National Renewable Energy Laboratory that develops renewable energy and the technologies that affect it.

Also, about 15 states have laws on the books that oblige power companies to develop renewable energy portfolios. California, which already has 1,600 megawatts of wind generating capacity, just passed legislation that requires retail electric merchants to have at least 20 percent of their energy mix coming from renewable sources by 2017. One of the implications of that new law will be the replacement of earlier generation turbines with newer ones that can produce between 20 percent and 30 percent more electricity.

Trendsetters

The state mandates are giving utilities the impetus they need to get into the wind movement. The Colorado Public Utility Commission, for example, ordered Xcel Energy to incorporate the power into its fuel mix—something that the Minnesota-based company first balked at but later embraced fully. Xcel reached an accord with GE Power Systems so that a 162-megawatt wind farm would be built in Colorado. GE will construct the wind farm that will serve 75,000 homes while Xcel will buy the power. The project is expected to reduce carbon dioxide emissions by 4 million tons over 15 years.

Similarly, Dallas-based TXU Corp. has expanded its purchases of wind power that is generated by American Electric Power. TXU contracts for about 400 megawatts of total wind generation—a move that won it an award from the American Wind Association that proclaimed it a leader in the area. Texas now has about 800 megawatts of wind capacity but anticipates—in accordance with its law that passed two years ago—having 2,000 megawatts by 2009. That has forced the Electric Reliability Council of Texas that controls the state's transmission grid to contemplate how to expand its system to accommodate wind power.

Meanwhile, the Northwest is planning almost 1,800 megawatts of wind generation that will serve about 330,000 homes all over the region. Most is under consideration to meet the demands of the Bonneville Power Administration. Various public utilities in the area will purchase that power and make it available to their customers.

The future of green power is bright, although it will remain a small part of the nation's overall energy mix. A study by Platts Research and Consulting estimates that the total U.S. demand—that is not being met—for renewable energy is now about 6 percent of all U.S. residences, or 21,000 megawatts. Utilities could reach or exceed that demand, it says, with a major marketing initiative.

As the power source gains momentum, it will enter new markets and attract more and more participants. The added interest will facilitate increased investment and the development of superior technologies that can deliver the service for less—a critical development if wind energy is to rev up. It's how any new technology gathers steam.