WIND FLIES HIGH

Alice Clamp is a freelance writer based in Lovettsville, VA.

Despite a slowdown in construction of overall new generation and reports of a glut in generation that will last for at least the next five years, one generation source has not yet had the wind taken out of its sails. Worldwide, wind power is growing at an annual rate of 30 percent. Though Europe has been the leader in wind for a while, growth in the United States, if it keeps up with current trends, may be catching up. Nationwide, the American Wind Energy Association (AWEA) forecasts that the industry is on track to install 1,100-1,400 new megawatts (MW) of wind capacity this year, bringing current levels of 4,700 MW to approximately 6,000 MW.

Canastota Windpower's Fenner Wind Power Project, the largest in New York State,
generates enough electricity from 20 1.5 MW turbines to serve 10,000 homes,
says the company.

That’s a growth rate of 25 percent in a sector that is struggling to rebuild itself. And even so, according to AWEA, 2003 won’t be the record-breaking year that was anticipated.

Wind has proven to be a pretty attractive alternative for investors, as well. The 4,700 MW of installed U.S. wind capacity—and the 30,000 MW installed worldwide—indicate more than a niche market: “With players like GE Wind, FPL Energy, and Shell, it’s looking more like a mainstream market,” says Lisa Frantzis, director of Navigant Consulting’s renewable and distributed energy practice. (See the sidebar, “Wind’s Investors.”)

Customers are catching on, too. A recent decision by the Environmental Protection Agency to power its New York City regional offices solely with wind power from upstate New York’s Fenner Wind Power Project—making it the largest federal purchaser of windpower in New York—may set a precedent for other major buyers.

So what is driving this phenomenal growth? There are a lot of factors involved, from growing interest in renewable energy; declining prices of building wind and its increasing competitiveness with other generation sources; the federal production tax credit and other incentives for wind developers; states’ mandatory and voluntary initiatives to encourage renewable development; and rising natural gas prices. These and other things are filling the sails of windpower. Even factors such as not-in-my-backyard sentiments and transmission siting issues are not having an overall major effect.

Better Technology, Better Return

Improved turbine technology over the last 20 years has helped achieve approximately a 90-percent reduction in price per kilowatt-hour (KWH) for windpower, according to AWEA—from 80 cents/KWH in the 1980s to about 4 cents/KWH today. In addition, wind turbines in the 1980s were only available to operate about a third of the time that the wind was blowing, says Kathy Belyeu of AWEA—now they’re ready to go more than 90 percent of the time.

Texas is an example of a state that took advantage of the technology improvements. The state’s programs to encourage renewable investment helped TXU increase its wind portfolio by 800 percent in 2001. The technology to exploit the state’s wind potential “was sufficiently mature and cost-effective” when Texas’s renewable portfolio standard went into effect in 2000 and the state seized the moment, says Bill Muston, manager of research and development at TXU Energy. By the end of 2002, its installed wind capacity had skyrocketed from 121 MW to 1,095 MW. As a result, the state of  Texas saw nearly $1 billion in new investment for building that new capacity. “Right now, we’re able to enter into long-term contracts with wind project developers at fixed prices that are very competitive with energy from natural gas-fueled resources,” says Muston.  “And as natural gas prices tend to increase in the future, wind energy will become even more economical.”

Still, some see room for more improvements before wind can reach the next level. It would take “storage capacity at practically zero cost” for wind power to compete head to head with conventional generating sources, says David South of Technology & Market Solutions, a company that provides business and environmental advice to electric companies. Because wind is intermittent, wind power facilities cannot provide on-demand capacity. But with efficient storage technology, wind might be competitive as an intermediate generator. “If you can align the generation with a particular load profile, it might be a very economic source of power,” says South.

Xcel Energy’s most recent wind power purchase contracts have resulted in prices of 3 cents per KWH or slightly less, according to Jim Alders, manager of regulatory projects at Xcel. Wind-generated electricity can “supplement energy production and make the overall cost of power more economical,” he says. “But it’s not a resource that can replace an intermediate or baseload facility.”

Giving Incentives

Whether wind-generated electricity can be cost-effective for a company depends “on local incentives such as property and sales tax credits and a company’s ability to take advantage of the production tax credit,” says Navigant’s Frantzis. “Some wind developers are quoting energy from wind for as low as 2.5 cents per KWH, which is very competitive—even if it does include the federal production tax credit of 1.8 cents per KWH.”

Wind may be able to give other generating sources a run for their money, but not without that tax credit (which expires at the end of 2003)—and sometimes other incentives. “Renewable energy technologies are generally higher cost,” says Ryan Wiser of the Lawrence Berkeley National Laboratory. But, he adds, with the federal production tax credit, “wind is among the cheapest energy sources in some parts of the country.”

Take California, for example. The granddaddy of renewable energy generation has long been a leader in wind power even though the state ranks 17th in the nation in terms of wind resources. It became that way partly as a result of a combination of tax credits, long-term power purchase contracts, and technical assistance the state used to jumpstart the renewable power industry during the 1980s. California now gets 12 percent of its electricity from renewables. Roughly 1 percent of the state’s power comes from 1,822 MW of wind generating facilities—most of which have been on-line since the mid-1980s—from California’s three prime wind sites: Altamont Pass, Tehachapi, and the San Gorgonio Pass.

To Mandate…

The Energy Information Administration (EIA) expects state mandates and renewable energy portfolios to result in 3.7 gigawatts of wind power by 2025. But not every state has a mandatory renewable portfolio standard (RPS), and neither does everyone agree that they should. There is also considerable debate about a national RPS.

Currently there are 10 states with a mandatory RPS, which requires retail electricity suppliers to purchase some percentage (based on their portfolio) of renewable generation. Most states included an RPSs in their restructuring plans, except for Wisconsin, which adopted it without opening electricity markets to competition.

Of the state RPS programs, most agree Texas got it right. The Texas public utilities commission (PUC) delivered a product “frequently pointed to as a model for other states to follow,” according to a report by the Center for Resource Solutions. It cites two main factors for the successful rule—the collaborative stakeholder process used by the commission to craft the rule, and the strong commitment of the commission and its staff to develop an effective RPS. “The rule made Texas one of the most attractive markets for renewable energy in North America,” says Mike Sloan, a member of the Texas Renewable Energy Industries Association board.

The state is more than halfway toward its goal of new renewable capacity, and more is planned—including a 160-MW wind facility in western Texas. Under the RPS, Texas must install an additional 2,000 MW of renewable generation by 2009, phased in over time. The vast majority will come from wind power.

Texas has some other things going for it, too. The state ranks second in the nation for wind energy potential—so in its resource mix it actually has a fuel for an increasingly economical technology. And because the Electricity Reliability Council of Texas covers a region that is a single state (whereas the other reliability councils cover several states), matters were simplified. “Texas isn’t subject to jurisdictional issues of regulation like the rest of the country,” says Jim Caldwell, policy director at AWEA.


Windy conditions and both voluntary and mandatory programs have positioned
Iowa just behind California and Texas in terms of wind capacity.

The wind power boom in Texas isn’t solely an outgrowth of an effective RPS policy, though, says Wiser. A customer-driven market for green power and wind projects under contract to publicly owned utilities not subject to the RPS requirements have also driven the development. In a 1996 survey, 65 percent of electricity customers in west Texas said renewables should be used for new electric power supply.

While some point to Texas to argue in support of a mandatory standard, others might point East to Maine for an example of what can go wrong.  Maine’s RPS, adopted by the state legislature in 1997, stipulated that 30 percent of retail electricity sales come from a wide range of renewable and “clean” energy sources. But a desire to protect Maine’s existing renewable sources—including the biomass, hydropower, and cogeneration industries—rather than to encourage the development of new sources, drove the state standard, according to the Center for Resource Solutions’ report. Essentially, Maine’s RPS was meaningless: A 30-percent standard in a state that was already getting approximately 50 percent of its electricity from renewable energy would accomplish nothing.

“Not enough attention was paid to the detailed drafting of RPS legislation in the late 1990s,” says Wiser. Like the way a lot of legislation is crafted, Maine got caught up in what Wiser calls a “sausage-making process”—or the attempt to toss into the grinding legislative process multiple policy ingredients from all stakeholders. The state is trying to revisit the issue: In April the House approved a measure that would require the state PUC to examine various mechanisms for increasing Maine’s use of renewable resources.

California’s PUC is expected to develop regulations for implementing its RPS this summer. Under the plan, the state’s shareholder-owned electric utilities must increase their electricity purchases from renewable sources by at least 1 percent a year, reaching 20 percent by 2017. Competitive energy service providers also are required to meet RPS requirements—though Pacific Gas & Electric (PG&E) and Southern California Edison are not required to comply until they are deemed creditworthy by the PUC. San Diego Gas & Electric, however, “appears to have overcomplied with the RPS because of its ambitious renewable energy purchases in 2002 and is well ahead of where it needs to be,” says Wiser.

PG&E’s John Pappas is guarded about how effective the RPS will be in boosting generation from renewables. “It’s a structure that has the potential to work,” he says, “But we’ll have to wait and see.” Wiser is more optimistic: California’s “RPS holds the promise of being the most ambitious in the nation—if implemented effectively.”

Ranked 10th in the country for wind power potential, Iowa has emerged as a wind power leader in the Midwest. After California and Texas, Iowa has the most installed wind generating capacity—nearly 423 MW. It didn’t happen overnight, however. Under a 1983 Alternative Energy Production Law, Iowa’s shareholder-owned utilities were required to buy 105 MW of electricity annually from renewable energy projects. The Iowa Utilities Board ordered compliance with the law in 1996.

Since then, the state has moved forward with “an aggressive wind program,” says Mark Douglas, president of the Iowa Utility Association. Alliant Energy has built up wind in the state: “By the end of 2003, we’ll have more than 300 MW of wind capacity under contract, most of it in Iowa,” says Chris Schoenherr, an Alliant Energy spokesman, which operates in four states.

…Or Not to Mandate?

Voluntary programs are having success in Iowa, too. In March, MidAmerican Energy announced a plan to build a 310-MW wind facility in the state, making it the largest land-based wind project in the world. The turbines will be installed in stages between 2004 and 2006, says Jack Alexander, the company’s senior vice president of supply and marketing. The project fits with the voluntary goal announced by Governor Tom Vilsack of 1,000 MW of renewable capacity by the end of the decade. “Our share of that 1,000-MW goal is 41 percent—based on the amount of generation in the state, our current power purchase agreements, and the renewables we own,” Alexander  says. “This wind project will put us at 43 percent.”

Ranked 9th in the country for wind potential, Minnesota also is developing wind power under a nonmandated renewable energy goal developed in 2001—and as part of 1994 legislation that will ultimately require Xcel Energy to build or contract for 825 MW of wind power by 2007 in exchange for granting the company increased onsite storage of used nuclear fuel at its Prairie Island nuclear plant. So far, so good, says Jim Alders: “We’ve met the requirements to date: a total of 225 MW of wind power under contract by 1998, and a total of 425 MW under contract by 2002.” Xcel Energy is now evaluating a short-list of proposals for new generation that include more than 600 MW of wind. Alders believes it can be competitive with other forms of generation under current market conditions.

There is talk of a broader renewable portfolio standard in Minnesota’s future, but Xcel Energy would like to see how the voluntary renewable portfolio goal works out. That goal requires utilities to make a good faith effort to provide 10 percent of their electricity from renewable energy sources by 2015. “We’d like to see to what extent renewables can compete without mandates,” says Alders.

In the Southwest, too, the issue of a voluntary versus a mandatory standard is the subject of debate, though the most abundant natural resource in that region is the sun. The New Mexico Public Regulation Commission issued a rule last December mandating an RPS. That rule has been challenged by El Paso Electric, which serves customers in New Mexico as well as Texas.

“We think the Public Regulation Commission and the legislature should give voluntary measures a full chance to work before resorting to a mandatory standard,” says Don Brown, of Public Service Company of  New Mexico (PNM). He points to the New Mexico Wind Energy Center as an example of what can be achieved voluntarily. PNM contracted for all the electricity from the center, a 204-MW wind facility being built by FPL Energy, before the commission established an RPS.

Brown acknowledges that the federal production tax credit for wind, plus a state tax credit and other incentives, sweetened the pot. “The two credits together were worth 2.8 cents per KWH, and along with other exemptions they brought the price down considerably,” he says. “We wouldn’t have reached the agreement without them.” The new wind facility will account for about 8 percent of PNM’s generating capacity and about 4 percent of the electricity it sells.

Not In My Backyard?

Environmental and siting concerns pose some problem for wind development, though primarily in the East. It’s a big concern in Massachusetts, as illustrated by the superheated controversy generated by a proposed offshore wind farm in Nantucket Sound. Even some politicians who express support for renewable energy generation take issue with this particular project, which would place 130 wind turbines five miles off the coast of Cape Cod.

But in the more-or-less wide open spaces of the states in the Midwest, landowners don’t tend to object to wind turbines. “Siting wind farms hasn’t been a big issue in Minnesota,” says Xcel’s Alders. “The southwestern part of the state is home to most of Minnesota’s wind resource, an area where agriculture is struggling.” Landowners who are paid a fee, either per turbine or based on power production, “welcome the boost to the economy,” he says.

It’s the same story in Iowa, where farmers and ranchers benefit financially from having turbines on their land. “They look at it as harvesting another crop,” says Alliant’s Schoenherr. In Texas, most of the wind facilities are located in the western part of the state—ranching and oil production country. “For landowners, it’s a revenue opportunity that doesn’t interfere with other land uses,” says TXU’s Muston.

As for people concerned about the interference of wind turbines on their views, it seems less of a problem in the West: “People don’t like to live where it’s windy enough to be of commercial significance,” says Jim Caldwell.

There is a trade-off, however. The factor that favors the siting of wind farms—remote locations—also works against them. “Wind tends to be located where the resource is best, and, at least here in the Midwest, that tends to be where transmission is weakest,” says Alders.

Getting from There to Here

“Transmission is becoming one of the main drags on the fast development of wind power,” says AWEA’s Belyeu. Wisconsin is a prime example. “Minnesota has 18 transmission lines going in and out of the state,” says William Skewes of the Wisconsin Utilities Association. “We have four. The Federal Energy Regulatory Commission says we’re one of the worst sites in the country for transmission.”

In siting MidAmerican Energy’s planned 310-MW wind facility, “we’ll be looking at sites in the northwestern or north central part of Iowa that are a reasonable and manageable distance from transmission facilities,” says Alexander.

The Tehachapi area in California is home to nearly 605 MW of wind capacity. “But before any more wind projects can be built, we would have to supplement transmission,” says SCE’s Allen. The same is true for New Mexico. “Transmission won’t be an issue for the 204-MW New Mexico Wind Energy Center,” says PNM’s Brown. The company has already begun work on a substation facility. “But if there’s much more renewable generation in eastern New Mexico, it would certainly require major investment in new transmission capacity.”

As a rule of thumb, the cost of building transmission for new generation is roughly 10 percent of the cost of building generation, says AWEA’s Caldwell. “But for wind projects, the transmission cost is significantly higher.” Because of wind’s characteristics—it’s not dispatchable and the output is variable—wind generators need to work closely with transmission operators and utilities in finding different ways of doing interconnections, he says.

Even in Texas, where a developer doesn’t need a transmission agreement in place before it builds a project, things are getting a little tight, says Belyeu. Wind farms have gone in so rapidly in the state, according to TXU Energy’s Muston, that “they’ve outpaced the ability of the transmission system to send the power back to the market.” Still, despite these hurdles, wind continues to expand this year as developers scramble to take advantage of the federal tax production credit. Its renewal is likely, according to most industry analysts, which means the future will continue to look bright for wind power.

© 2008 Edison Electric Institute