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WIND CAUGHT IN NORTHWEST TURMOIL

The Pacific Northwest, USA, has invested more effort than any other area into regional planning of jointly funded renewable projects, including wind, but it may dismantle its existing regulatory maze in light of increasing competition. Public support for development of renewables in the Pacific Northwest is strong but the key to the market lies in Bonneville Power Administration's (BPA) function as the dominant agent for trading electricity and whether restructuring of the business will be done in one fell swoop or step by step. Oregon municipal utility, Salem Electric, recently requested that power supplied from BPA should not include nuclear or purchased power and has been cited as a model.

The one part of the United States that has invested more effort than any other into regional planning of jointly funded renewable projects, including wind, may dismantle its existing regulatory maze in light of increasing competition. Whether this will help or hurt the wind industry is unclear as yet. In the short term, the threat of deregulation has helped to stall 149 MW of new nameplate wind capacity still sitting on drawing boards.

Most recently, on February 28, the Snohomish Public Utility District (SPUD) in the state of Washington decided on a 2-1 vote not to buy 10 MW from a proposed 31 MW wind project being developed by Kenetech in the Columbia River Gorge in Klickitat County. Last month, Portland General Electric also reported it was pulling out of the same project due to concerns over bird mortality, though now says it is still negotiating the deal (see page 18). According to Rachel Shimshak of the Renewable Northwest Project lobby group, PGE is back on track. She claims the utility had a "momentary lapse, but they are back in the saddle." PGE's Roxanne Bailey, however, is not as confident, merely saying a compromise is being discussed.

PGE had expressed concerns about its potential liability for any kills of species of birds protected by law in the wind farm (Windpower Monthly, March 1996). Shimshak says that even though PGE still has some lingering concerns she is confident the project is still viable. She also notes the involvement of SPUD has always been viewed optional; its 10 MW commitment was never included in calculations of the size of the planned wind farm.

SPUD commissioner Chuck Moon, the lone supporter of the utility's involvement in the Columbia Hills project, comments: "I am committed to wind and feel there is strong support in the community to include renewables in our resource portfolio." He had wanted to displace current purchases from a coal-fired power plant with the clean wind capacity. Among the reasons for the rejection of Kenetech's project by the two other SPUD commissioners was the company's ongoing financial and technical problems as well as higher costs.

Though the cost of electricity from the wind project was estimated at $0.037/kWh over 30 years, that seemingly competitive rate is still twice the current market price for power in the Pacific Northwest. The area is one of the lowest cost regions in America due to reliance on hydroelectric plants financed by the federal government and constructed in the 1930s and 1940s. In 1993, for example, the average system cost in the four Pacific Northwest states was $0.0429/kWh compared to the national average of $0.0692/kWh.

A complex market

The SPUD decision is but one signal of the challenges wind developers face in the region. The combination of the dominance of the region by Bonneville Power Administration (BPA), a federal power marketing agency established in 1937, and a patchwork of numerous tiny to medium-sized publicly-owned utilities, has led to a complexity of resource management unmatched in America. Almost half the region's electricity is governed by locally controlled municipal utilities and rural co-operatives. In 1980, the Northwest Power Planning Council (NPPC) was set up to develop power supplies for a four-state region comprising Washington, Oregon, Montana and Idaho. Though the resource plans produced by NPPC highlight conservation and renewables, the recommendations have never been fully implemented.

According to summaries of comments voiced at public hearings conducted in the four states governed by NPPC, there is strong support for renewable energy. The whole region enjoys clean air due to low pollution levels from fossil fuel generation and dependence on renewable sources such as hydro. Even so, the region has never constructed a non-hydro renewable power plant.

The key to deregulation in the region is the future role of BPA, which finds buyers for low-cost hydroelectricity generated by a series of 30 large power stations constructed on the Columbia River. BPA markets approximately 50% of the power generated in the four states and owns 75% of the high voltage transmission.

Unlike California, which initiated a series of public hearings after the state public utility commission issued its now infamous retail wheeling order in April 1994, the Pacific Northwest is holding hearings before a specific deregulation proposal is developed. The push for competition is coming from industrial customers that do not have direct access to the wholesale market. Those that do, referred to as "direct services industries (DSI)," have recently discovered that they could -- for the first time -- access cheaper power than being offered by BPA. DSI customers represent a third of BPA's load and many of them are currently facing tough competition on the global aluminium market, making electricity prices of paramount importance. Even a one mill increase in electric rates is of extreme concern to them.

New power purchase contracts recently approved by BPA allow these large DSI customers to escape stranded costs (unprofitable investment) associated with several unfinished nuclear reactors on the electricity system while being allowed to import some wholesale power -- roughly a quarter of their demand -- on BPA's transmission lines. It was that tentative decision which led to protests from other customer groups and environmentalists to the federal Department of Energy. The current comprehensive review of the region's energy policy grew out of that controversy.

One big leap or step by step?

Chuck Collins, one of the original members of the NPPC, is heading up the so-called "comprehensive review." At a meeting held in Portland on February 29, he noted that perhaps the only consensus so far is the need for an independent grid operator to "help consolidate 12 control areas into one transmission system." He also suggested separating BPA's transmission function from its generation responsibilities, a proposal he said was widely supported. Collins claimed that by the end of April, the various stakeholders participating in this process would need to decide "if we are on the little or big deal path," referring to incremental versus large-scale restructuring. A draft restructuring plan is scheduled this fall. A final proposal is expected to be hammered out by the end of the year.

To date, the only comprehensive deregulation proposal on the table has been put forward by the DSI industries. While many public power agencies are resisting the notion that deregulation is necessary in the Pacific Northwest, Brett Wilcox, president of Northwest Aluminium Company, stated that denial of current trends toward increasing competition "is futile, like denying gravity." The smallest change -- to "free up BPA to cut costs and act more like a competitive enterprise, and stop expecting BPA to be an unlimited funding source for programmes and other social purposes" -- could be the most difficult, said Wilcox.

He sees little need, however, for support of renewables since they too have environmental impacts -- "even if those impacts are measured in lost fish, lost land or lost scenery, rather than in greenhouse gases." He did suggest some reforms could include giving remote renewable resources a priority to uncommitted transmission paths. He also pointed to strong support for renewables resources such as wind and geothermal power from Salem Electric, Eugene Water and Electric Board -- and SPUD -- as evidence that these resources would be popular in the region without any government mandates.

Wilcox's views are being challenged by the Renewable Northwest Project (RNP) in Portland, Oregon. It advocates that public policies now used for recycling could be used to stimulate non-hydro renewables in the region, such as wind power. "Recycling mandates established a base market with government institutions," notes Peter West, an RNP analyst. While minimum recycling content standards required government to spend more on items such as recycled content paper, such mandates started a market which then resulted in price drops. The scenario envisioned by RNP, which it refers to as "policy push/market pull," is that once a base market for renewables is set in the Pacific Northwest, green pricing programmes will allow customers to pick what additional percentage of "green kilowatts" they want in their resource mix. This "green" energy should be blended into the overall price of electricity charged to customers to minimise rate impacts.

RNP executive director Rachel Shimshak, however, emphasises that costs associated with the initial stages of renewable development in the Pacific Northwest should be spread among all consumers. "The Sacramento Municipal Utility District (SMUD) got it right," she says, referring to the California's utility's lauded renewables policy, including construction of a wind farm. Shimshak explains that SMUD's customers voiced a preference for clean sources of energy which shaped the utility's overall resource plan. A Kenetech 50 MW wind project -- the first purchase of the firm's variable speed turbine -- was added to the utility's resource plan. After SMUD established its initial commitment to renewables, it introduced a green pricing programme for those renewables, such as photovoltaics, that still needed help integrating into the utility's resource plan. Under this programme, dubbed "PV Pioneers," customers voluntarily pay a 15% surcharge to have a photovoltaic panel installed on their roof. The power generated is fed into SMUD's grid.

A model utility

Shimshak cites one Oregon municipal utility, Salem Electric, as a model. The utility recently requested that power supplied from BPA should not include nuclear or purchased power. In the past, roughly 17% of the utility's purchases came from these sources; the rest is hydro-based. Salem Electric is developing plans to use non-hydro renewables, such as wind power, to make up the difference (Windpower Monthly, March 1996). "Salem Electric may become the first utility in the country to purchase 100% of its energy needs from renewables," says Shimshak. A survey showed that Salem customers were willing to pay rates 3% higher to become a clean utility. The price of power sold by BPA to Salem will drop by 8% due to the exclusion of high-cost nuclear generation.

Shimshak has no comment directly on the restructuring proposal put forward by Wilcox, but claims RNP's goal is to add 50-100 MW of renewable resource annually. She also indicates that market mechanisms identified in California -- a systems benefit charge or a renewable portfolio standard obliging utilities to buy fixed proportions of clean power -- might also be useful in the Pacific Northwest.

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