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Discovering how to avoid fuel price risk -- Oklahoma's first

With competitive pricing and no fuel costs, Oklahoma's first wind farm is expected to temper the price volatility utilities are experiencing in the energy market. Zilkha Renewable Energy won a bid to build the 64 MW Blue Canyon project in the southwest reaches of the state, signing a power purchase agreement with the Western Farmers Electric Cooperative in late January.

Farmers Electric, with 19 member utilities, chose wind power nearly by accident. Early last year, it received several wind bids in response to a solicitation for capacity which revealed that wind power would lower its exposure to fossil fuel price risks. Recognising the advantages, the co-op's Brian Hobbs says Farmers Electric then stepped out of the solicitation process to pursue wind.

Furthermore, "We wanted a renewable deal that makes economic sense," Hobbs says. "Over the life of the project, it is less than our average production costs." The project, in Oklahoma's Slick Hills, has earmarked 38, NEG Micon 1.65 MW turbines in a preliminary agreement with the Danish manufacturer. If all goes well they will go into service by December. The site has the potential for up to 300 MW, says Zilkha's Wayne Walker. Zilkha has a 75% interest in the project, sharing ownership with gas exploration company Kirmart Corporation of Wichita Falls, Texas.

"It's one of the best sites in the Southwest, with great wind and a lot of land," says Walker. "It has taken awhile for the state's co-ops and legislature to see the benefits of wind. While the state depends heavily on natural gas and coal generation, it is sensitive to the volatility of gas prices and the utilities are recognising that a small amount of wind on their systems are a good hedging tool."

Farmers Electric is building 22 miles of transmission line with enough capacity to service more than its initial 64 MW purchase, but Hobbs says the co-op needs to evaluate the impact of the intermittent resource on its system before committing to more wind.

Walker, however, is confident Zilkha can eventually build out the project for other utilities, pointing to recent news that the Oklahoma Municipal Power Authority is negotiating for a wind project in northwest Oklahoma and that Oklahoma Gas and Electric may be the market for wind. Overall, he says, there is about 500 MW of wind development in the works in the state.

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