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United States

Closing in on the real system costs -- Industry accepts interim balancing charge pending more studies

The Bonneville Power Administration (BPA), a US federal agency that acts as the central grid operator for most of the regulated Pacific Northwest power market, has decided on a set levy to charge all wind plant owners connecting to its system. The levy is to cover the extra costs of balancing wind power output with demand. Beginning October 1 and running a full year, wind plants will be asked to pay a balancing charge of $2.82/MWh of wind produced.

Neither BPA or wind generators in the region are certain the price fully and accurately reflects what it costs BPA to accommodate wind power's variability. But public utilities commissioners and involved parties agreed on the price in the interest of moving forward on a rate case settlement and allow upcoming wind projects to connect to the grid.

"There are still some legitimate outstanding questions about how best to quantify the costs," says BPA's Elliot Mainzer. "But we said, let's get back across the table and start working with each other in a collaborative fashion on the next generation of analysis underlying the rate." The bill will be sent to the owners of individual wind projects. Studies are underway to revisit the charge for the next year, beginning October 2009.

BPA had originally suggested a higher rate, but through negotiation with wind companies the final charge was dropped to the $2.82/MWh. "The wind industry and most of the major wind-generation-owning utilities in the region have signed on to the rate," says Ken Dragoon of Renewables Northwest Project, a renewable energy advocate group in Oregon. Although the initial calculations are imperfect, he adds, BPA is aware of the flaws in its ratemaking methodology. "The major problem we had is that it was kind of a rush to judgement," Dragoon says. "BPA moved very quickly to establish the rate and the analysis that they did was insufficient."

Reserve generation

The need for a levy comes partly from the need for reserve generation to be manipulated to balance the system with wind power's variable nature. Wind generators readily acknowledge that generation reserves need to be increased with wind on the system. The discussion is about how much, what it costs, and who pays as more wind power comes online. "Now we need a fair calculation of what the reserves are and what they really cost," Dragoon says. "The rate is ultimately expected to go up from where it is. We just want it to go up correctly."

The 2008-2009 charge will total roughly $20 million while shifting the cost to wind generators and away from the public utilities that make up the bulk of BPA's customers. Charging wind is also considered fair because around 70% of the approximately 1400 MW of wind that BPA interconnects and balances is sold out of the system to distant load centres like California. The wind generation is integrated into a system that serves an average peak load of 14,000 MW, has a total generating capacity of 39,000 MW, and meets the needs of 12 million people in all of Washington, Oregon and Idaho, and portions of California, Nevada, Utah and Wyoming. Hydropower provides around 80% of the requirement.

The wind power under BPA control, mainly concentrated in the Columbia River Gorge, is expected to reach nearly 2900 MW by October 2009 and then climb to 6000 MW within ten years. BPA's hydro generation, which influenced the size of this year's balancing charge for wind, may play a bigger role in the ongoing evaluation of the true system cost of adding more wind.

Backing off thermal

A recent wind integration study by Idaho Power suggests that wind balancing can be achieved with a 20% decrease in cost by backing off thermal resources instead of hydro generation when more wind comes online. During a windy night when wind generation is on the rise but load demands fall or stay flat, it is cheapest for BPA to first back off the most costly resource, which are its thermal plant.

"The years when we can depend entirely on the federal hydro system to provide all of the balancing for these larger and larger quantities of wind is really coming to an end," Mainzer says. "But if we're going to explore the use of thermal capacity, the first thing we need to demonstrate is that it can be provided on demand in a totally reliable fashion. Then we can start talking about price."

Mainzer expects to find an accurate cost of balancing the additional uncertainty that wind adds to the mix. Meantime, he is satisfied of the broad acceptance of the first year's imprecise price tag as a reasonable place to start. Dragoon is eager to see continued scrutiny. "We don't want to have the wrong precedent set," he says. "Because if that methodology were repeated in the next rate case when there's even more wind on the system, the error would be even greater." Workshops beginning this month will set the stage for next year's calculations.

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