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United States

United States

Paving the way for a national market

The search for the holy grail of wind development -- a long term market for green power, based on solid foundations yet sensitive to macro economic change and the forces of supply and demand -- has gained new impetus in the United States. The political shift to the left after the mid-term elections has rekindled hopes for a nationwide renewable energy standard. State initiatives are increasingly demonstrating how it can be done

The concept of requiring a minimum standard of renewable energy content in electricity supply portfolios continues to gain traction in the US, with three states taking legislative action in recent weeks. Washington has just passed a law requiring 15% renewables in the mix by 2020; in Oregon the re-elected governor is about to send a bill calling for 25% renewables by 2025 to the state legislature; and Arizona's weak and outdated renewable energy standard was given sharp new teeth in October.

Overall, 21 states and the District of Columbia now maintain legal benchmarks that attempt -- with varying structures and degrees of success -- to increase the use of renewables. Collectively, these disparate pieces of legislation are referred to as Renewables Portfolio Standards (RPS), although only some qualify for that title. A true RPS is based on a carefully crafted market for trade in renewable energy credits; few, if any states, have achieved that.

The lead on renewable energy standards being taken by individual states is likely to pick up speed and bolster support on Capitol Hill for a uniform national standard, particularly following the shift of power from Republican to Democrat in the House and Senate, says the Union of Concerned Scientists (UCS), an advocacy group. While support for renewables increasingly comes from both sides of the political divide -- the Arizona action was taken by a Republican board of utility regulators -- Democrat politicians are generally considered greater proponents of green power mandates.

"Action on renewable energy in Washington and Arizona echoes a new sense of support for a federal renewable electricity standard," says UCS. The organisation points out that at least four new Democratic Senate members and over 15 of the new members in the US House of Representatives have indicated their support for measures to promote renewables. Furthermore, the Senate energy committee is now chaired by Democrat Senator Jeff Bingham, a long time champion of a federal standard for renewables, a measure that has already passed the Senate three times, says UCS.

"If the federal government adopted a ten percent by 2020 national standard -- just two-thirds of the level required by Arizona and Washington -- America would increase its total home grown renewable power capacity fivefold over present levels," says UCS. That development would be the equivalent of taking 24 millions cars, or nearly one-tenth of the total US auto fleet, off the road, it adds.

What the people want

Washington's new 15% renewables mandate, which applies to utilities with more than 25,000 customers, was passed not by the legislature, but by voter ballot. In Oregon, voters spoke again, returning a post election legislature in which both houses are controlled by Democrats for the first time in 16 years; passing a 25% mandate should be a breeze. "It's more than an expression of what the voters want the utilities to do, it's a direction that the voters want the utilities to go," says Kevin Lynch of Oregon's PPM Energy, the second-leading US wind developer. "It's also a good vote of confidence for the investments that are being made. The builders and buyers are on the right track."

Smooth sailing is not guaranteed. The RPS concept has its share of detractors, as many utilities, business groups and consumer advocates fear the requirements will overrun transmission lines, compromise reliability and escalate costs -- especially in the Pacific Northwest, where wind plant development is already booming. According to the Northwest Power and Conservation Council, 560 MW is under construction in the region and an additional 710 MW is scheduled for completion by the end of 2008.

"It will be hard for the pace of development to increase," says Roger Garratt of Puget Sound Energy, Washington's largest electric utility. "And it's hard to know, at the end of the day, what the cost impact will be." One potential problem seen by Garratt is a scenario where California, with its own strong mandate, commandeers large amounts of Pacific Northwest wind power, leaving Washington and Oregon ratepayers to pick up the tab for meeting renewables quotas through more costly sources. Another bleak scenario is a worldwide wind turbine supply shortage that goes from bad to worse, pushing equipment prices up.

Yet a recent UCS analysis of the long range impact of the new Washington initiative predicts $1.13 billion in cumulative savings on consumer electricity bills through 2025. The study expects the new standard to cut electricity costs by nearly 3% when compared to increased reliance on fossil fuels.

Many are not convinced by the argument. "If everyone is required to buy the same commodity, the price will rise," says Hugh Imhof of Avista, another of Washington's major utilities. "And we'll ask for whatever costs that come along to be included in rates. In the long run, the market will get better. But in the short run, the idea that one size fits all creates a lot of problems."

Arizona cherry picking

For better or worse, it is ratepayers in Arizona that are likely to feel the biggest effect from the latest flurry of state policy initiatives to build renewables markets. Arizona has no wind power on its wires.

The state's recently strengthened mandate, approved by the Arizona Corporation Commission (ACC), requires regulated utilities to generate 15% of their total electricity from renewable sources by 2025. The plan replaces an older minimum standard from 2001 which called for a meagre 1.1% level of renewables by 2007. The updated policy, which hikes the surcharge for ratepayers, also requires that an eventual 30% of new renewables comes from distributed sources, such as solar panels on homes and small wind turbines.

One of five ACC commissioners voted against the new law, going on record to say that, in addition to the likelihood of increased costs and degradation of grid reliability, the commission is simply allowing Arizona utilities to use ratepayer dollars to buy renewable energy credits (RECs) from other states.

But Amanda Ormond, an Arizona wind industry lobbyist, does not see a problem with importing power. "For the ratepayer, it makes more sense to bring it in from other states because of costs," Ormond says. "All coal power doesn't come from Arizona, so why should all wind power have to come from Arizona? We have no experience with wind projects, so it makes sense that the utilities are cautious. For now, utilities can cherry pick their projects."

Arizona Public Service, the state's largest utility, recently announced a plan to import 90 MW of wind power from New Mexico (Windpower Monthly, Oct. 2006). But Ormond also sees at least 1000 MW of wind potential within the state. To start with, a 15 MW project by Western Wind Energy, the Steel Park Wind Farm, is about to begin construction and is expected online early next year. Two other projects are permitted and in search of power purchase agreements. One, Foresight Wind Energy's Sunshine Wind Park, near Flagstaff, is planned at 60 MW. The other, PPM Energy's Dry Lake Wind Farm, near Snowflake, could add between 65-100 MW.

But in a state that considers itself the Saudi Arabia of solar power, there is no guarantee that either project will get built. "I'd love to say the sky's the limit," says PPM's Jesse Gronner. "But the wind seems to skip over Arizona. More folks are going to be looking, but what they'll find is that the resource is a step lower than a lot of places."

A national market

Only time will tell if the current climate leads to a nationwide renewable energy standard. But, as players pick sides for the inevitable debate, all concerned seem to agree on one benefit: a single market for trade of renewable energy credits would do much to resolve the state-to-state inequity attributable to different legislative frameworks governing trading markets in individual states.

"We'll see how it all goes," says Rachel Shimshak of the Renewables Northwest Project, which helped spearhead the Washington initiative and is now turning its attention to Oregon. "It's hard to be the majority. You can't overreach and you have to keep listening. But you can read the tea leaves across the entire country. And when it's all said and done, renewables are the answer to a vast array of problems."

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