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Clear cost benefit of more transmission -- Fuel cost savings in Texas

Fuel cost savings from replacing other generation with wind power in Texas are so large that investment of $2.3-$6.3 billion in new transmission wires will have paid for itself within two years, says the state's grid operator, the Electricity Reliability Council of Texas (ERCOT). The economic argument for the investment was well exercised last month after ratepayers learned of the transmission bill coming their way. Broad media coverage labelled the wire upgrades for wind power "expensive." But two separate studies indicate fuel cost savings of $18 billion over ten years for the addition of 11,553 MW of wind generation.

The cost of the new transmission comes from an ERCOT study that aims to put a price tag on the state's implementation of Competitive Renewable Energy Zones (CREZ). The CREZ structure provides a means for wind generators to place bids for the wires' capacity they will require in future, providing much needed visibility on how much transmission should be built and where. The CREZ plan has been in development for over a year and its purpose is to connect the wind rich and remote areas of western Texas to load centres elsewhere.

Grid operator ERCOT conducted the study for the state's Public Utility Commission (PUC) under the edicts of the CREZ law. The study considers the addition of 12-24 GW of wind in five selected zones. Nearly every major US wind power developer is making an effort to secure land leases in these areas (Windpower Monthly, September 2007).

Pay for itself

The cost in the billions for new wires is justifiable, says the wind industry. "This investment will pay for itself in two years and will displace more expensive energy, offering a savings to Texas consumers of about $3 billion per year," says Texas Wind Coalition's Paul Sadler.

The coalition cites two studies, one by ERCOT, and another commissioned by ERCOT from GE, that show cost savings to consumers. "Transmission costs will be more than offset by the savings realised from lower fuel costs as we bring additional wind capacity onto the grid. There is no question this type of investment is exactly what the state ought to be doing and when you look at the numbers it is clear ratepayers come out ahead," says Sadler.

The cost savings from Texas burning less fuel and the zero marginal cost of wind power will drive down electricity market prices -- particularly when the price for all fossil generation is rising. "The greatest protection we can offer to ratepayers is to provide a diverse mix of energy sources for power production so Texans don't suffer rate shock when one particular commodity experiences a price spike," says Sadler. "Added wind capacity makes our state less dependent on natural gas and petroleum for electricity, which in turn will keep prices down and electricity flowing."

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