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More winners than losers in Texas -- Transmission for wind

About 25,000 MW of wind development is bidding to get onto to the grid in eight Competitive Renewable Energy Zones (CREZ) in west Texas, tentatively approved by the state Public Utility Commission (PUC) in July in a unique experiment in how to get transmission built for wind. CREZ are geographical areas in which power plant developers, particularly wind developers, register to bid against one another for future transmission capacity. It is a process that gives revenue certainty to transmission line providers -- they know there will be customers for the new wires.

The selection of as many as eight bidding zones came as a surprise to the wind industry. Many had expected as few as three zones from the 25 originally considered. The broad designation means more projects are likely to win space on more new wires and relieves competitive pressure in the windiest areas. "Basically all of the good wind areas in west Texas were selected," says Mike Sloan of Virtus Energy Research Associates in Austin, a CREZ advisor. Rather than picking winners and losers, adds Sloan, the PUC selected all locations meeting the statutory requirements, meaning each zone has strong winds and suitable land.

The CREZ designations are based on expressions of interest submitted to the PUC from companies detailing where they would build a project if adequate transmission was in place. The selected zones, still to be officially finalised, were decided upon based on the level of interest from wind developers. Typically as many as five companies registered an interest in building a combined 4000 MW of wind in each zone.

Astonishing

All told, the eight zones represent about 25,000 MW of stated wind power development interests, which PUC chairman Paul Hudson calls "an astonishing testament to the wind resources available in our state."

Referring to his fellow commissioners, Hudson adds: "Although the three of us have exercised our best judgment on hundreds of contested cases in our time together, this one does have the feel of the extraordinary."

John Calaway from Babcock & Brown, which develops projects for a global wind power investment fund it operates, agrees, calling it a game changing event. "It's hard to get your head around the full implications of this...it literally could change the US wind business," says Calaway, whose company is planning 1000 MW in CREZ 4.

PUC submission guidelines were strict enough, including requiring substantial financial commitments, that the proposals that drove CREZ selection are all considered serious and from competent companies.

Still lacking is even a tentative sense of what transmission projects will be built to accommodate new wind projects and just which projects will proceed. Following the designations, the PUC decided on two next steps: a reliability study to verify how the overall electricity system would fare under varying levels of new wind penetration (10,000 MW, 16,664 MW, and 23,286 MW); and a transmission study looking at how and where new lines will be built to accommodate these levels. Both studies will be spearheaded by the Electricity Reliability Council of Texas (ERCOT), the grid operator for the majority of the power lines and electric market in the state. The studies could take more than six months.

Meantime, the PUC will further evaluate and define specifics of how the CREZ process will continue, including who will build transmission and which proposals will get priority access to them so as to avoid stranded assets -- wind stations with no lines to move the electricity to load centres. Determining dispatch priority -- which projects get initial access to the transmission lines -- will be contingent on submission of letters of credit proving the companies have the financing for the wind projects. PUC commissioner Julie Parsley stresses the need to keep a price cap of $1.3 billion on construction of transmission lines.

Bragawatts

The PUC recently decided to limit the size of individual projects to 1000 MW so as to spread development more broadly between companies and between zones and avoid monopolisation of the zones by one company. This will put the brakes on what one major developer called "bragawatts" proposals, such as Shell Wind Energy's 3000 MW plan in CREZ 2 and an "unrealistic" 4000 MW proposal from billionaire investor and oilman T. Boone Pickens, who has never developed a wind project. Even limited to 1000 MW, Shell's project is considered a serious one, but the Pickens plan is widely scoffed at by wind players on the ground in Texas.

Regardless, Sloan says, "This is a big, big deal. In a way, there's a lot of talk about renewable energy but this looks at the most critical barriers technically and the market and finds a way to bust through them," says Sloan. "The levels they are talking about, even on a national scale, are very significant."

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