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Levelling the power market playing field -- Utility tackles discrimination against wind in bidding process

Minnesota utility Xcel Energy has proposed a six-step plan to level the playing field when evaluating competitive bids among all power producing technologies. Until now market rules have discriminated against wind power's variable generation when competing with natural gas and coal. "Our purpose is not to advantage wind, but to make sure it is not disadvantaged," says Xcel's Debra Paulson.

Xcel submitted the plan for review to the Minnesota Public Utilities Commission in July. The PUC had ordered Xcel in 1998 to tackle the issues of unfairness in evaluating wind bids when it approved the utility's integrated resource plan. Paulson says the Xcel work group included the state commerce department and the utilities division of the attorney general's office (two government watchdogs), the Izaak Walton League, and the American Wind Energy Association. "People engaged in the process, so reaching a consensus was not terribly difficult," she comments.

The plan deals with the cost of load following, environmental externality costs, fuel price uncertainty, contract terms, transmission costs and capacity credit. "Wind follows weather patterns. It goes up and down like load, so we need load following services," says Rich Peterson of Xcel. A benchmark proposed by the Utility Wind Interest Group, in a study due next year, will be used as the cost for load following. Until the study is complete, Xcel will use an interim value of $2/MWh. "That represents the lower end of the range of estimations to operate a combustion turbine" to back up wind generation. He says Xcel will probably not need to evaluate bids for another year, so the interim value may never be used.

External costs

Xcel says it will use the PUC's external cost values for certain pollutants when evaluating polluting resources. "Of course, wind has no costs," Peterson says. Neither does wind have the volatile fuel costs associated with other sources, particularly gas. "Now, if someone offers indexed pricing, they must also file a fixed cost fuel price for at least ten years," says Peterson. "That's an attempt to quantify the risk premium. Renewables don't have that risk."

Xcel is worried about carrying long term contracts, according to Paulson. "Markets are opening up and utilities are less likely to carry contracts longer than five or ten years," she says. Bids for more than ten years will have to provide a ten year contract comparison.

Interconnection costs to the transmission system should be evaluated as part of the cost of the project. If system upgrades are anticipated, the generating project must pay some of that cost, the amount to be negotiated.

Finally, Xcel wants to make capacity accreditation easier. Developers not able to make sophisticated capacity factor estimates can rely on Xcel to do so using a methodology developed by the local power pool. "We would prefer they do their own analysis, but we won't exclude anyone if they don't," says Peterson.

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