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Cheap and reliable and a costly burden -- Two US Northwest utilities and two opposing views of wind

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The price of wind power is in the eye of the beholder. While one big utility in the American Northwest is embracing wind as a least-cost resource, its financially strapped competitor is slowing wind additions to its supply portfolio, saying it cannot afford to go ahead with its intended aggressive purchase plans. The crucial factor separating the two is that PacifiCorp has decided to hedge the future price of gas and add environmental benefits for wind, while hydro-based Bonneville Power Administration (BPA) feels it does not have to.

"When you include all the right values for diversity and risk management, wind won't come out with above market costs," says Rachel Shimshak of the Renewable Northwest Project, pointing to PacifiCorp's findings in its integrated resource plan and chastising the Northwest Power Planning Council for not including more renewables in its plan for BPA.

When looking at the cost of wind, both PacifiCorp and BPA begin with the production cost and add the costs of transmission and of "firming and shaping" the intermittent resource -- the cost of catering to demands for shortfalls and excesses of generation to be made up on a "virtual" imbalance market. Offsetting those costs is the value of wind's green attributes and the federal production tax credit. The result is compared to the marginal cost of energy, currently set by gas generation.

Gas and emissions risks

But that is where PacifiCorp and BPA part ways. PacifiCorp, a division of the UK's Scottish Power and provider of electricity across six US states, generates much of its electricity at coal plants in Wyoming and Utah. It expects that a quarter of the 4000 MW it will need over the next ten years will come from wind. Wind generation is seen by PacifiCorp as both cheap and reliable when compared with other resources, says the utility's Bill Edmonds.

To arrive at that conclusion, the utility considered the volatility of gas prices and the environmental risks of the company's thermal resources. PacifiCorp assumes there is some risk of climate change regulation, so has factored in the cost of a carbon tax when considering resource additions, Edmonds says. Before doing that, it considered specific other external costs linked to the environment, such as cleaning emissions at coal plants of sulphur and NOX, not just paying a CO2 penalty.

BPA, on the other hand, has no direct reason to consider air emission costs or to look for hedges against gas price volatility. With the exception of one nuclear generator, the federal power marketing agency gets most of its electricity from 21 federally owned dams.

BPA made a splash in the wind generation world in 2001. When summer power prices reached over $300/MWh due to market manipulation and energy shortages, it released a 1000 MW invite for wind and received bids for more than 2500 MW. Of those it settled on a plan to buy 830 MW, all at below $30/MWh after it had also reaped the value of the tax credit. At that time, BPA added $15 to $25 to cover the costs of shaping the energy into what BPA's George Darr calls a "usable product." Even though it has since managed to substantially reduce that cost -- by removing generation imbalance charges that penalise wind for not delivering scheduled energy -- wind is no longer looking attractive. New generating plants have come online, the energy supply has increased and prices have dipped below $30/MWh, a level that puts many wind projects in jeopardy.

Changing emphasis

The agency is also facing a financial shortfall of more than $1.2 billion over the next four years, causing it to cut its budget by nearly $350 million and to rethink whether it needs to meet the region's load growth or make that the responsibility of its public utility customers.

The cutbacks have impacted the agency's renewables budget, says Darr. While he and Northwest renewables advocates have managed to salvage the core of the program so there is enough money to help develop projects and buy some power, BPA's emphasis is changing. Instead of pursuing power purchase agreements directly with wind developers, it is now helping its public utility customers, such as Last Mile Electric Co-op, develop their own wind resources, Darr says.

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