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When a coal state drops gas and opts for wind

When Colorado Public Utility Commissioners ruled in March that Excel Energy must include Enron Wind's 162 MW project at Lamar in its resource plan, the ruling was based solely on economics. The Lamar project was the lowest cost resource, beating out all of the combined cycle gas turbine generators that initially won Xcel's favour (Windpower Monthly, March 2000). This article looks at the ruling to find out how wind was found to be the lowest cost resource in this traditionally conservative coal state.

Wind as the least cost option for getting new generation on-line is a trend started by the 162 MW Lamar project in Colorado

When Colorado Public Utility Commissioners ruled in March that Excel Energy must include Enron Wind's 162 MW project at Lamar in its resource plan, the ruling was based solely on economics. The Lamar project was the lowest cost resource, beating out all of the combined cycle gas turbine generators that initially won Xcel's favour (Windpower Monthly, March 2000). Most local renewables advocates agree that the prevailing atmosphere of popular support for wind was not behind the PUC's decision. But the success of WindSource, Xcel's own green marketing program, and the scare effect of rate hikes the previous fall caused by rising natural gas prices, are undeniable.

In the public's mind wind makes sense and gas is getting too expensive. Wind offers an environmentally healthy break in Xcel's reliance on fossil fuel resources in Colorado, where the utility now gets nearly 100% of its electricity from coal fired generators. With the 1800 MW of gas generation also approved by the PUC, Xcel's resource mix will change to nearly 13% natural gas, with most of the remainder in coal. Wind promises some relief from rising fuel prices.

Although wind advocates doubt that public opinion had any bearing on the insistence of the Republican appointed Public Utility Commission (PUC) that the Lamar wind farm be included in the state's electricity resource plan, it had a lot to do with wind getting the hearing it needed to win big in Colorado. "Public pressures normally do not bear on this process," says Randy Udall of the state's Community Office for Resource Efficiency. "But Xcel had little credibility as it went into this issue and the PUC says it wasn't willing to let Xcel put all its eggs in one basket. It was a huge victory for us in Colorado."

He says there were no wind turbines in Colorado four years ago, but since then there has been a $200 million investment in wind, all built on a "small green pricing program" that was like a "Trojan Horse" when first introduced in the state. Public demand for electricity from the WindSource program primed the pump, agrees John Nielsen with the Land and Water Fund of the Rockies (LAW Fund). The program is responsible for 20 MW of installed wind capacity and that is expanding by another 25 MW when enXco completes a wind project at Peetz, Colorado (Windpower Monthly, November 2000). The LAW Fund is a non-profit environmental advocacy organisation that, among its many actions, markets WindSource to Xcel's commercial and industrial customers.

Big news on low cost

Still, the big news in Colorado and elsewhere in the US is that wind generation is coming into its own as a low cost energy resource. It won Xcel's solicitation one on one with combined cycle gas turbines. According to Ron Lehr, an attorney and wind advocate in Colorado, two things have happened to bring wind power to this point: the price to put wind turbines in the air and deliver power to market has dropped and the wholesale price of gas has more than doubled since Xcel released its integrated resource plan in November 1999.

Lehr says gas prices were about $2 per 1000 cubic feet in the spring of 1999 when Xcel put together its resource plan, which included a projection of gas prices; there was little evidence at that time that gas prices would rise as they have done so in the past year. In Colorado they hit about $10 in the winter and are still floating in the low $5 range.

Nonetheless, Xcel used the gas price predictions embedded in its resource plan put together in late 1999 to evaluate bids received in 2000 from energy developers. That plan included a decline in gas prices of 7.24% by 2004, Lehr says. "When they were cross examined about this they admitted they missed the change in gas prices and actually predicted prices in the wrong direction," Lehr says. "What we had in the hearing was the company's forecast confronting real market prices and an increase in predictions of national gas futures."

Utility conservatism

He says the PUC had already spent some hot late night hearings with Xcel natural gas customers who had yelled at them for allowing rate increases and causing heating costs to rise. Shortly afterwards PUC was confronted with Xcel's resource plan that included only natural gas resources. Predicting natural gas prices is a "high risk and low return activity" because there's no way to know which way it will go, continues Lehr. "If they're wrong, you have all these natural gas facilities coming on line and you pay through the nose for it," he says. "It makes no logical sense to go all natural gas when you have a wind bid in front of you that is the lowest bid."

But Enron's bid was not the lowest, according to David Eves of Xcel. The intermittent nature of wind cuts the real capacity of the Lamar project about two-thirds to around 49 MW, he says. If the wind's not blowing, other generating resources would have to pick up the slack and that would cost more than wind advocates are willing to admit. In fact, Xcel added $61 million to Enron's bid.

Lehr says that was a mistake because Xcel has a large system that has been handling load variation for many years. "When they had a nuclear plant down, they didn't charge for back-up," he explains. "Nor did they apply the same criteria to their Ponnequin wind facility. They hadn't looked at it and there's not a lot of credibility in that."

Nielsen of the Land and Water Fund thinks Xcel was simply surprised by Enron's bid and erred in its response. "I think Xcel was caught off guard when they saw wind come in as economic as it did," Nielsen says. "They knew there were some issues of intermittency, but they really didn't understand the impacts of that and took a very conservative approach."

The PUC ignored the utility's conservatism. It simply ruled that the bid stood solely on its own economics. "On a stand alone basis, Lamar happened to be the lowest of all bids, including transmission," says Saeed Barraghi of the Colorado PUC staff. "There was this other discussion that wind can't be compared with other resources because it's intermittent and imposes other costs on the system, such as spinning reserves. But since these other costs can't be quantified the commission decided that on a stand alone basis, the project was the lowest cost."

ON intermittency

The PUC does now want to know more about those costs and expects Xcel to gather enough data by 2005 (the Lamar project is scheduled to go on-line in 2002) to quantify them. Like others, Barraghi attributes wind's successful bid with lower wind and higher natural gas prices. He says the cost of wind energy in Colorado has dropped in the past three years by 10-15% and gas prices have more than doubled. Even if gas prices taper down to $3.50 per 1000 cubic feet, without adding additional costs, wind will still be competitive, he says.

Coal, meanwhile, is out of the running for the time being. It takes too long to site and build to meet demands for immediate power capacity increases. Coal also tends to runs into some environmental problems. Gas is quick and cheaper at the moment -- but not as quick and cheap as wind. "The future of wind in Colorado is very good," Nielsen says. "We have a need for new power supplies and it's a low cost resource. Plus, it's quick, it's modular so it can be built in stages and the costs are continuing to come down."

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