power generation, made June's American Wind Energy Association
conference and exhibition one of the most energetic ever. Wind is in its final stage of commercialisation and is looking like a resource that can beat the long term marginal cost of energy. But the industry still faces major policy, transmission and market challenges before it can declare victory
Long term issues -- market, technical and legislative -- emerged as the focus of this year's premier gathering of the American wind industry. By the time the American Wind Energy Association (AWEA) opened its 2002 national conference in Portland, Oregon, June 2-5, much of the immediate work needed to keep the industry vital had been accomplished. In March, at the wind industry's urging, Congress extended wind's all-important production tax credit (PTC) through 2003, after its expiry at the end of last year. And with the conference coming after a year in which a record 1696 MW of new wind generation was installed in the US, a 66% increase over 2000, the industry could rightly pat itself on the back and look to the future.
The three month PTC hiatus at the beginning of the year, however, has taken its toll. AWEA's Randy Swisher estimates only 600 MW of new generation will be installed in 2002. Yet, with more than 3000 MW of new projects already in the pipeline, he predicts another record year in 2003, especially if Congress again fails to extend the PTC on time and developers rush to finish projects by the end of the year.
In the two-track sessions through the conference week, delegates mulled over the important issues of national and state wind policies, transmission fairness and constraints, the nitty-gritty of siting turbines and the importance of reducing costs. But the conference's real dynamism arose in the hallways, in semi-private offices built into many of the more than 90 exhibition displays, or at one of several opulent receptions sponsored by RES North America, PacifiCorp Power Marketing or GE Wind Energy. That is where the triad of project developers, financiers and turbine manufacturers nodded heads, and where new and hopeful entrants into the wind industry cruised with business cards in hand.
The conference set records in attendance with 2045 paid-up participants, a whopping 40% increase over the 2001 AWEA event in Washington DC, and in the number and quality of displays and exhibits. Yet seldom did attendance at either one of two concurrent sessions rise above 500, evidence that at least half of those who paid had more immediate business on their minds.
Last year, the urgent work facing delegates in Washington DC was to convince legislators that they should extend the PTC. The association even set aside two afternoons and an evening of conference time to send as many as 200 delegates to Capitol Hill to lobby their political representatives. The efforts apparently worked. Not only was the two year tax credit extension approved as part of March's economic stimulus package, but a five year extension also made it into energy bills passed by both the US House of Representatives and the Senate. The Senate bill even contains a 10% national Renewables Portfolio Standard (RPS), which the House opposes, but the two bills have yet to be reconciled in conference committee.
"That is going to be a long, and we expect, contentious debate trying to resolve the differences between those two bills," Swisher warned the conference. "I'm very pleased that we've gotten this far, but do not begin to assume that those conferees are going to reach a consensus. It's a terribly complex process, there are major differences between the two bills, and there's a high level of partisanship between the two bodies."
While the Portland conference may have lacked the urgency of the lobbying focus in Washington DC, it did deal with other important issues, most of them long term and some that are showing success. One of those is the need to compete head to head with other generation.
In fact, said Swisher, the dynamics of the larger electricity market are shifting towards technologies like wind that offer a stable, predictable price over time. About 95% of new generation installed in the US today is gas-fired, but volatility in natural gas markets has utilities questioning the risk of relying too heavily on a single fuel source.
"A growing number of companies are looking for alternatives and increasingly they are realising wind makes sense. That is really, as much as anything, the factor that is responsible for so many new faces around this hall," said Swisher. "It's a fundamental shift in the way electricity suppliers are looking at the market for generation."
looking to wind
PacifiCorp Power Marketing, which buys the entire output of the 262 MW Stateline wind project in Washington and Oregon, is one of those suppliers. The company's Terry Hudgens told delegates that gas price volatility and concerns over future supply have prompted his company to look increasingly to wind power. "It's difficult to make economics work today in gas fired generation because the fuel component is rising rapidly and the market is oversubscribed," Hudgens said. "The industry is just about ready, we believe, to fall off the treadmill. It doesn't make sense to continue to invest our future in natural gas, a least to the extent we have."
Delegates also heard that wind power is already proving its value as a hedge against fuel price risk for US consumers, up to and including the chairman of the Federal Energy Regulatory Commission (FERC), Patrick Wood III. "Wind keeps your skies cleaner and, interestingly enough, it keeps your wallet greener," he said in his opening address to the conference. Wood signed up for Austin Energy's GreenChoice option, which replaces the utility's normal fuel charge with a $0.017/kWh fixed green power charge. By Christmas 2000, his neighbours were paying a full cent a kilowatt hour more for electricity than he was. "Big gas man that I am, I was pretty darned glad not to be on gas," Wood said to the applause of the listeners.
Cost cutting help
Still, wind's costs continue to be an issue, a fact born out by the experience of the Northwest's Bonneville Power Administration (BPA). The federal power marketer needed to develop generation quickly in 2000 when the West Coast power market was in crisis and gas prices were high, so it turned to wind generation, releasing a solicitation for 1000 MW by 2004 that resulted in over 2600 MW in bids. At the time, many projects were competitive, said the BPA's Steve Wright. "The challenge is to find a resource that beats the long term marginal cost of energy," Wright said. "Wind looked like it could do that."
The power market, however, moderated. Costs came down on other generating resources and BPA has slowed its wind acquisitions. Now it is searching with developers for ways to reduce costs, including increasing project size, streamlining the permitting and environmental assessment process and reducing onerous transmission imbalance penalties.
BPA is also working on what Wright calls the "final stage" of wind's commercialisation, figuring out how it integrates with an operating electric power system. "How does it work with a nuclear system, how does it work with a hydro system, how does it match up with our loads? These are critical questions that have to be answered in order to determine the real cost, the end cost, of wind."
David Garman, Assistant Secretary of Energy Efficiency and Renewable Energy at the Department of Energy (DOE), said his agency's new research could also help bring down costs. The department has requested $44 million for wind energy research and development for the 2003 fiscal year, up by about $6 million from the amount appropriated by Congress in 2002.
"We're going to shift our overall R&D focus to low wind speed technology research -- utility scale wind turbines in [wind] class 5 and 6 areas closer to load centres," he said, referring to areas with low winds. "It will require a larger turbine and longer blades. We want to bring down the cost of this technology to make it more economically attractive in the market place."
DOE's National Renewable Energy Laboratory is supporting research on the Wind Turbine Company's two-bladed downwind turbine design. Although the prototype threw a blade one week before the conference, the 500 kW turbine promises to reduce costs by reducing weight, according to Peter Goldman, director of DOE's Office of Geothermal and Wind Technology. Wind Turbine Company president Larry Miles says his goal is to produce energy without federal subsidies that is competitive with natural gas generation.
Right now, the primary driver in bringing down the cost of US wind production is the PTC, a federal subsidy that has shored up and encouraged wind development since 1994. It gives project owners who have the necessary tax liability a tax break of $0.018/kWh. Another driver is the Renewable Energy Production Incentive (REPI) for publicly owned utilities and non-profit organisations. Implausible as it may appear, however, the REPI is even more unreliable and unpredictable than the PTC, according to Vic Parrish of Energy Northwest, a public generation company.
"It's difficult for public power to develop wind," Parrish says. "It's one way the federal government tells public power: we don't want you in the renewable business. But the presence of public power is essential." He adds that membership to his organisation has grown from 13 to 17, largely due to the two wind projects it is currently developing.
As important as these incentives are, much of the policy discussion at this year's conference centred on the Senate's passage of a Renewables Portfolio Standard (RPS) provision requiring electricity retailers to acquire 10% of their power from renewable energy sources by 2020. Such mandates, said Swisher, are key to making wind more competitive. "Renewables portfolio standards at the state level have really helped optimise the economics of wind by being able to drive large scale projects."
The RPS, passed by the Senate after several days of what Steve Clemmer of the Union of Concerned Scientists (UCS) called "very lively" debate, had a number of exclusions, including an offset for exiting renewable generation and exemptions for publicly owned utilities. "Because of all the exclusions in the bill, we estimate that the 10% by 2020 RPS would be more like 4.7% of total US sales," said Clemmer.
Despite that, the US renewables sector, led by wind, stands to make significant gains, he continued. A UCS analysis estimates it would lead to 44,000 MW of new renewables by 2020, twice what could be expected under a business as usual scenario. By contrast, state portfolio standards and funds would produce about 12,700 MW over the same time frame, while a PTC extension through 2006 would mean an additional 7000 MW.
While purchasing mandates and improved economics are important drivers for wind, delegates were urged not to ignore the potential of green power for opening new markets. "I think clearly green markets are the least of the three drivers, but all three are essential," said Angus Duncan of the Bonneville Environmental Foundation, which pioneered the concept of green tags.
Community Energy's Eric Blank said green marketing has led to 140 MW of new wind capacity coming on-line or under contract in Pennsylvania in the last two years. "It's the customers leading to the wind farms. This is what has driven wind energy development in the east." Blank argued that the green market could actually set the stage for government acceptance of mechanisms like an RPS. "In a number of states, public policy support for renewables has followed customer acceptance and individual customer decisions to purchase green energy."
Perhaps the most persistent barrier to wind development is US transmission system rules and infrastructure. It is also where the wind industry is making progress, partly due to Wood, the recipient of this year's AWEA federal leadership award. Wood came to FERC from Texas where he chaired the state's public utility commission at the same time George Bush was governor. He was there when the legislature restructured the state's electric industry and it was the utility commission that wrote the rules for the Texas RPS. Evidently he brought some of those skills to Washington DC. "Before [Wood] came to FERC, it was a mess," Swisher said. "It lacked clear vision to manage the kinds of changes occurring in the electric industry."
Wood said FERC's charge is to lay the foundation for the national energy marketplace by promoting competition, protecting customers and promoting adequate, environmentally sound infrastructure, including getting more transmission built and tying it into remote areas where wind turbines are located. With transmission making up only about 10% of a retail customer's electricity bill, he said there is little excuse for transmission bottlenecks.
While FERC may give transmission improvements a high priority at the national level, most areas of the US are still confronted with inadequate transmission, especially transmission that can accommodate large numbers of wind turbines. "The future of wind in Texas hinges on transmission improvements," said Mike Sloan of Virtus Energy Research Associates. Some of the best wind is in the Texas panhandle, which is outside the Electric Reliability Council of Texas (ERCOT) control area and is not near any population centre. "When you build a lot of wind power on the ends of skinny lines, you're going to have trouble," he adds.
The ability of wind generators to interconnect with transmission in Texas may become worse than expected with the recent announcement by ERCOT that it will likely delay, until 2008, transmission upgrades in western Texas that the transmission agency had previously planned to complete by 2004, said Sloan. He added the wind industry might have to seek compensation for curtailment costs if ERCOT fails to come up with a plan to accommodate the wind resources required by the RPS.
Minnesota is facing similar capacity challenges. A coalition of industry and advocacy groups, Wind on the Wires, is working to increase the available capacity on Midwest transmission wires and "move the conversation from hundreds of megawatts of wind to thousands of megawatts," said Beth Soholt, coalition director.
Transmission policy is just as important. "Just as bad market rules have hurt wind, good rules can help wind," Wood said, pointing to a change in the California Independent System Operator's (Cal ISO) energy imbalance policy recently approved by FERC (Windpower Monthly, May 2002). It calls for scheduling wind resources on the transmission system using a wind energy forecasting model to average imbalances over a month and to wave generation imbalance penalties for wind resources, an approach that is likely to become the model for policy nationwide.
For wind veterans and newcomers alike, the Portland conference helped emphasise that the industry is making progress. It has a federal PTC, and a federal RPS is firmly on the political agenda. Costs are coming down and natural gas prices remain volatile, moving wind generation closer to the day when it is directly competitive with natural gas turbines. A blueprint for transmission rules that do not discriminate against wind has been approved by FERC. Yet, Swisher cautioned delegates, it is not quite time to declare a total victory.
"I know from speaking with many of you who have been part of this industry for many years that you know it is still a lot harder to be in this business than it ought to be," he said. "It has been a real challenge dealing with inconsistent, unstable policy and yet somehow we've gotten to this point. A market is starting to develop. In the midst of the euphoria, it is important to recognise we are still only three-tenths of 1% of electric generation in this country. We've got a long way to go."