Furthermore, earnest deregulation discussions are at long last hitting the windy states-and the policy push for wind is more likely to gather strength than lose it. If all state deregulation proposals currently on the table go forward, renewables could gain an additional 7000 MW in five more states-Texas, Ohio, Iowa, Nebraska and Wisconsin. That's 11,000 MW in the score or so of states furthest ahead with restructuring, with serious expectations that wind could capture around two-thirds of the new renewables markets, according to an analysis by the Energy Information Administration in mid 1998, based on policies they studied in 11 states. Ten years from now, it could well be that the 1000 MW of the great "PTC rush" of 1999 is regarded as no more than a gentle first gust.
Of the 17 states which have deregulated their power markets so far, or are close to doing so, 12 have adopted measures to promote renewables in a competitive world (table). Of these, nine have introduced renewable energy funds and six have adopted Renewable Portfolio Standards for minimum quotas of renewable energy in the supply portfolio. Three states, New Jersey, Connecticut and Massachusetts, have introduced both.
Pro-renewables legislation has also been introduced by three states which have yet to tread the deregulation path: Minnesota, Iowa and Wisconsin. They have simply mandated renewables in their supply mix. Iowa's mandate is from 1983 and has been fulfilled, while Wisconsin's is small. Minnesota's mandate was struck in a deal with utility Northern States Power (NSP) allowing it to store nuclear waste in exchange for wind and biomass development. In addition, the state just struck a deal for a renewables fund with NSP, again linked to nuclear permits (see box). The three Midwest mandates amount to over 700 MW of new wind in the next few years, with another 400 MW to be added by 2012.
Altogether, the state policies adopted so far-in the form of funds, the RPS, or mandates-could create a market for almost 29 million MWh of renewable power by 2010. This could support 2300 MW of existing renewables and lead to about 4030 MW of new renewables in the next ten years.
Policies of choice
So far, renewable energy funds-such as California's fund from which it pays for subsidised power purchase contracts for renewables-are proving to be the policy of choice in deregulated state markets. Almost $1.7 billion is available in funds for the next decade in California, Illinois, Montana, New York, Rhode Island, Pennsylvania, Massachusetts, Connecticut, New Jersey, and most recently Minnesota (box). By their nature, however, such funds are designed to kick-start an industry, and so have a limited life span in the nine deregulated states which have established them so far.
The RPS concept, on the other hand, is seen as holding the most potential for creating a long term market. It is a mechanism long promoted by the American Wind Energy Association as the best instrument for carving a niche for wind in competitive markets dominated by established players. An RPS sets a fixed minimum standard for the volume of renewables in a power supply portfolio. With its market compatible credit trading approach and plenty of flexibility for increasing or decreasing the standard, the RPS is seen as a policy that can withstand the test of time. The renewables requirements contained in each state RPS typically ramp up over time, starting from current levels. The states which have taken the RPS route are Massachusetts, Connecticut, Nevada, Maine, New Jersey and Arizona, with Connecticut's starting date of 2000 suggesting it may well be the first. Until recently, Arizona's solar-only RPS was the front runner, but it has run into some trouble, though additional proposals are under consideration there. Pennsylvania, while not having a full RPS does have a renewables requirement for individual utilities.
A key feature of the RPS is that renewable energy generators vie with each other to sell "credits," similar to the green credit trading system being discussed in Europe's proposal for its single renewables market and the Green Label system now operating in the Netherlands. As in Europe, the fine details are still being worked out for the trading mechanisms of an RPS (Windpower Monthly, May 1999). So far, states have not co-ordinated RPS credit trading, but federal interstate commerce rules allow generators to be located outside of states with credit requirements, as long as the power is sold in the state. If a federal RPS is ever introduced, however, it will change things dramatically by creating regional or national credit trading, as being discussed among European countries.
Competition means that wind will have to duke it out with other low-cost renewables to benefit from credit sales. Most RPS requirements are defined in terms of energy (kWh), so the lowest energy costs will prevail. In places with relatively weaker wind resources, like Pennsylvania and Ohio, biomass could prove a formidable competitor.
Even bigger prizes for the wind industry are on the horizon, as utility deregulation reaches the windy states. In Texas, America's second largest power market, a provision in the leading deregulation bill would create a market for 2000 MW of wind in the next decade in that state alone. At least five other states, including Iowa and Nebraska, are seriously considering substantial pro-wind policies, with a total new market of almost 5000 MW.
The biggest prize and the one most within reach is in Texas. A substantially wind-oriented RPS has survived the Texas legislative process so far, and may be law by early June. Proposals have ranged for a minimum renewables standard from 3% right up to 10%, but two proposals for around 3% are the leading candidates. One is included in a bill approved by the Texas senate and requires 3% of the state's capacity from renewables by 2009. The other, contained in a House bill approved by a committee, requires 2000 MW of new renewables by 2009, similar to the 3% target. Texas is the only place considering legislation, at state and federal level, for a capacity-based standard, rather than an energy based standard where the RPS percentage is measured in kilowatt hours produced rather than capacity installed.
Texas is shaping up to be a policy success story for wind thanks in part to a strong lobbying effort by the wind industry. A lobbying coalition was formed to promote renewables-the Texas Renewable Power Coalition-featuring most of the US wind industry, along with other advocates. NEG Micon, Vestas, American National Wind Power, York Research, FPL Energy and Enron Wind are members, along with Public Citizen, SEED and the Environmental Defense Fund, among others.
Texas is seen as an especially attractive market for wind, according to Public Citizen's Tom "Smitty" Smith. "The renewable resources are so enormous here," he says. "And because Texas is placed in the centre of the grid system, we have access to markets to the east, west and within Texas from a variety of wind sites." He is confident about the political climate. "We think there's about a 60% chance a dereg bill will pass," says Smith, "and if it passes I predict the portfolio standard will stay in." Retail competition would start in 2002, with the first phase of the RPS 1280 MW starting in 2003.
The wind industry members have made effective lobbyists, according to Smith. "David Beckwith and Jim Murray with American National Wind Power have really convinced the El Paso delegation that wind is an important part of rural economic development. And FPL and York have worked with West Texas legislators, who are often the most conservative." American National has a 30 MW wind farm under development now in Culberson County, with plans for an additional 250 MW. FPL is developing the 75 MW Southwest Mesa project in McCamey, and York has a new 35 MW project at Big Spring (Windpower Monthly, MAY 1999).
More on the way?
Renewables policies are under consideration as part of deregulation discussions in six further states-Ohio, Iowa, Kansas, Nebraska, Wisconsin and Oregon-though compared with progress in Texas, these are both more uncertain and more long term to varying degrees, with the notable exception of Oregon.
Ohio, like Texas one of the nation's largest power users, is debating deregulation now. A loose coalition has been formed consisting of the Ohio Environmental Council, SEED Ohio, the Union of Concerned Scientists, municipal utilities and Browning Ferris Industries, a major trash haulier and landfill operator. Its proposal is for an RPS of 5% of sales by 2010, or about 9 million MWh, with potential for a market for 2000 MW of wind and biomass. Ohio deregulation has bogged down, however, in a contentious dispute over the stranded costs of existing market players once they are pushed into a competitive world. The current legislation would allow utilities to recover about $10 billion in costs, while First Energy, a Cleveland-based utility, is threatening to sue the state if utilities do not get $18 billion in stranded cost recovery.
Iowa, meanwhile, has put off the discussion until next year. Its renewables mandate, issued way back in the early 1980s, has been fulfilled, with the Clear Lake wind farm by FPL and NEG Micon and Enron Wind's Storm Lake wind plant among the projects. Now it is toying with the idea of an RPS. A utility-led coalition nicknamed "the Tuesday Group" developed a restructuring package that included a renewables requirement of 2% by 2006. Since Iowa already receives more than 2% of its power from hydro and wind, the proposal would have been a floor, and would not have produced any new development. The deregulation package was thus opposed by environmental groups like the Iowa Citizen Action Network and the Izaak Walton League, as well as by labour unions and the state government's Department of Natural Resources (DNR). It failed to get out of committee, but will likely be revisited next year. The Iowa DNR has proposed an RPS of 10% by 2015, consistent with the official renewables goal of the state. This goal would be equivalent to about 4.3 million MWh in 2015, or about 1500 MW of wind.
Kansas seems the furthest away from action on renewables. An RPS was the subject of one of 17 bills introduced this session, but with only a small environmental advocacy lobby active in the state, the chance for renewables seems slim.
The mandate approach
Nebraska and Wisconsin are discussing bills that would create renewable energy mandates without opening markets to retail competition. Progress is slow, however. In Nebraska, an RPS proposal of 10% by 2010 has been introduced for the last three years without being acted on. Although the Nebraska legislature convened hearings on the issue again this year, it appears that action on the measure has been postponed yet again. A 10% RPS would be about 3 million MWh, or 1000 MW of wind.
Wisconsin included a modest 50 MW renewables mandate in the Reliability Act of last year. Additional policies are being considered. An RPS of 4% of capacity by 2010 was included as part of a "public benefits" package, which also covered energy efficiency, low income customer assistance and environmental research. After meeting for six months, a legislative study group on public benefits has adjourned without formulating any recommendations, prompting the main parties to begin negotiations with each other. The largest utility, Wisconsin Electric, is now negotiating with the Customers First Coalition, a group of municipal and rural utilities, environmental and public interest groups, and Madison Gas & Electric. Those talks include public benefits in a larger package of concerns, including formulating an independent Wisconsin transmission company. If an agreement is reached, it could be included in the annual state budget. An RPS of 4% of capacity would produce about 500 MW of renewables, though a portion of this can come from existing sources.
Something very different
In Oregon, a deregulation bill that cleared the Oregon senate in April is using a radically different approach to customer choice. The bill would open the market for commercial and industrial customers but create a "portfolio" of products for residential customers that would be offered by the incumbent utility. The residential customer portfolio would include a traditional cost-based power product, a market-based product with fluctuating rates, and a green power product. Residential customers would be given a "ballot" every few months asking them to choose a power product from the portfolio. Generation companies would be chosen by the utility through competitive bidding, acting as a middleman for residential customers.
Steve Weiss, Senior Policy Associate with the Northwest Energy Coalition, says the portfolio approach was originated by a utility, and was approved by virtually every group involved in the deregulation debate in Oregon. "Even power marketers didn't care because its pretty clear from around the country that residential customers are not interested [in retail choice]," says Weiss. "The cost of signing up residential customers is huge. For green power, so much money is being wasted in marketing, it's a shame. That money could be going for new windmills."
The bill also requires disclosure of fuel sources, emissions and price, and creates a "public purpose" fund that includes about $13 million for renewables. This fund would be used to buy down the above market cost of renewables, similar to the California subsidy approach. Whether the California residential market joke-they held a party and nobody became-is to be repeated, only time will tell. But a separate bill for net metering passed the Oregon House in May, with a 59-0 margin, allowing home-producers of electricity from renewables to run their metres backwards whenever they are not taking power from the grid. A chink of light perhaps.