United States

United States

Texas claims best policy in the world

It was a small conference with very big players, a testament to the status of Texas as the reigning wind power capital of the United States. The 900 MW of wind power coming on-line this year in a single American state is more than a third of that installed in Denmark over a 20 year period and nearly a quarter of that likely to be developed in the whole of Europe in 2001. Wind's big players were at the Texas Renewable Energy Industry Association's (TREIA) annual conference in Abilene, Texas. The two-day TREIA conference focused largely on the legislative framework -- the Texas Renewables Portfolio Standard model -- and the industry's successes.

According to Texans it is no accident that their state is currently home to the most active wind power market in the world. It is by design

It was a small conference with very big players, a testament to the status of Texas as the reigning wind power capital of the United States. The 900 MW of wind power coming on-line this year in a single American state is more than a third of that installed in Denmark over a 20 year period and nearly a quarter of that likely to be developed in the whole of Europe in 2001.

The big players in attendance were US developers Enron Wind, Cielo Wind Power, EnXco, FPL Energy and Britain's Renewable Energy Systems. The turbine manufacturing heavyweights were Europeans Vestas, Nordex and NEG Micon, along with American Enron Wind and representatives from Suzlon Energy of India, which recently set up shop in Houston. All were at the Texas Renewable Energy Industry Association's (TREIA) annual conference in Abilene, Texas.

The two-day TREIA conference, attended by 150, focused largely on the legislative framework -- the Texas Renewables Portfolio Standard model -- and the industry's successes. But it also became clear as the conference proceeded that Texas' continued growth in wind generation strongly depends on extending the federal Production Tax Credit and on how fast the state's transmission authority -- the Electric Reliability Council of Texas (ERCOT) -- can improve transmission capability in West Texas.

Eclipse California

Due to the work of a core group of Texas renewable energy advocates, the state's legislature passed in 1999 what has been heralded as the best Renewables Portfolio Standard (RPS) in the US (Windpower Monthly, May 2001). Texas also ranks number two for the best wind energy development resource among the US states, a position which rankles Texans, who are accustomed to being number one in nearly everything they do. The RPS calls for state utilities to put 1000 MW of renewable energy projects on-line by 2003 and 2000 MW by 2009. As polite as Texans are in person, they are quick to brag that including their methane gas projects the 2003 goal has already been met and preliminary plans are already in the works for more wind projects that go well toward the 2009 target.

Mike Sloan, of Virtus Energy Research Associates, says the Texas RPS, which mandates a fixed proportion of renewables in the generation mixed facilitated by green credit trade, is the best in the world. Sloan was instrumental in convincing Texas legislators to pass the RPS into law, so could be biased, but his view is independently supported by Ryan Wiser of the Lawrence Berkeley National Laboratory in California who came to the same conclusion in a report released last month. And Texas activity speaks for itself. This year the law will have resulted in 913 MW in wind projects and $1 billion in economic activity, according to Sloan. That includes 600 construction and 100 permanent jobs in West Texas and payments to landowners of $2500 to $3000 for each turbine.

State representative Steve Wolens, who was given TREIA's "Legislator of the Year" award, called the state's legislature the "greatest show on earth" and wondered aloud how it could meet only five months every two years and still get anything done. Wolens was one of two state legislators pushing the RPS through the process.

He said that although the legislature restructured the electric industry in 1997, it was not until 1999 that some legislators began to understand they also needed to address "the dirty power plants we had exempted from regulation since 1974 and renewables." That resulted in Senate Bill 7, which included the "most stringent renewables requirements of any state in the country, including California," Wolens said. "By 2009, we will over-comply with the mandate and eclipse California."

RECs trading at work

One of the by-products of the RPS is clean air. Texas is leading the nation in greenhouse gas production and the state's largest cities do not meet federal clean air standards, Wolens said. He believes that a law that requires dirty power plants to clean up or go off-line by 2003 will drive even more renewable energy development.

In typical Texas fashion, Wolens and others have enormous confidence in using market mechanisms for solving tough energy problems and one of the most effective RPS rules is the creation of Renewable Energy Credits (RECs), a mechanism that allows producers and owners of credits to trade them to entities in need of them. That need is created by the RPS mandate.

The REC is intended to encourage generation companies to build more renewable generators while helping to offset their expenses, says Roy McCoy, who manages the REC program at ERCOT. The law requires all competitive retailers to buy and retire a share of RECs based on the proportion in the state of their retail load. Anyone anyplace can buy, hold, sell or trade a REC, but they can only be used in Texas. "RECs are born in Texas and they will die in Texas," McCoy says.

"A REC is like a stock certificate on a renewable plant," Sloan explains. "It is market-based and the value can go up and down." Each REC, which represents a MWh of generation, is selling in Texas for $4 to $5 each. Early banking for 590 MW worth of RECs began July 1 and 290 MW additional RECs were added in late November. Still, full trading will not begin until the state deregulates in January 2002.

A policy model

It is no accident that the market-based approach taken by the state may also find its way into a national energy policy. Russell Smith, TREIA's director, says the organisation had worked with George Bush when he was Texas' governor on the RPS legislation. "Do you think we had done all this without Governor Bush knowing?" Smith says. "We had worked with Bush on the RPS from the get-go. Trade-offs were made and everyone got something. That's what will happen at the federal level, too." He says TREIA has continued its dialogue with Bush in Washington DC and predicts the administration's CO2 policy will be done the same way Bush played the RPS while in Texas.

Texas legislators have been building their notably comprehensive energy policy since 1997. Under the policy, state utilities will begin to offer customers a supply choice in January, while the RPS is ensuring that a substantial number of renewable generators are built, with the availability of RECs giving energy providers the incentive to invest in renewables. Dirty power plants will go off-line or clean up by 2003. And the state is even offering homeowners, as well as commercial and industrial users, incentives to improve efficiency.

Transmission trouble

While the RPS is giving wind power a significant boost, transmission problems could slow the growth, at least until the transmission system catches up. "We have tremendous problems on the grid," Wolens said. "You could continue to stick turbines in the ground all day long, but if you can't move it to the grid, it is worthless."

He said the state legislature will work on the issue to ensure the Public Utility Commission stays on top of the problem, but wind developers, advocates and ERCOT are already beginning a dialogue. The problem is that West Texas, which has few people but nearly all of the new wind development, already has transmission constraints. The speed at which wind projects are going up far exceeds the time it takes the transmission system to upgrade or build new lines.

Juan Santos of ERCOT says the transmission agency does not have all the answers, but is working with others to develop a wind generation model and identify transmission paths that need fixing. ERCOT is meeting early this month with a task force made up of ERCOT, utility and wind developers to begin developing a wind generation model that will help the agency evaluate interconnection needs for new wind projects. Jim Caldwell, policy advisor for the American Wind Energy Association, says it's a good sign when a transmission agency comes to the wind industry to talk. He says this is typical Texas style. When something is not working, they will get together to find out how to fix it.

Texas needs a PTC

At the time of the conference, the US Congress had yet to pass legislation to extend wind's federal tax credit. It effectively represents a $0.017/kWh subsidy for each unit of wind produced electricity. The lack of a PTC extension even had Texans worried.

Whatever happens to the PTC will determine if Texas will continue its wind power boom in 2002. Without the PTC, construction will certainly stop, but developers at the TREIA conference said they will continue to plan (not build) projects in Texas to meet RPS targets.

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