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New rule broadens wind customer base -- Lowering imbalance penalties

The US Federal Energy Regulatory Commission (FERC) has proposed a new rule that would lower imbalance penalties for wind generators in areas where a single utility controls the transmission grid, a change the industry says will expand the market into which it can sell.

Currently, generators in some parts of the country face penalties of as much as $100/MWh for any difference between what they say they will produce and the actual production. The proposed rule sets a maximum penalty of the cost of buying or selling power to meet the imbalance when the difference is 10% or less of stated production. For an imbalance of more than 10%, the generator would pay cost plus a 10% penalty. Transmission operators currently offering a more lenient arrangement would continue offering it.

At present, about one-third of the US is served by single-utility transmission. In the remaining two-thirds, transmission is provided by an independent system operator (ISO) or regional transmission operator (RTO). ISOs and RTOs generally have more favourable imbalance arrangements.

The proposed rule clarifies existing regulations allowing generators to change their schedules up to 20 minutes before the delivery hour. While this has been allowed for almost a decade, it appears to have been loosely followed by transmission providers. System reliability will not be compromised by the updated regulation, says FERC, since the impact of wind on most grids is relatively small compared to total generation and transmission.

FERC's proposed rule is intended to supersede an "outdated" tariff and encourage the development of renewable resources by removing barriers that affect their access to the transmission grid, according to a statement by the commission. The result, it says, will be to allow wind to "compete on a level playing field and become a larger part of our nation's energy portfolio."

The rule is largely welcomed by Mike Jacobs of the American Wind Energy Association (AWEA). "Essentially, what this means for the market is expansion of the potential customers who could buy from any wind farm location." Jacobs says the proposed rule will allow wind farms to look beyond the closest utility as a customer and signficantly grow wind's market. Typically, the local utility uses wind energy to serve its native load and thus transmission imbalance charges are moot.

AWEA's Rob Gramlich says a broader customer base will strengthen the wholesale market. "As the wind industry matures, there's much more interest, particularly by larger generators, to be able to sell to parties other than the local utility," he says. The proposed rule, along with other FERC actions, allow for much greater wholesale trade of wind. "That's very helpful, because sometimes the local utility isn't interested in buying any more wind. Having an active, well structured wholesale market provides a lot more customers."

After soliciting comments from the industry in May, FERC is expected to act on the proposed rule this summer.

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