United States

United States

Costly but a step on the learning curve

The price of services being offered in the American Northwest to firm-up variable wind power supplies is admittedly much too high, but their arrival in the marketplace is welcome -- and when competition arrives the price should drop to a level more reflective of the actual cost of integrating wind

Two services for packaging variable wind power into firm power supply in the United States Northwest have the potential to considerably expand the appeal of wind generation throughout the region, claims the Bonneville Power Administration (BPA), the seller of the services. Others, however, say the services add costs to wind power that do not need to be there -- and that the price BPA is charging is far more than the actual cost of integrating big chunks of wind into a power system.

The BPA says the services will help it integrate 450 MW of wind -- about a 6% penetration -- into its 7000 MW hydro system under two programs by 2011. Of the two services, a "storage and shaping" product is specifically for medium sized investor-owned utilities (IOUs) outside of BPA's control area that buy the output of a new wind resource, but do not want to manage its hour-to-hour variability, says BPA's Elliot Mainzer. BPA takes the intermittent output from the wind plant, brings it into its control area, stores it in its hydro system and delivers that energy in flat peak and off-peak blocks one week later at a price of $6/MWh (Windpower Monthly, February 2004).

The second product is BPA's Network Wind Integration Service (NWIS), designed for small public power customers who are buying wind generation from within BPA's control area. NWIS takes the wind output and reschedules it in real time to meet public power customer loads. This service offers the flexibility of BPA's hydro system at a cost of $4.50/MWh for all scheduled wind energy that BPA integrates into its system, Mainzer says.

From the American Wind Energy Association (AWEA), Mike Jacobs concedes there is a variety of things that can and should be done to ease wind integration." But he adds: "BPA's program is the most elaborate and probably is more than is necessary to accommodate all parties' needs." AWEA does not say that integrating wind into a system should be free, Jacobs says. "But we do think the cost is small and will vary by location. It's unexpected that BPA should charge so much when its system is best suited to integrating wind due to the flexibility of its hydro. The cost of BPA's [integration services] should be a nominal fee."

Even BPA's own consultant, Eric Hirst, has determined that integration costs for 1000 MW of wind into BPA's system are just $1.47 to $2.27/MWh (Windpower Monthly, February 2004), far below BPA's $4.50 fee for public utilities. And even though regional utility PacifiCorp came up with a higher cost of $5.50/MWh, that was to integrate what amounts to a 20% penetration of wind power into a less flexible system consisting largely of coal fired generation, with about 30% hydro and some purchased power.

BPA's $6/MWh fee for IOUs is considered high. "Nobody has ever come up with a $6 cost. Even in areas with less hydro and less system flexibility, costs are lower," Jacobs says, referring to a new study by EnerNex Corporation of Knoxville, Tennessee, with the help of WindLogics of St Paul, Minnesota, for Xcel Energy's system in Minnesota. "BPA is simply charging more than it costs," he says.

A previous study of Xcel's Minnesota system, by Xcel and the Utility Wind Interest Group, determined the cost of integrating an additional 300 MW of wind energy into Xcel's 9000 MW system to be $1.85/MWh. The 300 MW was to be located in neighbouring Minnesota counties. The EnerNex study, however, went far beyond 300 MW and looked at the impact on Xcel's power system of adding an anticipated 1500 MW of wind by 2010 -- a full 15% penetration, spread out over a geographically diverse area in Minnesota and South Dakota. Xcel's demand is projected to grow to 10,000 MW by 2010.

Looking at the 15% penetration, the study arrived at a $4.37/MWh integration cost attributable to unit commitment and scheduling. "Those costs are dominated by costs incurred by Xcel to accommodate the significant variability of wind generation and the wind generation forecast errors for the day-ahead time frame," the EnerNex report says. The costs could be lower with the combination of good planning and scheduling, the right resource mix and "attractive" options for dealing with forecast errors, which are not in place at this time, the report concludes.

BPA admits making a profit

BPA's Elliot Mainzer admits that the two products the federal power marketing agency offers are priced higher than it costs BPA to deliver them, which is unusual for the agency. It otherwise prides itself on selling power to its customers at cost. "Still, it is well priced compared to comparable services," he says. "We recover our cost and a little more so we can cover our risk."

Mainzer differentiates the costs associated with BPA's hydro-wind products from the costs to integrate wind into the BPA system. "We think we're selling a piece of our system flexibility and there are other uses for that flexibility, such as for ancillary services," he says. One of those ancillary services is for regulation requirements, but the EnerNex study determined that the "opportunity cost" for reserving the needed generation capacity to perform this service is minimal, even for 1500 MW. The study determined that regulation requirements rose just 7.8 MW at a cost of $0.23/MWh.

As this is BPA's initial foray into this market, Mainzer says, the costs still need testing and the price could come down as the marketing agency learns more about the services it is offering.

No utility has signed on for the $6/MWh storage and shaping service, which is reserved for investor utilities, but several of BPA's public power customers have signed on for the cheaper NWIS -- and say they are happy with it. Three small Washington utilities and Energy Northwest's nuclear Columbia Generating Station, which uses 2 MW of wind energy for station electric service, are currently buying the NWIS service.

Two of the utilities buy wind energy from Energy Northwest's Nine Canyon wind project in the eastern reaches of the state. For these customers, when the wind is blowing, Mainzer explains, "We back off our hydro resources [to the degree needed] and regulate it around the wind output. When the wind is not blowing, we simply deliver hydro energy," regardless of whether the delivery is on peak or off.

Cowlitz County Pubic Utility District (PUD) is one of the utilities buying energy from the Nine Canyon project. While most of the utility's power comes from the BPA hydro system, says the PUD's Dave Andrew, the NWIS allows Cowlitz to offset the energy it receives from BPA with the wind energy it buys from Energy Northwest. "This gives us an opportunity to diversify and the costs going forward [for wind energy] are looking good and are very close to the price for hydro," Andrew says. "We pay BPA to shape the load and they firm it up for us, more like we expect from the hydro resources."

A beginning

Hydro resources, due to their flexibility and ability to respond immediately to fluctuations in electricity demand, are a cost effective and efficient way to support the use of intermittent resources, such as wind power, says the National Hydropower Association. "While the concept of blending renewable resources is relatively new, it is clear that hydro power can support the additional development of other renewables and assist the nation as it moves more rapidly to a greater reliance on renewable energy," the industry group says.

Jacobs agrees. Even though the BPA integration services may cost more than is warranted, he'd like to see other power marketing agencies show a similar willingness to work out a way of charging for wind integration. "I'd like to see BPA's example noted and used by others as a good starting point," he says.

Rachel Shimshak of the Renewables Northwest Project, a regional advocacy group, says that if others would offer a similar service, perhaps the price would come down faster. While lots of people have complained the price BPA charges for turning variable wind plant output into firm power is too high, she adds, the fact is nobody else is selling such a service. "It will likely take some time delivering the service to see if it in practice costs the system that much," she says. "If not, BPA should change the price. Perhaps, once other utilities get more experience with wind generation, they'll offer a similar service and we'll get competitive pricing."

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