Thanks to soaring energy prices, wind energy is becoming cheaper than that fueled by natural gas and other fossil.fuels.
Clean-air advocates in Texas can already list plenty of reasons why it's ultimately cheaper to generate electricity from wind turbines rather than in smog-belching power plants. But at this moment, wind farmers don't even have to raise the specter of costly emissions cleanups or the health hazards of dirty air to sell their product: Thanks to soaring natural gas prices, wind turbines in Texas can now deliver a kilowatt-hour of energy less expensively than all but the most efficient gas-burning plants, an unprecedented breakthrough for the industry.
That news first arrived from the Lower Colorado River Authority, which, in addition to managing the gates of the Highland Lakes dams, is also a major electric wholesaler for Central Texas. In a press release issued last month announcing the purchase of 50 megawatts of power from a wind farm under construction in West Texas, the LCRA not-so-casually added that that the purchase price is "substantially less than the cost of power generated by natural gas."
Tom Foreman, LCRA's manager of customer and energy services, says the LCRA originally planned to buy only 10-12 MW from the Indian Mesa Wind Farm, a project in Pecos County that plans to turn out 82 MW by the middle of next year. "But when they gave us a price quote," says Foreman, "we said, 'Can we have more?'"
The LCRA, which under ideal conditions draws about 15% of its generation from six hydroelectric dams and two existing wind projects, is already the largest supplier of renewable energy in the state. But spokesman Bill McCann says that in doubling its investment in wind power, the LCRA is anticipating a surge in customer demand for "green power" choices. The buy also hints, McCann acknowledges, that the LCRA believes wind could eventually deliver a long-term pricing edge.
Energy consultants and industry reps say they're skeptical about whether wind will remain a bargain once winter orders for gas are filled and the price settles down. Mike Sloan of Virtus Energy Research Associates confirms that wind contracts, priced at about 3.5 cents per kilowatt-hour, are undercutting the cost of electricity from gas-fired plants, which is hitting 4.5 to 5.0 cents.
But what's true today may not be next month, says Sloan, who adds that the latest generation of high-efficiency gas plants can generate electricity more cheaply than wind farms, even at today's fuel prices. Walter Hornaday, whose Austin-based company Cielo Wind Power is building wind farms that will supply both Austin Energy and Reliant Energy of Houston, says power producers with long-term contracts for gas are still generating for less than he can.
Still, spokespersons for major utilities aren't as quick to dismiss wind power as a potentially significant energy source as they were even a few months back, when natural gas prices were half what they are now. This summer, contracts were inked to put up two of the largest wind projects in the world right here in Texas -- TXU Electric and Gas arranged to build a 160-MW farm and buy an additional 32 MW from the Indian Mesa project, while the Reliant Energy Wholesale Group announced a deal to buy 200 MW from another farm. Those projects should begin generation at the end of next year.
Meanwhile, every private utility in the state has asked the Public Utility Commission of Texas for rate increases of up to 15% to cover the spiraling cost of natural gas.
TXU's recent renewables purchases, which also include 40 MW of landfill methane generation, add up to more than the utility needs to comply with SB7, the electric industry restructuring act passed by the Legislature in 1999. And across the state, utilities are contracting for renewables, particularly wind, at such a rapid pace that the 2002 goal for new renewable power set by the Legislature has already been eclipsed.
But it's far too early to tell what role wind power will play in the utilities' future business plans, especially given the inevitable turbulence a deregulated energy market will bring in 2002. Undoubtedly, utilities' first concern is to get a jump on an anticipated land rush for the "green power" market, hoping to prevent their customers from defecting to intruding renewable power vendors such as Green Mountain Energy.
Texas utilities may fear losing more than just their eco-minded customer base to green competitors, however, if a whipsawing natural gas market keeps pushing the price of electricity up when people need it the most. Industry watchers expect the price of gas to subside, but not to return to the levels that prevailed when most gas-burning generators were built.
Wind power isn't subject to price fluctuations because the generating cost derives from relatively fixed construction and operating expenses. But the booming wind industry faces its own share of challenges. Its prices are largely dependent on a federal production tax credit that only extends until December of 2001. And wind turbines are reliable generators for only about nine months of the year, slowing to an idle during the summer when electric demand is highest, so utilities have to maintain backup fossil fuel generation.
Then there are the transmission problems: Wind turbines are going up in the desolate hills of West Texas, far from the state's urban centers, promising to strain transmission wires already choked with bottlenecks. A study due at the PUC this week is expected to request major improvements to the state grid between West Texas and the I-35 corridor to cope with the potential overload.
But as demand for wind power grows, says Orion Energy president Reid Buckley, the European companies that manufacture wind turbines are introducing new economies of scale that could take the price of wind power lower. "The industry now produces thousands of wind turbines in a year as opposed to hundreds," Buckley says, and producers could also get help from new state and federal clean-air laws that will force utilities to increase their stock in renewable energy.