ISSUES & ANALYSIS: Technology, renewable mandates boost wind energy projects
After a lull, wind energy is making a come back, in some instances with a new look. Northern Alternative Energy Inc., for example, is investing $400 million in a 650 Mw combined gas-fired peaking and wind power project that will permit the company to deliver firm rather than interruptible power to customers.
OGJ Online Power Editor Kate Thomas interviewed wind energy executives and other analysts about renewed interest in wind power projects. At least one company plans to use emissions credits from a wind project to offset emissions from natural gas peaking units, permitting them to run for a longer period of time.
On a mountain top in West Texas, Cielo Wind Power LLC is building what it says is the largest single wind energy installation of its kind in the world. In Minnesota, Wisconsin, and Iowa, Northern Alternative Energy Inc. is investing $400 million in a 650 Mw combined gas-fired peaking and wind power project that will permit the company to deliver firm rather than interruptible power to customers.
After a lull, US wind-powered electricity production is rising fast, thanks to state renewable energy mandates, pollution reduction requirements, more efficient equipment, and the countdown on expiring tax credits next year.
New and repowered units are projected to boost electricity generated from wind projects to nearly 4,000 Mw by the end of 2001, nearly a 60% increase from the amount of installed capacity in January 2000, experts say. As the number of wind power project increases, landmen are scouring the Great Plains from Texas to Minnesota for promising wind energy sites.
Randall Swisher, executive director of the American Wind Energy Association (AWEA), likens America's Great Plains to the "Saudi Arabia of wind."
The hunt to lock up wind prospects doesn't begin to compare to the great boom times of the US oil and gas industry. But the trend does underscore renewed interest in an energy source that is just recovering from a black eye for poor performance in the 1980s, and it points to a change in how wind and other forms of renewable energy are being perceived. Wind accounts for less than 1% of US electric power today, but the Clinton Administration has set a goal of wind energy providing 5%�about 80,000 Mw of electric power�by 2020.
As oil and gas prices rise and the pressure intensifies to limit fossil fuel emissions, renewable energy, including wind, has begun to attract some big industry players.
"We are seeing oil and gas people getting into the wind business," says Cielo Pres. Walt Hornaday.
Many of the new wind projects have the backing of some well-known names in the industry, including Royal Dutch/Shell Group; Enron Corp.; FPL Energy LLC, a unit of Florida's FPL Energy Group Inc.; ABB Group; Reliant Energy Inc.; and TXU Corp.
That's helped small firms such as Cielo and Northern Alternative, which have sprung up to capitalize on the improved market for wind energy. Together with Renewable Energy Systems (USA) Inc., an affiliate of the UK's McAlpine Group, Cielo is building and will operate the $150 million 200 Mw King Mountain Wind Ranch in West Texas, supplying Reliant Energy Inc.
Much like an oil and gas prospect, assembling a wind prospect requires a fair amount of up front investment and technical expertise, Hornaday says. Prospective sites can require 2-4 years of meteorological research before enough data is available to get a project financed. Data is needed on about 20 elements, including wind speed, direction, turbulence, and air density.
"Wind is different year to year," he says. "We have all the wind risk out of a project before we build."
In addition to assembling a prospect, a company must do the initial engineering work on the proposal and sign an option with the landowner for a lease.
"You still get more for [a] hunting [lease], but it pays better than grazing," Hornaday says. "Then we have a project we can offer to a utility." Once a project begins producing electricity, the owner of the wind rights earns a royalty. In Cielo's case, it's about a $1/Mw-hr.
Even with a feasible project, some US banks shy away from making wind loans. Burned by companies that couldn't keep their equipment running in California years ago, Hornaday says, "They will still ask 'do the turbines work'?" Cielo is getting much of its financing in Europe, where wind power is more widely accepted, he says.
Cielo's West Texas project will be on the 3,141-ft King Mountain and will produce electricity from about 160 wind turbine generators, each capable of generating 1.3 Mw. Construction is scheduled to begin this year.
Hornaday said the project is expected to produce electricity 80% of the time and mostly will use existing power lines built to serve now-abandoned oil and gas wells. It will be among several projects already announced that will help in meeting Texas's legally mandated requirement to have 2,000 Mw of new renewable power projects developed by Jan. 1, 2009. The renewable energy requirement was written into SB 7, the law restructuring the state electricity market.
Electricity produced by the King Mountain project will be sold into the state's power grid, to rural electric cooperatives, and to other retail energy providers once the state's energy markets are open to competition, said Joe Bob Perkins, Reliant Energy Wholesale Group president. Reliant expects to begin purchasing electricity from the project by the fourth quarter of 2001.
Wind energy projects must be operational by the end of next year to be eligible for a production tax credit which expires Dec. 31, 2001. The credit is 1.5�/kw-hr of electricity produced and can be used to offset a producer's tax liability.
In addition, TXU Electric & Gas, Dallas, a unit of TXU Corp., has selected FPL Energy LLC to build, own, and operate 242 wind turbines in West Texas with generating capacity of 160 Mw. Under the contract, FPL Energy will provide about 500 million kw-hr/year of electricity to TXU customers by the third quarter of 2001.
FPL Energy, the independent power production subsidiary of FPL Group Inc., operates wind farms in 5 states, with 974 Mw of capacity and net FPL Energy ownership of 587 Mw. The company expects to add 500-1,000 Mw of wind energy projects by the end of 2001.
Gas, wind hybrid
Minneapolis-based Northern Alternative's (NAE) 650 Mw hybrid of wind and natural gas peaking units will deliver firm power to Northern States Power Co., making the most of seasonal fluctuations in wind availability and gas prices, said Pres. Greg Jaunich.
Located in southwest Minnesota, the 100 Mw of wind turbines will operate year round. When less wind is available during the region's summer electricity peak, the company also will use 550 Mw of gas-fired peaking units. Natural gas prices are traditionally relatively cheaper in the summer when there is a need for extra power, Jaunich says.
And by using emissions credit from the wind-powered generation to offset emissions from the peaking plants, the gas-fired units will be allowed to operate for more hours, he points out, making the combination a "perfect match." Jaunich says NAE has a patent pending on combined wind and natural gas project.
The project is being permitted and construction is scheduled to begin next year.
Cielo's Hornaday says wind turbine technology has improved to the point that it is competitive with coal, hydro, and nuclear but not natural gas. Combined cycle natural gas-fired plants cost about $500/kw. Hornaday estimates it will cost about $1,000/kw to build a coal plant, making it comparable to the cost of wind energy projects.
"But then you have to pay for the coal. Wind has cheaper operating costs," Hornaday says. Technology improvements have reduced the cost of electricity generated by wind from as much as 25�/kw-hr in the early 1980s to between 4-5�/kw-hr today. Enron's 193 Mw Buffalo Ridge wind farm at Storm Lake, Iowa, for example, sells power to Northern States Power Co. for an average 3�/kw-hr, according to the AWEA..
Technology improvements are expected to reduce the unit cost of electricity generation even more. Currently, the largest wind turbines have capacity to generate 1.5 Mw of power, but turbines expected to be commercially available after 2000 will be rated to 4.5 Mw.
Even though the demand for low-cost electricity puts higher cost renewable energy at a comparative disadvantage, the technologies are becoming finally becoming mainstream and will soon become entrenched in the North American electricity infrastructure, says Heidi Anderson, an energy analyst for consultants Frost & Sullivan, San Jose, Calif.
Signaling the new respect for renewable energy, the American Gas Association, the AWEA, and the Business Council for Sustainable Energy in July formed the Natural Gas and Renewable Energy Alliance to promote a "diverse, environmentally sound mix of energy technologies." Just a year ago, the Natural Gas Supply Association was still denouncing any effort to establish a national renewable energy portfolio standard even as states were writing standards into law.