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Winds of Change in Texas

Rising gas prices spark a rush to wind farms, straining grid capacity and raising larger issues about market design.
Fortnightly Magazine - April 1 2003

to control grid use directly, rather than indirectly, through incentive pricing for generation, as occurs under LMP. In this way, the MOD method might avoid ex-post pricing and appease those planners who contend that LMP tells producers where to build plants, but doesn't help grid operators decide where to build new lines.

Industry reps say changes at ERCOT could well influence events elsewhere, as policy-makers work to fashion new market designs in California and the Midwest.

Back in Washington, D.C., the Federal Energy Regulatory Commission (FERC) toils over its imperiled standard market design (SMD), even as wind developers in West Texas must grapple with a threatened sunset for the generous $18/MWh federal tax credit for wind energy.

To qualify under the current plan, wind developers must have new turbines in place by the end of this year.

Unexpected Glitches

In one sense, it is the very success of wind energy as an adaptable addition to the generation fuel mix that lies behind the apparent failure of the ERCOT design and the Texas grid to keep up to date with prices and markets.

It can take only six months to build wind generators, yet an estimated three to seven years to build transmission lines, including many variables outside of construction.

"How quickly can we get transmission built?" asks Bill Bojorquez, ERCOT's director of transmission services. "We are trying to find ways to deal with issues between now and the time that the line is built." But in addressing wind issues, the question becomes, "How do we accommodate as much of the wind resources that are now there within the limited transmission in a fair and equitable manner to both providers of wind generators and consumers?"

To come to grips with problems posed by wind developers in West Texas, the PUC opened a separate investigation last April to study ERCOT's wholesale market design. 2 The PUC entertained proposals to establish a specific area, the Competitive Wind Power Area (CWPA), so that utilities might build transmission there and recover costs without fear of stranded investment.

Meanwhile, wind power generators only can wait for new policy to emerge. Consider Florida Power & Light (FPL), the largest owner and operator of wind generators in the state, with roughly 600 MW near McCamey, Texas. FPL's Beth Garza, director of market affairs, explains that generators are confronted with the uncertainties surrounding transmission constraints.

"It's the fact that we are seemingly powerless to mitigate the effects on us, and we really don't have any way to get the attention of the transmission providers, other than yelling and screaming and making a nuisance of ourselves," she says.

"Particularly for new projects, it's the uncertainty around the curtailments we may be facing that really makes it hard to commit financing for a project."

Then there are the cost recovery issues. Under PUCT regulations, transmission service providers charge service rates that include costs of facilities that are "used and useful." Yet companies that want to expand the grid can only project future need, not knowing what growth will bring.

"It's the old chicken