Technology Corridor

The need for additional generation to compensate for wind variations is disappearing.

Utility-based studies have laid to rest the concern that a wind plant needs to be backed up with an equal amount of dispatchable generation. Even at moderate penetrations, ancillary services to back up new wind power need not be more than is required of a system as a whole.

An initial report on utility integration of wind, compiled by the Utility Wind Interest Group (UWIG), an organization of more than 50 utilities with wind power on their systems, looked at a series of studies from Xcel Energy, PacifiCorp, Bonneville Power Administration, We Energies, and consultant Eric Hirst, and concluded that the need for additional generation to compensate for wind variations by backing up a wind plant with an equal amount of dispatchable generation "is substantially less than one-for-one and often closer to zero."

The 162-MW Colorado Green wind farm, completed in 2003, illustrates not only that wind can be economic against other fuels, but also that the need for additional generation to compensate for wind variations is, as the UWIG report says, much less than one-to-one.

The Colorado Public Utilities Commission (PUC) and Xcel Energy scrutinized the economics of the proposed wind project in Lamar, Colo. The PUC ruled that the wind power bid was "justified on purely economic grounds, without weighing other benefits of wind generation that could be considered under the IRP rules" (). Three important results emerged in particular from the analysis.

First, new wind generation was predicted to cost less than new gas-fired generation, assuming gas costs of more than $3.50 per million BTU or thousand cubic feet (mcf).

The Colorado commissioners decided that the price of natural gas likely would rise beyond the utility's base case (about $3 per million BTUs and declining) over the 15-year purchase contract. What's more, they found that "even if the company's base forecast of natural gas prices turns out to be accurate, the Lamar bid is still economic unless ancillary service costs are at the high end of the estimates" (). The PUC staff also testified that the Lamar wind-farm bid was the lowest of all the bids submitted in the entire request for proposals, except for one small hydro proposal.

More broadly, the following graph shows the levelized cost (capital costs, fuel costs, operation and maintenance costs, divided by output) of wind and natural gas, at different levels of natural gas price ().

All other things being equal, at about $3.50 or more per million BTU natural gas, and assuming wind projects in good locations, it makes economic sense to analyze the economic contribution that wind can make. Wind is likely to be the most competitive option for new generation on a levelized-cost basis.

Second, wind power received a fair capacity value based on the utility's method and data. In the Colorado case, the utility conducted a reliability analysis to estimate any firm capacity value for the 162-MW Lamar project, and it determined that the project would provide reliability benefits equivalent to 49 MW of conventional