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Yet Another Subsidy For Wind?

FERC risks going overboard in easing penalties for generation imbalances.

Fortnightly Magazine - August 2005

feet (putting aside for the moment the matter of whether FERC ought to subsidize a specific energy technology) the issue tends to boil down to several micro squabbles, plus one really big question that will force the power industry to take a good look at itself.

First, FERC has proposed to define intermittent resources eligible to the new rule rather loosely: any electric generator "that is not dispatchable and cannot store its fuel source and therefore cannot respond to changes in system demand or respond to transmission security constraints."

Yet wind turbine blades already can be "feathered" to control output. Also, with today's software, a wind farm operator ought to be able to employ SCADA systems to manage a cluster of turbines to control output to some degree. Many parties have warned FERC instead to define the rule in terms of "weather-driven" resources, so as not to get tripped up down the road when this or that technology takes an unexpected turn.

Second, FERC specifies the new 10 percent penalty for deviations outside the dead-band in terms of incremental and decremental cost, as defined in a 1999 case (87 FERC ¶61,170) as a function of cost of fuel, unit heat rate, start-up cost, operation and maintenance, taxes, and purchase interchange power. The proposal makes no mention of capacity costs, nor does it attempt to use real-time market prices to calculate the new imbalance penalty. That means, as many have pointed out, that if transmission providers in areas with a high degree of wind-turbine penetration find it necessary to construct power plants to provide ancillary services to back up the wind power, that the capacity costs will fall through the cracks, with utility ratepayers left paying the bill.

Many also warn of arbitrage: that when real-time market prices deviate significantly from the fuel-based incremental and decremental cost calculation, any savvy wind farm operator would gladly pay the 10 percent penalty for a real-time over-delivery that could be sold at market for much more. They have urged FERC to use some form of a market price indicator to calculate the imbalance penalty, rather than a static cost-based benchmark.

Nevertheless, the real question is more challenging. Are imbalances the enemy, or should the electric industry instead think about reorganizing itself to adapt to the coming age of wind power?

The record in the FERC case is flush with complaints from small-scale utilities (many are co-ops) operating in rural areas, where wind power potential is greatest. They say they cannot deal with high concentrations of turbines, due to the costs of forecasting, regulation and voltage control, and integrating a new and strange animal into the resource mix. Yet the answer may lie in still heavier investment in wind (lowering unit costs for these services), and operating control areas and bulk power systems at much larger scales.

Consider, for example, the recently concluded landmark study on wind energy development potential conducted by GE Energy, TrueWind Solutions, AWS Scientific Inc. and others, for the New York ISO, and the New York State Energy Research and Development Authority. (See,