ERCOT in February averted a blackout that could have become a disastrous defining moment for the windpower industry. This near miss can teach utilities and system operators valuable lessons about...
Wind Goes Hollywood
The spotlight is on. But true stardom will require more direction from utilities.
obligations. Suddenly, as recited in dozens of cases, utilities had to go out on to the open market and pay the spot price for power, which often was many times the contracted price, causing customer rates to rise. In fact, just two years ago, a California utility executive, on the condition of anonymity, recounted how his company’s CEO was worrying about how the state’s renewable mandates were attracting all kinds of get-rich-quick schemes. One strategy called for the utility to agree and sign the PPA first. That way, the project developer could take the agreement to the bank in search of financing—seed money that would not have been forthcoming otherwise.
“It got so bad that we would not allow people into the building unless they had a project that was already built or they had a project with its own separate financing and independent proof of the project’s viability,” the utility executive said.
Paul J. Bonavia, president of utilities group of Xcel Energy Inc., at an AWEA press conference, explained the problem further.
“The issue for us,” he noted, “is when we enter into long-term [PPAs], ratings agencies typically attribute a portion of that commitment as debt on our balance sheet. That winds up increasing our cost of capital, and ultimately affecting our financial health.”
Bonavia added that Xcel Energy was trying to achieve the right balance between ownership and contracting of wind power. Of course, as a utility owner/developer, and given Xcel Energy’s sizeable balance sheet, the utility would be a more attractive counterpart to other utilities that may want to contract for wind power.
Moreover, credit issues may be but one reason why utilities have not become more involved with wind energy. The industry’s main focus as of late has been on larger base-load projects. To date, FPL Energy, Xcel Energy and Mid-American have become the major wind players among utilities. But if a national renewable standard or climate legislation were passed, the list would lengthen quickly.
In fact, climate-change proponent Duke Energy in late May acquired the wind-power development business of Texas-based Tierra Energy. The purchase includes more than 1,000 MW of wind assets under development in the Western and Southwestern United States. But inadequate or unavailable transmission to integrate wind remains a problem with no quick solutions. And to make things worse, the aggressive policies favoring renewables in some states (such as California) may actually hinder greater regional transmission development, as states fear losing control of their green resources.
The Wires Wars
On May 30, the Arizona Corporation Commission stunned many industry watchers when it rejected a plan by Southern California Edison to build a high-power transmission line from a switch yard near the Palo Verde Nuclear Generating Station west of Phoenix to a switch yard near Palm Springs, Calif. The project was intended to bring electricity produced at natural-gas-fueled power plants near Palo Verde to Southern California. An attorney familiar with the proposal said the rejection was a surprise, as only a small portion of the line passed through Arizona. But Arizona commissioners believe this was a