POWER July 2013 - 65

ELECTRIC POWER 2013: FLEXIBILITY AND ADAPTABILITY
Wind Resources Face Market and
Policy Headwinds
Natural gas prices and low wholesale electricity prices are creating headwinds
for large-scale renewable projects such as wind.
By David Wagman
A
combination of relatively low natural
gas prices and efforts to roll back or end
renewable portfolio standards (RPS) in
several states is placing pressure on renewable
energy in the U.S. At the same time, however,
developers remain mindful of the need to begin
construction this year on large-scale wind
power projects to take advantage of a production
tax credit (PTC) extension approved by
Congress earlier this year.
Those were key themes discussed during a
session at ELECTRIC POWER 2013 on market
forces impacting renewable energy finance and
development. Much of the discussion focused
on large-scale wind projects.
With the PTC extension in place, MidAmerican
Energy Co. said in early May that it
plans to add up to 1,050 MW of wind generation
capacity in Iowa, representing as many as
656 wind turbines, by the end of 2015. The
proposed new capacity needs state regulatory
approval. MidAmerican estimated that by January
2016 it may be able to generate almost
40% of its January retail output from wind,
including the proposed additions.
" Capturing the PTC is important, " said
David Streicker, an attorney with Polsinelli
Shugart and conference session moderator. He
said it is unlikely for wind projects not under
construction by the end of the year to move
forward since PTC eligibility is linked to construction.
He said that last year, more than 13
GW of wind capacity was brought online, representing
a capital investment of $25 billion. A
report in mid-May from SNL Energy said that
around 8 GW of new capacity was brought
online in the fourth quarter alone. By contrast,
SNL said the first-quarter 2013 wind capacity
addition was the wind industry's worst since
2006. Around 384 MW of capacity was installed,
down from more than 1,900 MW in
the same quarter a year ago.
Boom-Bust Industry
The boom-and-bust nature of the wind industry
helps illustrate the important role played
by the PTC and the industry's continuing
vulnerability to changes in public policy such
as renewable portfolio standards, the ELECTRIC
POWER audience was told.
July 2013 | POWER
Source: NREL, Warren Gretz
" The Achilles heel of RPS is that it's a
mandate, " said Mark Pruitt, principal with
the Illinois Community Choice Aggregation
Network and former director of the Illinois
Power Agency. " It is always going to be tenuous
to count on an RPS. "
Bill Smith, executive director of MISO
States, said regional operating rules allow
negative market prices as a way to signal generators
to cut production. Smith said it's difficult,
however, for a baseload nuclear power
plant to cut its output in the face of negative
pricing. In those instances, nuclear operators
pay " because they can't shut. " Wind generators,
by contrast, can still afford to pay negative
prices and remain connected to the grid
as long as the payment they make is less than
what they earn through PTC payments.
Pruitt said challenges to state RPS policies
stem in part from the fact that lower natural gas
prices and reduced electricity demand have hit
wholesale electric power prices and kept them
low. This in turn has widened the gap between
market prices and the cost of renewable energy,
rendering long-term power purchase agreements
economically unattractive in some instances. At
the same time, questions are arising over renewwww.powermag.com
able
energy's ability to fill gaps left by retiring
fossil-fueled generating units, particularly given
how flexible and relatively low cost natural gas-
fired generation can be.
" What's best, low carbon or no carbon? "
Pruitt asked, saying that renewable energy
sources' intermittency adds to that evaluation.
In its favor, wind energy can act as a price hedge
against natural gas because the renewable resource
has a zero fuel cost over its lifetime.
Pruitt outlined four ways that RPSs can
be modified to protect them from challenge.
First, standards can promote uniform and marketwide
participation with a common set of
rules. Second, they can promote cost-based
competition. Third, RPS standards can adopt
a " big tent " approach and eliminate set-asides
that benefit specific technologies. And fourth,
RPS designs can be designed better. He cited
the current Illinois RPS as being so complex it
could bankrupt some companies and said the
standard is " divorced from the reality of the
market. " He said the Iowa RPS, by contrast, is
more successful because it is less complicated
and sets more readily achievable goals. ■
-David Wagman is POWER's
executive editor.
65
http://www.powermag.com
POWER July 2013

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