Randy Manion, Western Area Power Administration
As we continue in an era of fuel price volatility and risk in energy markets, the value of sound resource planning— hedging against a previously unforeseen range of possible market scenarios—is higher than ever. In addition, the importance of customer service and of delivering value to customers is higher than ever. Renewable energy—wind power—has valuable characteristics that can enable municipal utilities to address both of these concerns.
In the face of new and emerging market conditions, municipal utilities across the country find themselves at a crossroads. Load requirements are expected to continue increasing, while in many cases, existing supply contracts will end within the next few years. Further, customers throughout municipal utility service territories express consistently high levels of interest in renewable energy alternatives. In most cases, the preferred renewable technologies are solar and wind; given the cost advantage of wind, it is frequently the renewable of choice.
Municipal Utility Green Power Programs
Investor and publicly owned utilities around the country have begun offering renewable energy or green power options (generally referred to as green pricing programs) to their customers. The National Renewable Energy Laboratory (NREL) ranked utility green pricing programs based on a variety of criteria. They found that municipal utility green pricing programs were consistently among the most successful, regardless of the criteria used.
Los Angeles Department of Water and Power (LADWP): Green Power for a Green LA
The LADWP program is ranked in the top five in all categories. This program offers a low-cost, broad-based product to its customers. For a $3.00 monthly fee, residential customers can opt to receive 20% of their power requirements (about 100kWh per month) from renewable energy.
Austin Energy: Green Choice
Austin’s 61 wind turbines, located in Upton County, Texas, have a total capacity rating of 70 MW and will provide enough energy to meet the needs of 20,000 homes. Austin Energy has enrolled more than 6,500 participants, or approximately 2% of its customer base, in its Green Choice Program. Austin Energy customers who subscribe to Green Choice will see the normal fuel charge on their power bill replaced by a green power charge. Because of Austin Energy’s 10-year power supply contracts for wind and methane gas, the green power charge will remain fixed until 2011. Although the green power charge will never change for subscribers, other customers who choose not to participate in the Green Choice program will be subject to the fluctuations in fuel adjustment charges. Green Choice customers pay a premium of 1.1 cents per kWh.
Waverly Light and Power
In July 2002, NREL awarded its first Paul Rappaport Renewable Energy and Energy Efficiency Award to Waverly Light and Power for its contribution to the development of wind power in Iowa. Waverly began its wind program in 1991 when the city faced a power supply crisis. Since Waverly installed its first turbines in 1993, Iowa’s wind power capacity has grown to more than 300 MW. Iowa now ranks third in states with installed wind capacity, behind California and Texas.
Benefits to Municipal Utilities and Their Customers
More utilities are recognizing that wind power provides significant benefits to the utility and its customers. First and foremost, customers want renewables. Customer interest in renewables has been established repeatedly in customer surveys across the country. Second, wind power provides price stability benefits. Again, it has been amply demonstrated that price risk mitigation is important to a utility’s financial stability and is highly desired by risk-averse customers. Third, renewables provide significant local, regional and national environmental benefits. Finally, wind contributes substantially to local economic development, a benefit that will be of great importance to all municipalities.
Municipal Utilities’ Concerns with Using Wind Power
Municipal utilities have traditionally expressed three major concerns with incorporating wind power into their resource mix.
“Wind power is more expensive than available fossil fuel options.” Several factors have emerged to address this concern. First, the cost of wind power has dropped dramatically in recent years and, in some locations; wind is equal to the low-priced fossil fuel alternative on a levelized cost basis. Second, the lack of price volatility for wind generation reduces the costs of hedging fossil fuel price risk. Finally, in light of customer preferences, wind power can play a significant role in supplying value and satisfying customer needs.
“Because wind power is intermittent, the costs of transmission and ancillary services are increased.” This important issue is currently under intensive study. A variety of groups, most notably the Utility Wind Interest Group, are presently engaged in detailed studies assessing the impacts of wind generation on utility operations. Early results suggest that the costs of incorporating wind generation into utility resource portfolios are much less than traditionally believed. Although not definitive, the Bonneville Power Administration recently eliminated their generation scheduling imbalance penalty for wind generation (see the section on utility integration).
“Our utility is not familiar with wind technologies.” For municipal utilities that are concerned about their lack of extensive experience operating wind generation technologies, power purchase agreements are a viable financial and practical option. In addition, many municipal utilities are coming to the conclusion that wind power will be a significant component of their future resource portfolios and are making the decision to learn about this technology now.
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