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Understanding Texas Wind power: a Policy Guide

Wind Energy in Texas

The Lone Star State leads the nation in wind-generated power. With an installed capacity totaling 10,648 megawatts in 2011, Texas boasts a fleet of wind generators dwarfing that in any other state. But while it appears likely that wind power may lower some wholesale energy costs, such potential savings may be outweighed by other necessary expenses. Wind power also presents tough challenges for the operators of the state’s power grid. The Texas Coalition for Affordable Power offers this mini-report as a quick and easy primer on these and other issues. What you’ll find here are key statistics, historical context – and a wide variety of views from the experts. As a matter of policy, TCAP supports the use of wind power, but urges regulators, lawmakers and other decision makers to remain mindful of the associated costs and reliability challenges.

7 KEY THINGS TO KNOW ABOUT WIND ENERGY

FACT #1
Texas leads the nation for wind power

Texas in 2011 was home to more than 10,000 megawatts of installed wind capacity, which is nearly three times that of any other state. Texas has more installed wind power capacity than all but five countries worldwide.

FACT #2
Wind power has zero fuel costs

The wind blows free, which means that wind generators can sometimes bid into the wholesale spot energy market at very low prices. Because of federal tax credits, wind generators sometimes bid their energy into the spot market at negative prices. This sometimes reduces overall spot market prices for electricity In Texas, in particular in the western part of the state where there exists a high concentration of wind generators.

FACT #3
Factors other than fuel can drive up the final price for wind power

Consumers pay a number of incremental costs associated with wind energy, including the costs of extra backup power because wind turbines can quit suddenly when the wind stops blowing. Wind energy also receives taxpayer-supported subsidies and Texans are on the hook for billions of dollars in wind-related transmission projects. Also, because of the structure of the deregulated wholesale market in Texas, wind generators that submit relatively low-cost bids into the spot market typically receive higher-than-bid prices.

FACT #4
Development of transmission for turbines will cost billions more than anticipated

ERCOT initially estimated the cost of transmission lines to serve the state’s growing wind fleet at $4.9 billion. Those projected costs were understated by nearly $2 billion. All told, every customer within the areas of the state’s principal power grid is on the hook for more than $1,000 to pay for the transmission lines.

FACT #5
Wind power can provide economic benefits to local communities

Texas landowners that have wind turbines on their property typically receive ongoing compensation in the form of royalties, operating fees or monthly production payments. Landowners receive one-time payments for electric transmission lines that pass across their land, plus damages for lost property value. As with the case for other sorts of generating plants, the construction, maintenance and operation of wind generators also creates jobs, which in turn produces income for local businesses and communities.

FACT #6
Wind generation cannot be dispatched as reliably as many other sources of energy

For planning purposes, the organization that operates the state power grid counts on the state’s wind power fleet to produce at less than 9 percent of its capacity during peak summer periods. Official figures show that wind comprises nearly 12 percent the overall generation capacity in Texas, but wind generators provide just 1.1 percent of available capacity during summer peaks. This makes wind power, at peak, much less dependable than energy from natural gas-fired plants, coal plants, nuclear plants or even biomass sources.

FACT #7
Wind power cannot completely replace other generation sources

Because of the variability of the wind, fossil-fueled power plants are needed to provide replacement power. These plants are typically fueled by natural gas. This means that wind power can periodically displace the use of fossil- fuel plants, but with current technology cannot completely displace the construction of them.

By the Numbers

(as of 2011)

1 — Texas ranking among states for wind generation.

10,648 The amount of installed capacity of wind power, as measured in megawatts.

1.1 The percentage of available generation capacity during summer months represented by wind.

6–10 — The number of permanent operations and maintenance jobs created for every 100 megawatts of installed wind capacity.

200 — The number of short-term construction jobs for every 100 megawatts of installed wind capacity.

Wind Power and the Environment

Various academic studies have concluded that the use of wind power reduces potentially harmful Carbon Dioxide (CO2) emissions. For instance, a study by R. Gross of the Imperial College of London states unambiguously “that wind energy can displace fossil fuel-based generation, reducing both fuel use and carbon dioxide emissions.” Similarly, the National Renewable Energy Laboratory, in a 2008 report for the U.S. Department of Energy, noted that “choosing to build wind projects results in CO2 reductions from fewer new coal plants built and less natural gas consumption.” A separate report by the U.S. Department of Energy examining the feasibility of expanded wind energy use through 2030 also predicts related drops in CO2 emissions.

However, many of the relevant studies assume that units of CO2-free electricity created by wind turbines have the effect of offsetting units of fossil-fuel electricity on a one-to-one basis. Separate research has found that this is not necessarily the case. In a 2006 study, the Institute of Electrical and Electronics Engineers (a non-profit professional association) found that fossil-fuel plants that provide backup power for wind generators must operate in ways that produce more emissions than they wound produce under ordinary circumstances. “Thus, it may be that some environmental benefits from wind power may be negated by an increase in emissions from combustion plants accommodating wind generation,” the report stated. Similarly, physicist and mathematician Herbert Inhaber, in a report published in the Renewable and Sustainable Energy Reviews, concludes that “as wind penetration increases, the CO2 reduction will gradually decrease due to cycling of fossil fuel plants” that must be kept running and ready to produce energy when the wind stops blowing.

Does Wind Power Save Money For Consumers?

Whether wind power results in savings or extra costs for consumers is a question of perspective. For instance, wind generators have zero fuel costs and receive public subsidies in the form of tax credits for up to two-thirds the value of wind turbines, according to some estimates. As a consequence, wind generators often bid their power into the state’s spot wholesale energy market at levels below what would otherwise be the prevailing marginal cost of energy set by the state’s natural gas plants. Because of the nature of the deregulated electricity market, these lower wind prices on the spot market can then put downward pressure on wholesale spot energy prices overall.

Wind Power: Saving money for Texans or costing more?
Different assumptions, different conclusions

This effect is most often observed in West Texas, where there exists a high concentration of wind turbines and insufficient transmission lines to move that energy into more populated areas of the state. West Texas wind producers even occasionally bid their power into the wholesale spot energy market at negative prices. A 2008 study by ERCOT concluded that Texas should save $38 per megawatt-hour in average fuel costs from wind power, assuming the completion of new power lines to serve those wind turbines in West Texas. That would equate to monthly savings of about $38 for a typical household, assuming the savings trickle down to the retail level.

However, such calculations do not tell the whole story. According to a 2008 report from the Texas Comptroller of Public Accounts, wind generators receive larger federal subsidies, as measured as a proportion of their sales, than do natural gas and coal-fired generators. Consumers also must pay the incremental cost of wind-related transmission construction and grid-reliability services. Joseph F. DeCarolis and David W. Keith, writing in the 2006 edition of Energy Policy, conclude that such incremental costs will only increase as the use of wind energy also increases. “We find that, with somewhat optimistic assumptions about the cost of wind turbines, the use of wind to serve 50 percent of demand adds 1-2 cents per kilowatt-hour to the cost of electricity, a cost comparable to that of other large-scale low-carbon technologies.”

Ross Baldick, a professor in the Department of Electrical and Computer Engineering at the University of Texas-Austin, calculates that the total unsubsidized cost of new wind energy in Texas at about $105-$110 per megawatt-hour. This figure includes the incremental cost of transmission lines to serve wind generators and extra charges to account for the intermittent nature of wind. He also accounts for the cost of federal tax subsidies. Thus, “wind adds about $50 per megawatt-hour to costs,” concludes Dr. Baldick.

Wind Power and Reliability Challenges

By its very nature, wind is fickle. It blows one moment, cuts off the next.

Because ERCOT must keep electricity supply and demand exactly balanced at all times on the grid, this intermittent nature can create challenges for the organization. In February 2008 a sudden drop off of wind coupled with other factors nearly led to blackouts. ERCOT also faced another near reliability crisis in January 2010 caused, in part, by the variability of wind.

The reliability challenges posed by the state’s growing reliance on wind power have been acknowledged by the Texas Public Utility Commission, ERCOT and outside experts. In its 2011 Scope of Competition Report to the Texas Legislature, the PUC also noted that wind generators typically do not provide the same level of technical support to bolster grid reliability as is provided by traditional generators. Jay Zarnikau, an adjunct professor at the LBJ School of Public Affairs at the University of Texas-Austin, has noted that many wind generation operators have had little prior experience with electric operations. ERCOT has stated that such a “lack of understanding regarding the details of certain operational procedures … produced inconsistent results in unit responses to instructions and introduced operational challenges” for the organization’s operators.

However ERCOT also has taken steps to mitigate many of these challenges. For instance, the grid operator adopted more advanced wind forecasting methods after the January 2010 incident. As a matter of policy, ERCOT also deliberately under-forecasts wind power output while simultaneously over-forecasting demand. The PUC has noted that various technical improvements on new turbines and the retrofitting on old ones may help mitigate some of the challenges.

The Development of Wind Power in Texas

The use of wind power in Texas has grown substantially over the last decade — largely the result of important state mandates, the planned construction of expensive transmission lines, and favorable treatment for wind generators in the federal tax code.

Wind classification
The quality of wind is ranked on a scale of one to seven

From the State Energy Conservation Office:

The Panhandle contains the state's greatest expanse with high quality winds. Well-exposed locations atop the caprock and hilltops experience particularly attractive wind speeds. As in all locations throughout the state, determination of areas appropriate for development must include consideration of environmental and social factors as well as technical viability.

South of Galveston, the Texas coast experiences consistent strong sea breezes that may prove suitable for commercial development.

The mountain passes and ridgetops of the Trans-Pecos exhibit the highest average wind speeds in Texas. Since the wind in mountainous terrain can change abruptly over short distances, the best wind farm locations in West Texas are quite site specific.

Source: seco.cpa.state.tx.us

The mandate

Besides deregulating the state’s retail electricity market, Senate Bill 7, adopted by the Texas Legislature in 1999, also included requirements for the use of renewable energy by retail electric providers. Companies that exceeded the mandate gained an ability to sell renewable energy credits to companies that fell short.

This credit program was designed to foster the creation of 2,000 megawatts of renewable energy by 2009, or enough to power about 1.6 million homes. But Texas easily surpassed the original target and so the Legislature adopted in 2005 Senate Bill 20 setting forth new goals: 3,272 megawatts of renewable energy by 2009, 4,264 megawatts by 2011, 5,256 by 2013, 5,880 by 2015 and 10,000 by 2025. Texas exceeded those goals as well.

Federal Tax Incentives

According to calculations by renewable energy expert Ed Feo, wind energy developers have received tax breaks valued at as much as two-thirds of the capital cost of wind turbines. Others have placed a smaller value on such subsidies. In sheer dollars, refined coal and nuclear power receive more federal energy subsidies, but wind power leads other energy sources for the size of federal subsidies as a ratio to energy output.

However, there remains some doubt whether Congress will extend the important federal production tax credits for wind which will expire at the end of 2012. This raises questions about the future profitability of wind power. Travis Miller, a Chicago-based utility analyst at Morningstar, Inc., estimates that natural gas commodity prices must rise above $6.50 per million British thermal units for unsubsidized wind generation to remain profitable. The United States Energy Information Administration projects that natural gas prices will remain below that level for many years to come.

Transmission lines

Senate Bill 20, in 2005, also called for the creation of special zones, known as Competitive Renewable Energy Zones, to mark the site of future transmission construction to serve wind generators. The Public Utility Commission embarked on a vigorous process to delineate the borders of these zones, eventually settling on a plan that would support 18,500 megawatts of new wind generation. In establishing this plan the PUC used estimates, produced by ERCOT, that indicate the lines would cost $4.9 billion. Cities and other groups warned that the ERCOT numbers were flawed because they did not take into account financing costs, inappropriately assumed straight-line paths for the transmission construction, and other factors.

It later became clear that the cities’ concerns were quite valid. In 2011, a PUC consultant determined that the CREZ lines will end up costing nearly $2 billion more than original estimates, for a total of $6,789,775.933. All told, these new lines will cost the state’s residential, commercial and industrial users more than $1,000 each. Notes one expert: “Texas could have built 6,900 megawatts of new gas-fired capacity for what the state is now spending on wind-related transmission alone.”

The Cost of Transmission Lines to Serve Wind Energy

Texas is set to spend approximately $7 billion to build transmission lines to serve wind generators in West Texas and the Panhandle. What else could $7 billion pay for?

  • The electricity bills for every household in Texas for about seven months.
  • The construction of about 7,000 megawatts of natural gas-fired power plant generation — or enough extra capacity to keep the lights on during an extreme heat emergency.
  • 175 million fluorescent light bulbs with LED lights, which could provide enough energy savings to shut down 10 coal plants.

Source: Elizabeth Souder, “Texas’ multibillion-dollar cost to build wind energy lines raises doubts,” Dallas Morning News, Dec. 5, 2011

What The Experts Say

Jay Zarnikau

This adjunct professor at the University of Texas-Austin has noted the unique challenges presented by the expansion of wind power, especially in the Texas deregulated electricity market. While Texas has been largely successful in accommodating a large amount of new wind capacity, Zarnikau nonetheless notes that “this extensive reliance on wind power also has created numerous problems.”

Writing for an academic journal in 2011, Zarnikau states that the ERCOT grid operator must now procure more operating reserves because of wind, and that “inaccurate wind forecasts have led to reliability problems.” He also notes consumers will spend billions of dollars for additional transmission lines to serve wind generators.

“(But) despite these costs, wind power is generally viewed as a net benefit,” he states.

Robert Bryce

Formerly a reporter for the generally left-of-center Austin Chronicle but now a senior fellow at the conservative Manhattan Institute, Bryce has noted that wind remains an inefficient and expensive option. Speaking to the Corpus Christi Caller-Times, Bryce said that “if the conventional generation fleet was performing as badly in the heat as the state’s wind turbines, then two-thirds of Texans would be without electricity during the hottest days of summer.”

“When power demand is highest, wind energy’s output is generally low,” says Bryce. “The reverse is also true: wind-energy production is usually highest during the middle of the night, when electricity use is lowest. The incurable intermittency and extreme variability of wind energy requires utilities and grid operators to continue relying on conventional sources of generation like coal, natural gas and nuclear fuel.”

Denise Bode

The Chief Executive Officer for the American Wind Energy Association, a trade group, suggests that the challenges resulting from the variability of wind power have been overstated by opponents. Bode notes, for instance, that wind generators performed better than anticipated during a particularly tough three-day period in Texas during 2011. “Wind made the real difference between keeping the lights on and the air conditioners running — and rolling blackouts,” says Bode.

Bode and other wind power advocates also note that fossil-fuel plants can come under stress during long summer stretches, as the plants run flat out for days on end. As more begin to trip off line, or go down for unplanned maintenance, wind generators can sometimes pick up the slack. “Even though wind energy is variable, it varies slowly — unlike conventional power plants, which can fail instantaneously,” said Bode.

   
Texas Wind Energy: A Special Report by TCAP