UTILITIES BUYING WIND

The argument about wind energy’s viability is so over. The venerated Wall Street Journal referred to wind as “...one of the cheapest sources of large-scale renewable-source energy…”

As reported by NewEnergyNews on a number of occasions, (see BIG WIND ENERGY BUYOUT) there is a new level of consolidation in the wind energy industry. Why would utilities want to own wind farms?

Well, there IS the possibility utilities are just spending billions buying up wind farms to put wind energy out of business, sort of like the oil and tire giants bought up electrified public transportation systems and closed them down in the 1920s to force Americans to buy cars.

But, realistically, utilities only care about one thing: Keeping the lights turned on in the cheapest possible way. If they want wind farms, it is because wind energy is the way to do that.

One factor is the 24 states with Renewable Electricity Standards (RESs) and the several more states likely to join the list in 2008. An RES requires utilities to get a portion of their power from New Energy. Another factor is the national cap-and-trade system the Senate will begin debating this spring. It may not be enacted until after the November election, but it is coming. Utilities know cap-and-trade will make burning fossil fuels more costly. And as the cost of fossil fuels goes up, wind energy producers will raise their prices. But if the utility owns the farm, it can control the price, keeping ratepayers’ power costs down.

Perhaps the most interesting aspect of the story reported below is its arguments for why utilities don’t want to buy wind farms. One argument is that utilities and their ratepayers would have to bear the risks of ownership. The second argument is that some wind energy producers don’t want to sell because they are happy to take the risks and reap the rewards. The second point pretty much proves the first one wrong and becomes an argument in favor of utilities buying. Which is what they are doing, of course.

Xcel has big long-term plans for wind. (click to enlarge)

Change in the Air; Utilities don’t want to just buy wind power anymore. They want to own it.
Yuliya Chernova, February 11, 2008 (Wall Street Journal)

WHO
Michael Skelly, formerly chief development officer, Horizon Wind Energy, a unit of Energias de Portugal SA/presently Democratic Congressional candidate in Texas’ 7th District; Alliant Energy Corp., Xcel Energy Inc., Westar Energy Inc.

WHAT
Utilities are buying up existing wind farms and funding planned projects.

Westar is another of the utilities aggressively buying wind. (click to enlarge)

WHEN
- 2007: utilities bought 795 megawatts of wind power in the U.S.
- 2006: utilities bought 553 megawatts of wind power in the U.S.
- 2007: Alliant Energy Corp., Xcel Energy Inc. and Westar Energy Inc.proposed first wind farm buys.
- Alliant’s project comes online 2010.
- Xcel will have all its wind running by 2012.
- Westar’s new wind will come online in 2008. More is set for 2010.

WHERE
10 U.S. utilities own wind farms; 5 plan to buy
Alliant (Madison, Wis) provides power to Iowa, Minnesota and Wisconsin and bought 200 megawatt wind farm from St. Louis’ from Wind Capital Group LLC.
Xcel (Minneapolis) will build 500 megawatts of wind in Minnesota.
Westar (Topeka, Kansas) will build 295 megawatts for Kansas.

FPL Energy, a subsidiary of Florida's biggest utility, may be buying wind more aggressively than any other utility. (click to enlarge)

WHY
- Why own? (1) The price to produce power stays the same but owning allows utilities to avoid rising costs from per kilowatt-hour market fluctuations; (2) owing allows utilities to create their own mix of energy sources; (3) savings can be passed to ratepayer and shareholders instead of going to producers.
- Why not? Owning makes utilities (and their ratepayers) responsible for risks.
- Some independents don’t want to sell, are willing to take the risks and expect to make more money selling power to utilities than selling wind farms. (An argument for utilities making the buy, actually.)
- Owning frees utilities from Power Purchase Agreements (PPAs) with wind developers that may require the utilities to buy more wind than they need or when they don’t need it and may be carried on the books as debt, restricting financial development

QUOTES
- Skelly: "People who used to buy our power, now they want to buy our project,"
- Adam Umanoff, wind energy attorney, Chadbourne & Parke LLP: "The way to absolutely ensure lowest cost is to control the resource…"