Will the Cost Justify Wind Power?

Special Issue Volume A Number 1

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Wayne Shirley is Director of the Regulatory Assistance Project and served as a commissioner of the New Mexico Public Utility Commission from 1995 to 1998. While a commissioner he was a member of the National Association of Regulatory Utility Commissioners Committee on Energy Resources.

Warren Belmar is the Deputy General Counsel for Energy Policy of the Department of Energy. He acts as legal advisor to the Secretary.

Jose R. Zayas is Manager of the Wind Energy Technology Department at Sandia National Laboratories. He is responsible for overseeing the wind energy research activities for the lab.

STEVEN LINDENBERG: How are we going to reduce cost of turbines and delivered energy costs? Jose, maybe you can give us some ideas of some of the specifics we think we can do there.

JOSE ZAYAS, Manager, Wind Energy Technology Department, Sandia National Laboratories: There are several things that need to be looked at from the perspective of reducing the cost of wind. Primarily, the capital cost has to be looked at in terms of deciding what types of materials are going to be used.

Wind is not unique in that the cost of steel, copper and other commodity prices have affected the cost of wind in recent years. Then, there are operations and maintenance. The national labs and the industry are trying to address that by improvements in reliability through understanding the characteristics of the resource that are complex and can be damaging on machines that are expected to live for 20 years with limited maintenance.

There are opportunities in innovation to reduce the cost of delivered energy. It can be done in two ways. We can increase the tower height so we can get to more benign sites and resources. That imposes challenges such as the infrastructure available to install these machines. The type of equipment needed is rare and costly. Moreover, wind sites tend to be in remote locations.

The other way to do it is to increase the diameter of the rotor. But as the entire energy is captured by the rotor and the entire load is captured by the machine, you have to find intelligent and innovative ways to reduce these loads. The program and industry are looking seriously at this.

What's the panel view on T. Boone Pickens plan?

WARREN BELMAR, Deputy General Counsel for Energy Policy, Department of Energy: We want to encourage all of you, and Mr. Pickens to spend billions of dollars to build wind farms. His vision is rather simple. He's got an area in Texas he thinks would be quite suitable for building a wind farm. He's got a way to market it to Texas, to Dallas, and he's signed a contract to buy a lot of wind turbines from General Electric. But what he was describing was not just generating wind in Texas and selling it into the Texas grid, he was looking at a broader picture of the whole midcontinent being a wind resource.

His plan was to connect that to the existing grid, or expand the existing grid, so that the middle of the country could supply electricity to Denver, Los Angeles, Atlanta, Chicago and elsewhere. That would require the building out of transmission lines. It's an interesting vision and it could contribute to energy security. Every renewable gigawatt of energy that we produce replaces some other source that does have more of an adverse impact on the environment. If there's a way of reducing our need for fossil fuels, then we've got a win-win situation.
That's what I understand the plan to be and we've got the technology. The key is who is going to pay for it?

Wayne, you've worked with many state utility commissions. You've been a commission chairman yourself. What's your sense of what commissioners across the country are thinking about wind energy?

WAYNE SHIRLEY, Director, Regulatory Assistance Project: I think regulation traditionally has always approached these questions on a matter of costs and looked for the least costly solution. The difference in the future will be the addition of a carbon constraint on our choices. By defining those carbon constraints, regulation is going to have to come to some different formula that allows it to embrace what appears to be a slightly more costly technology in favor of the lower carbon result. Wind's actually very well situated because it can compete on an energy basis with existing resources, but it has a number of operational issues that regulators are going to be concerned about.

You lead into one of the questions that's been submitted: What's an effective storage solution for wind energy? I'm going to take a first run at that. We're blessed in this country with the national grid that is really quite resilient and very capable. We're able to generate electricity and balance it against load on a routine basis. Can we continue to do that with renewables? We've done studies in New York, Colorado, Minnesota, California and Texas to try to estimate what it costs to actually integrate wind into the national grid. When I say "integrate," that means you hook it up with an interconnection, and you operate it routinely and continuously, though it may vary up and down from hour to hour. We don't really see that we need storage at this point. If the nation had a great opportunity for storage, the grid ought to invest in it because it would be a wonderful asset to help to do a number of things for the entire grid system. But to get to 20 percent wind and probably go beyond that with other renewables included, it's unlikely that we're going to have to build a large storage supply. We have the capability to balance a system with other resources. One of the things you have to consider is that today about 40 percent of the installed capacity of generators in the United States are natural gas-fired but only produce 20 percent of the energy. We're going to continue to use a lot of those natural gas plants during certain hours of the day, to help to either stabilize the system or to make up energy supply that isn't available because there's been a change in the wind or in the sun. That doesn't mean DOE doesn't want to find a solution to storage. We've invested hundreds of millions of dollars to try to make that happen. But we haven't gotten there yet and we can't wait.

BELMAR: I don't know if everyone is familiar with the term "balance." Because of the local way our electricity grid grew up, regional areas have their own balancing authorities to make sure that they have the adequate generation to match the demands at any given moment.

We've got 384 of these individual balancing areas. Part of the concerns that they have tie into your point that one of the driving forces is the lowest cost possible for the consumer. So maybe I don't want to balance with wind because it's more expensive than gas, or I don't want to balance with gas because it's more expensive than wind, or I do want to use that polluting coal-fired plant because it's the cheapest of all, or I like this hydro plant and I want to use that. Who makes the decision as to what comes on at any given time? It would be like individual airport towers making their own decisions instead of the FAA.

That's the system we have now. What we're moving toward is greater cooperation to coordinate that balancing. Again there is the question of cost. Let me give you this analogy. It's initially less expensive to build a one-lane highway than an eight-lane highway. So as a utility commission, do you authorize an eight-lane highway to be constructed today, knowing that you might need it down the road, or is it easier to just absorb the cost of the one-lane highway that you're authorizing right now? Washington Dulles airport was empty when it was first built but there when it was needed.

What we're going to have to take into account is to decide whether we're going to have to go through all the environmental and other concerns multiple times, or are we going to try to do it right once? An example is the national highway system. We built four-lane highways from coast to coast; the individual states cooperated with the federal government with a commitment on everyone's part that the nation as a whole and the national security would be better served by having the kind of highway system that we take for granted today.

Is wind technology a good candidate for localized or distributed energy generation?

ZAYAS: Well, from a simple perspective there's really two classes of wind turbines. There's what I consider to be the utility scale and most of the growth of the industry has been there. It's usually characterized as a one megawatt-plus type of machine. We estimate that 7,500 megawatts of this type of machine were installed this year.

But a lot of the technology that is being created has morphed into the small distributed-sized turbines. They have come a long way in terms of their performance. I believe those turbines have definitely seen and benefitted from the technology that has been pushed on the larger utility scale machines.

Compared to the utilities side, those turbines are a bit more costly and unlike PV (photovoltaic), you do have moving parts, so there are things to be considered when making those kind of choices, especially in higher density areas.

But is it viable? I definitely believe so. I think there are very credible companies that are deploying small-scale distributed sized machines quite effectively in the U.S. and in other regions, like the Caribbean, because they don't have the infrastructure to put utility-scale machines in their grid.

Can wind displace base-load coal and nuclear generation, and if so, how? My impression is I don't think that's what we're in the game to do. What we're in the game to do is to build a portfolio of resources that can be balanced and used to supply the energy that's needed in this country. We're going to stay connected to coal and nuclear; we're going to have gas plants and hydro plants, we're going to build out solar and wind. In the end, maybe we'll have a safe, secure, domestic energy supply that we don't have to worry about other outside forces influencing decisions that we have to make everyday in our personal lives.

SHIRLEY: Wind can be packaged with energy-efficiency and demand-response programs in a way where you can aggregate up the capacity to the same levels as coal and nuclear. In effect, you could create something that's even better than a base-load plant that's designed to meet the load curve that the utilities face day to day in a way that minimizes costs. Base-load plants are very good at producing the cheapest marginal cost power, but they're really designed to be run full out all the time. A combination of these other resources could create a resource that could better match the load and make the load better match the supply as well.

I think that's really true. I think that we're all going to have to come to the realization we're not going to build power plants for the cost we built them in 1980 anymore. Whatever we build next, whether it be wind, solar, nuclear, gas or coal, it's going to be more expensive than it used to be.

ZAYAS: When we start looking at other constraints from the perspective of what's going to be the installation of choice, and we look at issues such as water, I think wind and other renewable sources become part of the portfolio of options. I think we're going to see other forces that are going to steer the choices of what we're going to install. We might see a very different selection of choices as we move forward.

BELMAR: I don't think it's only going to be choices; it's going to be need. Our society is using more and more energy. One of the solutions we're looking at to reduce vehicle emissions is electric cars. If we build a lot of electric cars, we're going to reduce the use of fossil fuel, which is good, but we also need to make sure that when we put the plug in, there's some electricity to charge that vehicle. Do we have the portfolio that guarantees that your new flat screen TV and your car and the air conditioning and the other uses that you have in your home are all able to be served at the same time? Because we're used to our conveniences and while people might advocate giving them up, I haven't seen many people volunteering to give them up. It all comes down to balancing and I don't think we could go wrong in having a mix of power sources in the portfolio.

Recently the Edison Electric Institute said 150 to 200 gigawatts of energy generation construction might be able to be supplanted by investing in energy efficiency through EEI's programs and efforts over the next 20 or so years.
That's enormous! That would really help to balance out our energy portfolio and give us some breathing room to think about how do we deal with getting off some of our imported fuels. I've got a question about New Mexico. What can state and local governments do to help with the growth of wind generation?

BELMAR: I think it's really important to look for barriers to wind such as land-use restrictions. New Mexico has the problem of federal and state land checkerboarding a good deal of the wind areas. Coordination is needed between federal and state officials. Another issue is transmission—€”identifying appropriate corridors for transmission and how we're going to configure that.
There's a number of independent projects that are floating around right now, but there's no clear framework either in New Mexico or regionally to pick and choose among those to formulate an optimum result. There is not a good information base available to make good choices.

ZAYAS: From a resource perspective, New Mexico has a lot of opportunity to be one of the main big states supplying the nation. By the end of 2007, New Mexico had nearly 500 megawatts of installed wind and over 50 percent of the output of those installations is being exported. So from a resource perspective, I think that New Mexico, at least the eastern part of it, has a good opportunity. Some coordinated processes still need to be identified and education needs to be done, but as a whole, the state is doing fairly well in moving forward in wind energy.

To help to think about the balancing activity, the Western Governor's Association, along with a couple of Canadian provinces, are working on the question of how to identify places that would be well suited for renewable development. We're hoping that by April of this year we will have identified between10 and 20 renewable energy zones in the west. We would then start to figure out what the cost of transmission would be from those zones to various load centers across the west.

There's a question here about wind generation being considered a threat to flying animals—€”bats, birds or whatever—€”how valid is that and what can we do about that argumen? A group of people have been working on this issue for a year. In addition, DOE and others have spent two decades trying to understand this question. The general view is that a wind turbine might kill one to three birds annually. Unfortunately, if it's in the Altamont Pass in Northern California, those one to three birds might be golden eagles. We have a bad siting situation in Altamont that's being worked on and solved through some various efforts by owners of the turbines and the local communities. We think we're going to be able to find ways to identify locations that are not highly dangerous where we'll be able to install wind turbines. Another question is, —€˜What's the life span of a wind turbine and what are some of the things that are related to that, and is there an upgrade path?"

ZAYAS: Most turbines today are designed for a life of approximately 20 years. There is only one exception to that, a machine that has been approved for 30 years and that's the design by Clipper.

Although this industry has seen 30 years of growth, the single to multi-megawatt machines installed today are only four to five years old. There's a lot of discussions ongoing today about what can be done to continue to upgrade those machines. It's difficult to predict what the machines will look like in the future, but there is potentially an opportunity to reassess the plan so you can continue its life. Maybe for a few more years to come.

We're seeing it now, in California, at Altamont and Palm Springs, and other areas where very small machines, 100 kilowatt plus, were installed in the early —€˜80's. It was older technology and some of those machines have exceeded their 20-year lifespan. There have been robust operations and maintenance plans for those machines, but they have exceeded their lifespan. What you're seeing in California now is a repowering, where some towers are being brought down and replaced with multi-megawatt machines, because we know from an economic perspective, there's a benefit in doing that. It's hard to see if that's going to happen in the future because infrastructure has somewhat limited the size of the machine of today.

How prevalent is wind generation outside the United States? The United States has just passed 20,000 megawatts of installed capacity of wind. Germany has about 22,000 megawatts. So they exceed us in a country the size of Wisconsin.
If we added up all of Europe, we think we're probably around 50,000 megawatts.
India and China are perhaps 7 to 10 megawatts each. There are probably 80,000 megawatts across across the world. When we talk about utility stuff, I'd say probably there's a modest amount of entrepreneurial activity. There are some small companies, Jose mentioned Clipper, that with the help of the Department of Energy, our laboratories here at Sandia and at NREL, was able to build out and they are now manufacturing equipment in Cedar Rapids, Iowa. The company went to London and got its first round of venture capital investment.

SHIRLEY: I think the most important thing is political and regulatory leadership on this issue, because regulators worry about two things: are the lights going to go on and are prices going to go up? They've got to rethink the latter half of that formula as we move ahead and really provide the leadership to say these are the paths available to us to meet the challenges we face, and make it clear to the public that these are well thought out choices—€”that we're not just throwing money at different technologies randomly.

BELMAR: I endorse that wholeheartedly. And I just hope we have people with the wisdom to make the right choices.

ZAYAS: Being part of Sandia, I come from a technology perspective. It has been quite remarkable to see the growth of this industry in the last few years and to see an industry that has achieved, for the most part, prosperity with a lot of the traditional forms of generation. There's still innovation to be had. There are several things that we're working on that we believe will help. It is going to be interesting to see how it all will play out over the next several years.