PUC chief cautions on Texas wind

Concerned that Congress may renew a key federal tax credit, the top utilities regulator in Texas is calling for a full review of cost allocation to upgrade, maintain and operate the electricity system as it applies to the fast-growing wind industry there.

“I fear that this credit will once again be extended,” Donna Nelson, chairwoman of the Public utility Commission of Texas, recently wrote in a memo to her fellow commissioners.

“The federal production tax credit (PTC) distorts wholesale electricity markets,” she wrote, including the Electricity Reliability Council of Texas (ERCOT) market, which serves about 85% of the state’s load.

“While this commission has no ability to change what Congress does, we do have an obligation to Texans to periodically review whether our rules appropriately assign cost to those who cause those costs,” she continued.

Wind is now about 10% of energy generated in Texas, a four-fold increase from 2007, taking market share from fossil fuels. Nelson cited US Energy Department data that subsidies for wind are about 10 times per one million watt hours generated than nuclear, hydro, coal and natural gas combined.

Texas is the largest US wind state, more than double California’s installations. It had 12.35GW of generation capacity on 1 January with most of that installed since 2004.

The wind rush Texas is now experiencing is being driven by a federal subsidy, according to Nelson, “not because it makes sense from an economic standpoint.” As a result, ERCOT faces the very real possibility of losing baseload generation, she added.

Since traditional generators are paid in Texas only when they sell power, not add capacity, some contend that returns are inadequate to justify expansion, and lenders are reluctant to finance it. This has raised questions over whether Texas will have sufficient baseload generation reserve capacity later this decade amid strong economic and population growth. The Texas economy is larger than Canada’s.

Nelson noted that the PTC allows wind generators to sell power into ERCOT at low prices and still make money. She told Recharge in 2012 that this gives them a margin of error that fossil fuel competitors don’t have. Low natural gas prices have also helped depress wholesale power prices.

“With wholesale rates that hover around $40 per MWh in ERCOT, a federal program that pays wind generators $23 per MWh ultimately destroys the economic underpinnings of the wholesale competitive electric market,” Nelson wrote.

Texas last year completed 5,800km of high-voltage transmission lines at a cost of $6.9bn, which developers say has been the main catalyst for the latest wind boom.

The Competitive Renewable Energy Zone (CREZ) project has opened up thousands of square kilometers of the state’s best wind resources, linking them with expanding load centers such as Austin, Dallas and Houston.

CREZ will allow ERCOT to eventually send about 18.6GW of mainly wind power across the state. It had 11.2GW of wind generation in service on 1 January and expects 5GW (3GW in the Panhandle) more by 2016.

Nelson noted that due to the amount of wind generation that is expected on the transmission lines in the Panhandle, “stability concerns and weak system strength will present significant challenges in that area.” The CREZ buildout can support 2.4GW of wind but grid strength will suffer as higher amounts come online, she added. ERCOT has released a study that recommends system upgrades to address this issue.

“These potential grid stability issues raise fundamental policy questions. For example, should we ask electric customers to fund further investment in the transmission system to improve stability or should some of the risk be borne by generators,” she asked.

Nelson says it is “obvious” to her that the Texas legislature intended with CREZ that wind generators should have “skin in the game” but PUC needs to “flesh out what that means.”