States with greater ‘wind penetration’ see lower electricity rates — analysis

Source: Daniel Cusick, E&E reporter • Posted: Monday, February 17, 2014

Electricity customers in states with significant wind energy penetration have seen their power bills drop by 0.37 percent over the last five years, while states where utilities provide less wind energy as a percentage of total generation have seen rates rise by more than 7 percent over the same period, a new analysis by the American Wind Energy Association shows.

Drawing on recently released Energy Department data, AWEA focused on 11 states, mostly in the Midwest and West, where wind energy accounts for at least 7 percent of all power produced and sold. Those states, with “wind penetration” rates ranging from 24.5 percent (Iowa) to 7.5 percent (Texas), are outperforming the rest of the nation when it comes to keeping electricity prices in check, AWEA said.

But one free-market critic of wind power’s role in the electricity marketplace said the AWEA study relies on “cherry-picked” data from states that either already had low electricity rates or where rates are being driven down by a more complex set of factors.

AWEA attributes the lower electricity rates in the 11 states to utilities’ growing reliance on low-cost wind energy that can be delivered to the grid at prices that are often comparable, or even lower, than coal and natural gas, especially when taking into account wind power’s 2.3-cent-per-kilowatt-hour federal production tax credit.

But beyond the federal tax credit — which expired at the end of 2013 — AWEA argues that wind energy is growing more competitive against fossil fuels and nuclear power as technology innovation and efficiency gains in the wind energy sector drive prices lower for developers and purchasers of wind power.

In the last four years alone, wind energy costs have dropped by 43 percent, according to industry estimates, helping to spur demand from dozens of utilities that are facing economic and regulatory pressure to provide the cheapest, cleanest and most reliable electricity available.

Utility-scale wind power is increasingly meeting these companies’ needs, according to AWEA, either through direct capital investment in wind farms or via long-term power purchase agreements with independent wind power producers.

The states found to have lowered their electricity rates while adding wind power generation are Texas, Colorado, Kansas, Oklahoma, Iowa, Minnesota, North Dakota, South Dakota, Wyoming, Idaho and Oregon. Collectively, those have increased their wind power capacity by 116 percent from 2008 to 2013, according to AWEA.

Low prices, locked in for life

“With the drastic cost declines over the last few years, wind energy offers consumers a great deal today,” Michael Goggin, a senior electric power industry analyst with AWEA, said in a statement announcing the group’s findings. “That deal will only get better with time because that low price is locked in for the life of the wind project, as the fuel will always be free. No other major source of energy can offer that kind of price stability.”

The reason wind energy is so attractive to utilities, according to AWEA, is that it helps reduce their reliance on older, less efficient sources of power. “Because [the most expensive-to-operate plant] is almost always the least efficient fossil-fired power plant, adding wind energy significantly reduces fossil fuel energy costs, as well as pollution,” AWEA states in the white paper.

By offsetting the use of older, higher-cost power plants, “wind energy typically causes the electricity price to be set by a more efficient and less expensive power plant,” the report adds. “This results in a lower electricity price for all market purchasers.”

And even when wind is not being used to produce power directly, its availability to utilities can help to drive down the costs of other fuels, and it can act as a hedge against price volatility for other competing fuels such as natural gas, according to AWEA.

But Lisa Linowes, executive director of the Industrial Wind Action Group, which has challenged wind power’s economic benefits, said in an email that AWEA’s findings “paint an unrealistic image of wind [energy].”

Or distorted by subsidies?

Linowes argued that wholesale wind energy pricing is distorted by federal price supports, effectively allowing utilities to purchase the power for well below its real costs. “Wind agreements are negotiated after a project has taken full advantage of available federal incentives, so the costs cited here would be even higher absent the PTC,” she said.

She also noted that a number of the 11 states cited as wind energy leaders by AWEA also rely on low-cost coal, nuclear and hydroelectric power, “which means they already had low-cost electricity prices.

Linowes also noted that AWEA omits from its list of top performers at least three states that are major wind energy producers — California, Illinois and Washington — while including states like Idaho and South Dakota, which produce comparatively smaller amounts of wind power.

Yet even with their smaller net generation, South Dakota and Idaho remain among the top 10 states in the country for “wind penetration,” at 24 percent and 11 percent, respectively, according to AWEA, while California, Illinois and Washington are below 7 percent.

AWEA also notes that its findings are supported by numerous other studies, more than a dozen of which are cited in the white paper. These include independent reviews of the role of wind energy in electricity markets in New England, the Mid-Atlantic, Midwest and South, as well as state-based studies in Illinois, Massachusetts and Colorado.

Linowes said that at in at least some of the cited studies, experts were analyzing wind power’s effect on electricity prices under scenarios that are wildly different than current conditions.

The white paper also offers statements and action summaries from investor-owned utilities that suggest wind power is gaining ground in traditionally fossil fuel-dependent regions of the country, including the Midwest and Southeast.

Click here to read the white paper.