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Curtailment, Negative Prices Symptomatic of Inadequate Transmission

Negative electricity prices and wind energy curtailment are occurring with increasing frequency in several regions of the country, a telltale sign that expansion of the nation's electricity transmission infrastructure is lagging behind the rapid growth of wind energy.

Negative electricity prices typically occur because there is excess electricity supply that cannot reach demand due to constraints on the transmission grid. In some cases, prices may fall low enough that wind plants are forced to curtail, or reduce, their output even though consumers in an adjacent area are simultaneously paying high prices for electricity due to high demand. Wasting large quantities of low-cost, emissions-free electricity at a time of rising electric rates and increasing concern about climate change and energy security should be troubling to consumers, wind plant owners and policymakers alike.

What is most troubling is that negative prices and curtailment are likely to continue increasing in scope, frequency and severity into the near future, given the long lead time required to build new transmission infrastructure. On the more positive side, while policymakers in many parts of the U.S. are already working to implement policies that will allow new transmission to be built, the increasing occurrence of negative electricity prices and curtailment could add urgency to these efforts.

Data from the Electricity Reliability Council of Texas (ERCOT), the grid operator for that state, shows that occurrences of negative prices in the western part of Texas have rapidly increased in frequency as wind development has soared in the area while transmission links to other parts of the state have failed to keep up. Prices fell below US -$30/MWh (megawatt-hour) on 63% of days during the first half of 2008, compared to 10% for the same period in 2007 and 5% in 2006. If prices fall far enough below zero that the cost for a wind plant to continue operating is higher than the value of the US $20/MWh federal renewable electricity production tax credit plus the value of other state incentives, wind plant operators will typically curtail the output of their plants.

All the more frustrating from the perspective of both electricity consumers and wind plant owners in Texas, many of these instances of negative prices and curtailment have occurred simultaneously with record high electricity prices in other parts of the state. For example, on June 7 and June 8, average wholesale prices were US $103 per MWh in the North Zone of ERCOT, compared to US -$3 per MWh in the adjacent, wind-rich West Zone. If adequate transmission capacity were in place at that time, excess wind energy from West Texas could have been transported to the rest of the state to alleviate high electricity prices. For the first half of 2008, the average wholesale price of electricity in the North Zone of ERCOT was US $71 per MWh, compared to US $55 per MWh in the West Zone.

Based on the large price differential between these adjoining areas, it is not surprising that in an April 2008 study ERCOT concluded that building US $4.9 billion worth of transmission lines from West Texas to the rest of the state would save electricity consumers US $1.7 billion per year by replacing the use of expensive natural gas-fired power plants with wind energy. With such large savings, the transmission lines would pay for themselves in less than three years. Recognizing the economic, environmental and energy security benefits of building transmission for wind, on August 15th the Texas Public Utilities Commission voted to proceed with building these transmission lines.

Similar instances of negative electricity prices and wind energy curtailment are beginning to emerge in other parts of the country. According to the New York Independent System Operator, electricity prices in the largest wind producing region of the state fell below US -$30 about 2% of the time over the last year. As in Texas, average wholesale electricity prices in this region of northern New York are US $20 per MWh lower than in the adjacent Capital Zone, which contains Albany and Schenectady.

Thus far, Texas has been one of only a handful of states that have taken pro-active steps to build the transmission infrastructure that will be required to access the U.S.'s bountiful wind resources. Colorado and California have followed Texas's lead in adopting cost allocation policies that recognize the broadly distributed benefits of transmission for renewables by spreading the cost of this infrastructure to all electricity users, solving the largest barrier to building new transmission.

Senator Harry Reid (D-Nev.) and Representative Jay Inslee (D-Wash.) have introduced similar legislation at the federal level to promote the construction of transmission to designated "national renewable energy zones." Given that it can take five years or more to build new transmission infrastructure, adopting such policies as soon as possible will be critical to accessing our country's wind resources in a timely and economically efficient way. Without these policies, wind energy curtailment will become even more widespread.

Michael Goggin is electric industry analyst at AWEA.

This article first appeared in Wind Energy Weekly, and was republished with permission from the American Wind Energy Association.

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