Kim Zuhlke, AWEA
January 12, 2011 | 3 Comments
Washington, D.C., United States – It's no secret utilities are centric to driving the wind industry market. Utilities may or may not choose to own and operate wind generation but, in all cases, they are the ones to ultimately deliver the wind energy to the end customer. How well utilities can deliver on that responsibility has a lot to do with how satisfied customers are with the wind energy product. And ultimately, these customers will influence policy and therefore the growth rate of the wind industry in the U.S.
Recognizing utilities’ critical role, AWEA has set out to get closer to this segment of its membership and gain a better understanding of both their wind successes as well as their frustrations. In examining utility challenges, it is important to first recognize the diversity of AWEA member utilities. They clearly comprise an array of sizes and structures, operate in a variety of regulatory environments, and have a whole range of generation needs.
Here is a taste of that diversity: some are investor-owned companies with service territories covering several states, some serve just one community. Some are municipal utilities serving a large city like Los Angeles, some serve a small community like Waverly, Iowa. Some are state owned and operated, some are owned and run by the federal government. Some are state regulated, some are federally regulated, and still others are governed locally.
And within all these structures, some of the utilities are working to meet aggressive state renewable portfolio standards, while others have no such requirement. Some have a tax credit appetite, some have none. Some have a great wind resource in their territories, some have none.
You get the picture. Suffice it to say, diversity is an understatement.
The 50-plus AWEA utility members, however, do share some common ground. When asked about their future, all expressed concern about rate increases to their customers. Fundamental to all the utilities is their goal to provide reliable energy at an affordable price. Yet adding new generation or retiring old generation is likely to require a rate increase.
Meanwhile, many utilities have experienced flat or reduced revenues; many have undergone austerity programs that have even included reductions in their work forces. In this climate, any new generation resource brought up for consideration, regardless of the potential long-term benefits, is met with opposition somewhere along the planning process.
Another common concern is the uncertainty of environmental policies. Changes in the generation fleet mix or adding on emissions controls is also very capital intensive. One utility characterized their strategic plan as “stay flexible” because of the vast array of possible changes they may have to make. That sort of environment may create a hesitancy among some utilities to want to invest in wind farms or may drive an interest in an option to purchase within the power purchase agreement later on. This is one way of giving the utility more choices in uncertain times.
Utilities that have already incorporated a significant amount of wind into their portfolios may have a different concern: how will the wind resource be balanced in the generation mix? Balancing services may be the responsibility of the utility or the regional transmission organization. Who in the long run will provide these services, and how much these serves will cost, are common questions in the utility planner’s mind — again bringing still more financial uncertainty into the equation.
Another critical enabler of more wind is transmission capacity. Like U.S. highways before the advent of the interstate highway system, the current electric transmission system was not built to meet modern needs — in the case of the transmission grid, the needs of an increasingly electronic society. Again, a multitude of utility ownership structures and regional differences make for a multitude of solutions. All factors, however, point to the need for greater transmission capacity to enable moving wind energy from the point of production to the load.
Transmission planning, permitting, and construction takes time, and so that process can also add uncertainty to utility resource planning. Policy decisions concerning who will ultimately pay for this infrastructure also add time and complexity to the process. From a utility perspective, a bright spot in the current economic lull has been the drop in fuel prices for the fossil generation fleet.
Utilities all have had to manage through times of fuel volatility and are keenly aware those times can quickly return. But in the short run, market prices have helped keep customer rate impacts to a minimum. For the wind developer, the drop in fossil-fuel prices has only added to the job of making wind as affordable as possible.
Tackling New Challenges
Such dynamics point to the complexity of our business. But one thing that shined through in AWEA’s recent discussions with utilities was their positive outlook and evolving relationship with developers. After all, challenges have always been a part of both the utility’s world and that of the developer entrepreneur. It will take their collective skills, knowledge, and focus to take wind energy to the next level.
Kim Zuhlke is a utility outreach consultant for AWEA.