Texas wind: An oil state’s new energy revolution

In 2006, Texas overtook California as the US State with the most installed wind capacity. Indeed, so great is the rush to develop wind power that the state has begun to run into serious transmission constraints. Now moves are underway to set up special zones for renewable energy development, a Texan solution to a Texan opportunity. By Lisa Cohn

Until recently, tourists visited Texas to photograph bluebonnets, a native, white-tipped flower that grows along roadsides and in uncultivated pastures. But now, tourists are eager to photograph wind turbines, says Gregg Wortham, executive director of the West Texas Wind Energy Consortium, based in Sweetwater. After all, in 2006, Texas surpassed California as the largest wind market in the US, having pulled ahead of the other states in total wind-farm installations. In addition, Texas is now home to the largest wind farm in the US, the 735 MW Horse Hollow project, says Christine Real de Azua, a spokeswoman for the American Wind Energy Association, Washington, DC.

Supportive state policies, a renewable energy portfolio standard and the recent focus on curbing global warming have all contributed to Texas’s status as the largest market in the country, she adds. In addition, wind power has become cost-effective in the state’s hungry, partially deregulated market.

But that’s not all. The state’s largest utility, TXU, recently announced a merger proposal under which it agreed to cancel plans to construct eight coal-fired plants and invest in renewable energy.

Just as important is Texas’s wind power potential. The state boasts the second largest resource in the country, says Real de Azua.

‘Wind power in West Texas is an “all-you-can-eat” buffet. There’s more potential here than Texas will practically ever be able to use,’ says Mike Sloan, managing consultant for The Wind Coalition, based in Austin. In 1995, West Texas A & M University completed a study that showed 524,000 MW of potential. If fully developed, that wind power could generate nearly five times as much electricity as Texas used in 1995, Sloan says.

In spite of Texas’s wind power pluses, the transition from bluebonnet to wind power state has been slow – and a surprise to many outsiders, says Wortham.

‘People expect to see wind turbines in Oregon and California,’ he says. ‘They don’t view Texas as a centre of environmentalism.’ In addition to grappling with Texas’s Big Oil less-than-green reputation, the industry has faced transmission constraints.

The biggest roadblock for developers is moving the ‘all-you-can-eat’ wind power out of rural West Texas into the population centres. To make that happen, the state must enact policies that ensure transmission gets built, renewable-energy supporters say.

TXU’s new owner have announced plans to cancel the construction of 8 new coal-fired power stations txu

Says Russel Smith, executive director of the Texas Renewable Energy Industries Association, Austin, ‘It’s not an industry that can develop on its own because there are so many factors that have to be dealt with that are policy driven.’

The extent of the transmission limitations is well known. A recent study from the Electric Reliability Council of Texas (ERCOT) found that developers are now looking to bring about 17,000 MW of wind generation online – most of it originating in West Texas. ‘Studies indicate that the existing transmission network is fully utilized with respect to wind transfers from West Texas to the remainder of ERCOT,’ the study says. ERCOT, which is regulated by the Public Utility Commission of Texas (PUCT), manages the electric power grid and marketplace in most of the state.

Developers have taken advantage of all the wind power they can use, given the transmission limitations, says Sloan. ‘The best wind resource areas in Texas are pretty much maxed out for development because of transmission constraints,’ says Sloan. ‘The local markets won’t be able to soak up much more. We need more transmission to get the wind to load centres.’

The history of wind power development in Texas reflects the difficulty of moving power out of remote areas to population centres, he notes. The first wind farm that served customers in Austin – the Texas Wind Power Project, built in 1995 by Kenetech and now owned by FPL Energy – was in El Paso, the most westerly point of ERCOT, Sloan says. At the same time, CSW built an experimental wind farm in Fort Davis in West Texas.

Slowly, development moved east as transmission became unavailable to the west.

‘Now, a lot of development is near Abilene and Sweetwater, closer to load centres,’ Sloan says. ‘That area is getting ready to be maxed out, too. Now, there are even some wind development projects going in somewhat to the west of Fort Worth,’ he says. But that’s not where the best wind is.

However, relief may be in sight for developers. In 2005, the state legislature called for the creation of Competitive Renewable Energy Zones (CREZs). These are ‘special delivery’ transmission corridors created specifically for the purpose of moving renewable energy from resource-rich parts of Texas to population centre s.

‘The CREZ process provides for proactive transmission planning to support renewable energy development,’ says Sloan.

Senate Bill 20 requires the PUCT to designate CREZs and develop transmission plans to deliver power from these zones to customers. The PUCT is now in the midst of doing just that, a process that has generated much interest.

About 60 parties have intervened in the CREZ-creation case, 25 entities have expressed interest in developing wind projects in Texas and participating in the case, and 17 parties have nominated specific CREZ zones, says Sloan.

‘The CREZ process has infused a lot of excitement into the Texas market. In its current form, it is a Texas innovation,’ says Sloan.

But innovation isn’t enough, says Smith. The state needs to take positive action. ‘It’s possible we will be limited by bad policy decisions that can still stop things from happening,’ he says.

For example, the state seems to be waffling about its renewable energy goals, even though there are plenty of resources available, he says. Only with clear, ambitious renewable energy goals will the PUCT have the authority to establish enough CREZs to bring significant amounts of wind power online, he says. SB 20 creates a goal of installing 5000 MW of renewable energy by 2015, he notes. The law also establishes a 10,000 MW ‘target’ by 2025.

But Texas may meet the 5000 MW goal much sooner than the deadline, leaving little incentive to establish CREZs, says Smith.

‘There are at least 2800 MW up and running right now. Every indication suggests that over the next few months, there could be close to 5000 MW of wind power online before the 2015 timeframe. Given the fact that the purpose of the CREZ is to meet that goal, it’s arguable the PUC will say, ‘We’ve met the goal with the establishment of a minimal number of renewable energy zones and there’s no need to pursue this process further”’ Smith says.

What’s more, the purpose of the 10,000 MW ‘target’ is unclear, given that it’s called a ‘target,’ and not a goal, he says. Smith’s group has introduced to the state legislature a proposal designed to ensure the 10,000 MW figure is the official goal.

Many farmers and land owners are looking to wind farms to provide additional income cielo wind

‘We feel strongly 10,000 MW needs to be established as an official goal so there is no question about it. If in fact, interpretations are given that say the purpose of the CREZ is to meet the goal, then 10,000 MW should be the goal,’ he says.

Wortham agrees that the state is taking baby steps, given the whopping potential in Texas.

‘By any measure, Texas is the biggest market, will be the biggest, is the best situated in terms of manufacturing and delivery and has the marketplace to sell the wind energy,’ says Wortham. ‘The legislature is behind the curve of the market. When it put a 2000 MW goal out, we met it three years early. The next target, which they set in 2005, we’re meeting seven years early. ‘

Terry Hadley, PUCT spokesman, says the state has to take this one step at a time. ‘You want to make sure you get to the goal, and then to the target. Some of these projects are massive in scope.’

Under the CREZ development process, interested parties were invited to nominate any region in Texas for CREZ status.

For example, in February, Electric Transmission Texas LLC (ETT), a proposed joint venture between subsidiaries of American Electric Power (AEP) and MidAmerican Energy Holdings Company, filed a transmission proposal for the construction of approximately 1000 miles of transmission lines. At the same time, ETT proposed an additional 900 mile (1400 km), high-voltage, high-capacity backbone transmission system to support long range reliability and customer growth.

Stage One would reinforce the ERCOT transmission grid, providing access for up to 8 GW of existing and planned renewable energy projects in north and central West Texas. Stage Two would support an additional two gigawatts of renewable energy projects. The combined cost of these two stages would be about $3 billion, with completion of Stage One anticipated by 2012 and Stage Two by 2015

‘Now that the renewable energy developers have indicated the areas of Texas that they believe offer the most potential for renewable energy development, ETT’s proposal will reliably link those areas with load centre s in the state,’ said an ETT press release. ‘ETT can bring needed transmission online quickly by employing the expertise and capital of two transmission leaders.’

With the ETT and other CREZ proposals in hand, it’s now the PUCT’s job to create one or more CREZs by July 5, says Jess Totten, director of the PUCT’s Electric Industry Oversight Division.

Under SB 20, the PUC will consider a number of factors as it decides which and how many CREZs to create, according to the state rule that established the CREZ process. The PUC must consider whether suitable renewable energy resources and land areas are available to develop generating capacity in the given zones. It must also consider how much money generators are willing to commit to development, as well as the estimated cost of constructing the transmission capacity needed to deliver the energy from the zones. And the PUCT must consider the estimated benefits of the renewable energy from the zones.

There’s no budget for transmission, Totten notes. In Texas, the cost of every transmission line goes into one pool and all ERCOT customers pay for it, explains Sloan. He notes that Texas has generally been eager to get transmission lines up and running. ‘In general. Texas has invested more heavily in transmission than any other market in the US. We have spent $650 million a year for the past five years,’ he says.

Not everyone is as excited about the CREZ process as Sloan. Says Wortham, ‘The CREZ process was created to deal with the fact that TXU was not showing up to say what it could do south of the Panhandle. All the transmission assets that need to be upgraded are TXU’s. The CREZ process it is a substitute for bold action the state could have taken without all this Byzantine effort of designating zones.’

Turbine at the King Mountain Wind Ranch in Texas cielo wind

Wortham’s group would have preferred to see TXU upgrade its own lines in the southwest region. ‘With an upgrade, you’d have a complete secondary loop. Now, everything has to go through Fort Worth and Dallas,’ he says.

Whether industry members like it or not, the CREZ process is the main solution to the transmission problem. One industry source believes that the PUCT’s first decision regarding the CREZ process will amount to a fairly conservative step.

‘The PUC is very conservative and isn’t going to make a controversial choice,’ he says.

However, the industry source adds, Texas needs power, a fact that may spur the PUCT to action. ‘We need to put in as much generation as we can, and wind power can be built faster than other forms. I think you’ll see the PUCT fast-track the transmission approval process and see a significant designation the first time around, but not the most daring or most expensive option first.’

Eventually, he’d like to see the PUC designate as a CREZ the Panhandle region, where winds are top rated.

‘That is the future of the industry in the state, to harness class four or five winds,’ he says.

Sloan says the future of the industry of the state rests in large part with the CREZ process.

‘How the CREZ process is settled will determine how much wind gets developed,’ he says.

While the PUCT works to decide the critical issues of which and how many areas will be designated as CREZs. an important transaction expected to boost wind power development is moving forward. TXU has agreed to cancel its plans to build eight coal-fired power plants as part of a merger agreement with Kohlberg Kravis Roberts & Co. (KKR) and Texas Pacific Group (TPG). In addition, as part of its merger plans, TXU has said it will double its purchase of wind power to more than 1500 MW.

However, the PUCT has said it wants to review the merger, and legislation has been introduced that would allow that review to happen. Under current laws, the PUCT doesn’t have to give a formal ‘thumbs-up,’ says Tom Kleckner, a spokesman for TXU. ‘But it would be hard if we didn’t have even informal approval,’ he says. ‘We expect that will be worked out.’ If the merger is not consummated, it’s unclear whether TXU will move ahead with the eight coal plants, he says. ‘If the merger does not go through, we’d have to find some way to meet the state’s demand for energy,’ he says.

Satisfying the state’s demand for energy is an important objective that’s helping drive wind power development. Without new resources, the region’s power supply is projected to fall below the 12.5% minimum beginning in 2009, according to an ERCOT press release. At that time, the deficit is expected to be about 1480 MW.

Wind power is uniquely suited to fill the void, says Sloan. More than 70% of the state’s power comes from natural gas, he says. Electric bills in the state have roughly doubled in recent years due in large part to increases in the cost of natural gas. Meanwhile, wind power has become competitive with the price of natural gas and is available for 3.5 to 5 cents per kWh. ‘To cut down on fuel costs from natural gas, it makes sense to invest in transmission for wind power,’ he says.

Not only does it make sense to invest in wind power; there’s money to be made in the industry, says Dave Spalding, CEO of Wind Plus, based in Dallas. ‘You can generate wind for less than 3.5 cents/kWh before tax credits. You can go out and get long-term power purchase contracts for 5 or 6 or 8 cents,’ he says.

In Texas, there’s yet one more plus for wind power developers. Texas thinks big, says Sloan. And that’s not a small advantage.

‘A lot of people embrace big stuff in Texas,’ he says. ‘You can’t do what we do in other parts of the country – build 400 MW wind farms.’

Wortham agrees. In other parts of the country – seemingly greener parts of the country – wind power projects like Cape Wind have come under fire by residents. But in Texas, most everyone supports wind power, he says.

‘Isn’t it a more interesting story that it’s ranchers and farmers and oil people who are making this happen?’ he asks.

Lisa Cohn is a freelance writer specializing in energy
e-mail: cohnmerk@comcast.net
Web: www.realenergywriters.com

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