Naked City
Money to Blow
By Kevin Fullerton, Fri., Dec. 1, 2000
They don't stock it on the shelves, but Texas wind has become one of the state's hottest commodities. Right now, it's marked down for a limited time, and it's going fast.
Last week, Austin Energy tripled the size of its contract with a local wind energy company, reporting that subscriptions to the utility's Green Choice program, launched last spring, have outstripped Austin Energy's supply of electricity generated from wind farms and other renewable energy sources. Austin Energy's original contract with Cielo Wind Power secured 25 megawatts of new power from turbines going up near McCamey, Texas, but now the utility wants to buy all the power Cielo can produce for it at the site, about 76 MW. And that's just for starters.
Tuesday, Austin Energy officials met with wind power companies and other renewable energy suppliers to discuss adding an additional 200 MW of renewables to the utility's stock within the next year. That would make AE one of the biggest purchasers of renewables in the state, though hardly the leader. On October 31, Dallas-based giant TXU Electric and Gas announced its fourth major purchase of wind energy, bringing that utility's total commitment to 360 MW.
TXU has now bought twice the amount of renewables it needs to comply with the state's 1999 electric utility restructuring act, which requires investor-owned utilities to meet quotas for renewable energy purchases through 2009. And municipally owned Austin Energy isn't even subject to that law. So why the rush to lift hundreds of propellers into the breeze overnight?
Austin Energy officials say wind will be a key source of new power to meet the heavier generation loads that will result from Central Texas' booming population. "This is to see if we can meet a pretty sizable part of the new demand through renewables over the next three to five years," says spokesperson Ed Clark of the proposed 200-MW project.
By all accounts, Austin Energy's play to get large commercial users hooked on its renewable energy program has been successful, with nearly 10% of the utility's top 200 customers already signed on. It doesn't hurt that the fixed rate Green Choice subscribers agreed to pay for their electricity could well sink below Austin Energy's standard rate if natural gas prices, which have doubled this past year, continue to push the utility's generation costs higher.
"We're using our program to give customers the opportunity to hedge against fuel prices," says Green Choice director Mark Kapner. "What began as a premium price is now effectively a discount for those who signed on."
The response to renewable power programs in other Texas cities, including the pilot subscription service that TXU set up in Waco last year, has been lackluster at best. But according to TXU officials, there are at least two major reasons to continue the push to develop renewable energy sources. The first is the looming expiration of the federal production tax credit for wind farms. That credit, which essentially cancels out wind farmers' income taxes, pushes the cost of wind energy down by about a third. But unless Congress extends its life, the credit goes away after December 2001. Since utilities are under state mandates to increase their investment in renewable energy, it makes sense for them to buy now rather than wait and pay potentially higher prices. The second reason is that while the Texas wind is infinite, good sites for turbines are limited, and the race is on to lay claim to West Texas' most blustery mesas and ridges.
There may be a third reason, too, though this one TXU denies: When the state's electric utility market is deregulated in 2002, companies that specialize in retailing green energy are expected to move in, and they'll need someone to sell them the power in the form of Renewable Energy Credits, which utilities receive for purchasing renewable energy. Those credits could be worth a lot more in the future than they are now if the production tax credit expires. But TXU Electric & Gas purchase power manager Bob Erwin says he doesn't see the REC market as particularly lucrative.
"We did not enter a strategy to buy lots of RECs to potentially market them," says Erwin, though he admits that could be a serendipitous outcome.
All the hoopla over wind power has some advocates -- who sense a long-awaited breakthrough in Texas for an industry that suffered near-permanent mortality in the Eighties -- flush with excitement. But in fact, the dizzying pace of growth obscures the fact that long-range prospects for the industry are quite sobering, says Cielo Wind Power president Walter Hornaday.
The headquarters of Cielo -- which in addition to its deal with Austin Energy has bagged contracts to produce nearly 400 MW of new wind power this year alone, a fourfold increase in business -- are a testament to the lean environment wind farmers exist in. The interior ceiling of the long, drab building off Ben White Boulevard, which looks more like a radiator shop than office space, is finished with tin, and conferences are held on an aluminum table in the front lobby.
Hornaday got his start in the wind power business fixing old turbines built in a past, inglorious era of the wind industry. Some of those generators now leak oil onto the concrete floor at Cielo -- badly built designs thrown together to generate subsidies from Uncle Sam and little else, Hornaday says. He says wind power technology is no longer flawed, but the nation's energy policy is, leading to perhaps another period of suspended animation for the wind industry in the next couple of years. Unless the federal government commits long-term to the production tax credit, he says, the industry will never be able to initiate speculative ventures that will allow it to keep growing.
Ironically, Hornaday needs the help of the very utilities who for years spurned his technology to get the production tax credit his business relies on renewed by Congress. "If TXU doesn't get behind it, then the Texas delegation won't get behind it," he says. But will the electric utilities, hypnotized for decades by their fossil fuel burners, ever give wind power a fighting chance once legislative quotas have been reached and they've draped themselves in green tinsel? Hornaday has learned not to be overly optimistic.
"After the mandate [of SB 7] is met, there will be some apathy from utilities," he predicts.
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