Utilities Owning, Buying More Wind, Planning for Carbon Regulations

Utilities are increasingly embracing wind — owning their own facilities, buying wind-generated electricity from other producers, and even factoring future carbon regulation into their financial equations, said expert participants on a utility panel at WINDPOWER 2008.

Speaking on the panel were Mike Kotara, executive vice president of energy development at wind power-leading municipal utility CPS Energy; Andy Hesselbach, wind farm project manager at utility We Energies; Galen Barbose of the Lawrence Berkeley National Laboratory; and Matthew Kaplan of Emerging Energy Research.

As representatives of two different kinds of utilities, Hesselbach and Kotara were able to offer perspectives on the reasons behind their differing wind forays. As a municipal utility, noted Kotara, CPS Energy cannot take advantage of the federal production tax credit and so has no plans to pursue ownership of wind facilities. CPS, however, is the leading municipal utility for delivering wind to its customers; the utility had 501 megawatts (MW) of wind on its wires as of the end of 2007, thanks to its purchases of the renewable energy source.

We Energies presents a different story. The investor-owned utility owns the recently completed 145-MW Blue Sky Green Field wind farm in northeast Fond du Lac County, Wis., and is looking into owning five or six additional projects to meet its state renewable electricity standard requirements. “We didn’t initially intend to own wind projects,” said Hesselbach. However, when the utility calculated such financial factors as the debt load associated with entering into a power purchase agreement, it decided the wind energy it would deliver “might as well provide some return to our shareholders.” Ownership, he said, is also ultimately cheaper for customers as well.

Barbose, meanwhile, reported on a study that Lawrence Berkeley conducted on how utilities are valuing renewables as a hedge against carbon regulatory risk. The study took a look at what 15 utilities in the West (representing about 60% of total retail sales in that region) are doing in this area.

“Utilities are making fairly important strides in evaluating carbon regulation cost and risks in their resources,” he said. Utilities are bringing renewables into their resource plans and portfolio mixes, said Barbose, although some of that is attributable to state renewable electricity standards (RES). Still, he noted, many utilities are including renewables in their mix “well in excess” of their RES requirements as a result of carbon regulation risk.

While utilities have made much progress on valuation of carbon regulatory risk, much work remains, Barbose said. Methods and assumptions for calculating risk vary widely, and state regulators need to provide guidance to ensure that ratepayers are protected from the associated financial risk, he said.

“We do have a carbon strategy going forward that puts a [premium] on reducing carbon intensity,” said Kotara.

Contrasting with Barbose’s analytical and strategic presentation, Hesselbach shared the We Energies experience in getting Blue Sky Green Field built, offering tips and lessons learned on garnering community support for wind projects. We Energies did everything from hosting community barbeques to conducting the usual landowner meetings during the process. He suggested that setting expectations is key so that residents aren’t surprised by the temporary effects of construction. Painting a picture of the construction process-e.g., forewarning of messy roads, construction vehicle traffic, muddy fields, etc.-that may be even more drastic than reality is advisable so that residents are not taken by surprise, he said.