Wednesday, March 26, 2008

Delaware Electric Coop To Join Delmarva in Buying Onshore Wind

What will be the effect of the announcement the the Delaware Electric Cooperative will join Delmarva Power in seeking out of state onshore wind on the Bluewater Wind proposal? The News Journal reports that Cooperative president Bill Andrew says not much:
Andrew said joining Delmarva's bid was not an effort to stop legislation that would spread costs of the Bluewater Wind offshore project to all electric customers in the state, including his coop's members.
"It has nothing to do with Bluewater. It is a good deal for my membership," Andrew said.
What factors affect the price of onshore wind?
Land-based wind power can be competitive on price with traditional fuels once a federal production tax credit is taken into account, said Brian Yerger, a Wilmington-based alternative-energy research analyst at Jesup & Lamont Securities.
But Yerger added that it costs more to transmit that wind power from afar.
The Delaware Municipal Energy Corporation signed on to buy power from Bluewater last year.
If Delmarva wants to buy onshore wind from out of state, fine. But it shouldn't advertise the bidding as an alternative to the Bluewater project.
First, HB 6 mandated in-state power in order to stabilize prices and protect consumers from the volatility of energy markets.
Second, Delmarva is unlikely to duplicate the specifications of the Bluewater power purchase agreement (PPA), particularly the set price for 25 years. Otherwise, why would Delmarva bother?
As a ratepayer, I like the PPA with its set price. As the company that would see a portion of its buying power tied up for 25 years, Delmarva hates the PPA.
But Delmarva Power can't acknowledge that its interests are different from mine, which is why the company maintains the fiction that it is acting to protect me and the vast majority of Delaware citizens who want to see the wind farm built.

Update: Maria Evans of WGMD had the story first, including this pertinent question:
Can Gary Stockbridge explain how, “This is an exciting day for the development of renewable energy in the region,” when the only thing “the region” is doing is purchasing power from other states? Isn’t it an exciting day for renewable energy in other states?

16 Comments:

Anonymous kavips said...

What is interesting it that this press release is aimed at discrediting offshore wind among a few legislators, by showing a united effort to get wind on land.

The other two participants have no bones to pick with Bluewater Wind's proposal. They too will buy offshore wind, if given the opportunity.

This is a good deal for those in the coops. But the deal will be much better for all if the Bluewater Wind contract is signed.

We are waiting for the prices to be made public. Here is what we need to look for.

Studying the wind farms in Europe, there were times when the wind would blow and everyone slept. There was excess of electricity. That would be dumped at very low rates to the grid. This, I believe is what we will be shown. However we need to look at the overall price, of how during peak times, exactly how much we will be paying. Furthermore, if Delmarva buys land based wind power at 50% cheaper than offshore windpower, and then needs to fire up a gas turbine for 1% of that hour's needs, the cost for that entire hour will be billed, under PJM rules, at a rate covering the highest cost provider imputing for that hours. In plain language, even though Delmarva receives 99% of their power dumped at 5 cents a kilowatt, they can bill you the 14 cents it cost them to fire up the gas turbine to keep them from browning out.

There is no control over how much wind Delmarva can choose, or not choose to buy. Knowingly, they can purchase too little of the cheap energy, then charge us for the most expensive.

Under Bluewater Wind, they are contracted to buy 300MW. at $98.90 per MW/hour. If they need more power, they can then turn to wind at 5 cents per kilowatt hour on the spot market, and we burn less coal somewhere on the grid.

It is important to keep the land base wind option open. That can help drop our prices too. But it will do very little to help anyone but Delmarva, if we fail to build an offshore wind farm off Rehoboth.

1:06 PM, March 26, 2008  
Anonymous Anonymous said...

Why, why, why don't you people stop obsessing for one moment about Delmarva's supposed evil agenda and listen to what the non-profit, independent grid operator PJM had to say about the supposed price stabilitization and reliability impacts of BWW vs. other wind projects elsewhere in the PJM region? PJM was crystal clear - there is no discernable advantage to Delaware electricity customers to buying your renewable electricity from out-of-state wind projects located elsewhere in PJM compared to buying it from Bluewater. That's simply a fact. Why are you so deaf to it?

Michael T. Hogan

1:56 PM, March 26, 2008  
Anonymous Anonymous said...

Sorry, a bit confusing...the point is that there is no difference, either in electric system benefits or in environmental impacts, from buying the production of Bluewater and buying the production of an onshore wind farm elsewhere in PJM. The only difference is price...Bluewater will be much more expensive, and the technology is far less proven.

Michael T. Hogan

2:00 PM, March 26, 2008  
Anonymous kavips said...

Sorry, but some of what you say is unclear.

Can you front a source that backs your claim?

Certainly if what you propose is true, you would trumpet a source supporting your argument.

I am curious as to your choice of an adjective you used: I believe it was "independent" in describing the PJM. How did you come to that conclusion? Not saying I disagree, but that I just do not yet have enough information to agree.

And why don't "you people" stop griping about Bluewater Wind and listen to those who say that a 300MW supply of electricity at a set rate of 1.1 cent cheaper than Delmarva can afford to bid now, will be far less expensive twenty-five years from now then the market rate?

Your side still has not answered the basic question. How is it that Bluewater Wind can provide electricity at a guaranteed price for twenty five years......cheaper than you can provide it today?

When will "you people" get it?

5:54 PM, March 26, 2008  
Anonymous Anonymous said...

Kavips, you have something here. The game seems to center on spot market pricing and the rules.
Good work.

I am just glad that you, Tom and Maria have the stamina to stay up with the fine points of all of this.

5:12 AM, March 27, 2008  
Anonymous Anonymous said...

Kavips,

As far as a source, if you're talking about a source for PJM's analysis of the advantages (or lack thereof) of Bluewater over on-shore wind located elsewhere in PJM's territory, I would refer you to PJM's testimony at the March 7th hearings. You can be excused for not being familiar with it...the press conveniently left before PJM or any of the other independent experts testified...it is quite obvious that the Delaware newspapers are less than interested in anything that might suggest that Bluewater isn't the greatest idea Delaware has ever had. As for your numbers, I really don't know where you're coming from on that. First, Bluewater's price is not entirely fixed; a reasonable portion of it is indexed to inflation. Second, the on-shore wind I'm talking about is capable of "fixing" their price for 25 years as well, in fact that's what they're doing everywhere else (actually, they're fixing it for more like 20 years, but since offshore wind takes a lot longer to break even with alternative sources they need a longer contract). The difference is that the onshore wind projects can "fix" their long-term price at a much lower rate than can Bluewater. I have no idea what you're referring to when you say "cheaper than you can provide it today."

Michael T. Hogan

10:07 AM, March 27, 2008  
Anonymous Anonymous said...

Kavips,

As far as a source, if you're talking about a source for PJM's analysis of the advantages (or lack thereof) of Bluewater over on-shore wind located elsewhere in PJM's territory, I would refer you to PJM's testimony at the March 7th hearings. You can be excused for not being familiar with it...the press conveniently left before PJM or any of the other independent experts testified...it is quite obvious that the Delaware newspapers are less than interested in anything that might suggest that Bluewater isn't the greatest idea Delaware has ever had. As for your numbers, I really don't know where you're coming from on that. First, Bluewater's price is not entirely fixed; a reasonable portion of it is indexed to inflation. Second, the on-shore wind I'm talking about is capable of "fixing" their price for 25 years as well, in fact that's what they're doing everywhere else (actually, they're fixing it for more like 20 years, but since offshore wind takes a lot longer to break even with alternative sources they need a longer contract). The difference is that the onshore wind projects can "fix" their long-term price at a much lower rate than can Bluewater. I have no idea what you're referring to when you say "cheaper than you can provide it today."

Michael T. Hogan

10:07 AM, March 27, 2008  
Anonymous Anonymous said...

Look, this isn't rocket science. It's clear that I'm an environmentalist that's not a fan of wind, but I'm prepared to accept that we're going to waste some time and money on it. But for heaven's sake, if you're going to buy wind power, shouldn't you at least buy it from the most competitively priced supplier, unless there's a very good reason to do otherwise? It's really that simple. And if you would just read PJM's testimony (they really are independent...I promise you; it's inexcusable that someone would engage seriously in this debate and not know that), you'd see that there really isn't a good reason to favor Bluewater over out-of-state onshore wind farms elsewhere in PJM's territory.

Michael T. Hogan

11:56 AM, March 27, 2008  
Anonymous J Austin said...

No matter what the SOS customer must purchase 20% renewable energy by 2019. It is not free and assuming the current $4/premium of WGES an a 2.5% inflator like DLP is allowed this works out to $5.36 more a month if there is no BWW PPA or if the BWW PPA is spread 2014-2038.

Buying power placed on the grid in Illinois does nothing to reduce congestion charges getting that power here and is conveniently not explained by DPL.

Spreading the BWW PPA cuts the price stability aspects of the and removes any additional cost due to the purchase of an average of 25% of power needs, rather than the 17.995% non-solar requirement of SB-19.

SB-6 seeks in state power and that may not be the rock bottom price option, but I think it is close. So far, all we have is more bluster from DPL. If BWW is spread, then the remaing SOS renewable power requirement could be one or more of these onshore contrats if the lock in prices for 20-25 years. Otherwise it is same old same old.

8:18 PM, March 28, 2008  
Anonymous Anonymous said...

Still the obsession with DPL. For once this isn't about DPL. PJM has no dog in this fight other than reliability, and they just don't see any significant benefit to Delaware choosing BWW over other wind generation in PJM. There just isn't an appreciable congestion charge issue to be addressed, and whatever reduction you'll see in congestion charges will be a pittance compared to what I believe the price differential will be between BWW and the onshore competition. Why not let the market that SB-19 creates work it out? What's the all-fired hurry to make BWW's investment-banker shareholders any richer than they need to be? They're selling you a load of hooey with their vague claims of the benefits of in-state wind power. The real independent experts (PJM) simply don't see it - forget about DPL, if you can.

Michael T. Hogan

9:05 PM, March 28, 2008  
Anonymous Anonymous said...

Let me be more constructive. If there are congestion pricing benefits to an in-state resource like BWW vs. a wind project elsewhere (Illinois seems unnecessarily shrill...let's say Pennsylvania, but if you want to say Illinois, then that's ok too), they are fairly straightforwardly quantified. It's a complex algorithm that PJM would have to run, but they run those kinds of scenarios all the time. Once they're quantified, you can agree to require that any in-state resources be evaluated including the quantifiable congestion pricing benefits they would offer, and see if they more than offset any underlying price difference. That's the way a number of other state RPS programs work (they use renewable credit multipliers for in-state resources to reflect what they believe to the the monetary value of such resources). That would be a great way of settling the issue. Forcing the BWW contract is beginning to smell to me like people wanting to "stick it to DPL" rather than coolly evaluating the right way to obtain clean, renewable electricity. That my be understandable, but it's a terrible way to set energy policy.

Michael T. Hogan

9:26 PM, March 28, 2008  
Anonymous Anonymous said...

"...there is no discernable advantage to Delaware electricity customers to buying your renewable electricity from out-of-state wind projects located elsewhere in PJM compared to buying it from Bluewater."

Michael T. Hogan, I am looking at the cost over time. If 20-25 year contracts are available from out of state on shore wind, why won't DP&L sign up? You say these long term contracts are available without substantiating your claim, therefore I simply am not convinced.

You also have implied that 500 jobs during construction, 80 after, and a technology learning center set up at Del Tech are all inconsequential to our state. I don't agree.

I fail to see a downside to the BWW contract. Moreover, the PSC and their consultants recommended it. If on shore wind is so great a bargain, why didn't DP&L bid it during the SB6 mandated bidding process? What is your answer to that, Michael T. Hogan?

Perry Hood

10:50 AM, March 30, 2008  
Anonymous Anonymous said...

Perry,

You fail to see a downside to BWW because you don't want to see a downside to BWW. Every onshore wind project that has been financed in this country for the past ten years has been on the basis of long-term (15-20 year) contracts. That information is widely available to anyone who is interested - which probably doesn't include you, but whatever. I do not consider good jobs - any good jobs - to be inconsequential. I merely point out that the value of those jobs comes at a very steep price to DE ratepayers, a price that will almost certainly result in net negative economic impacts on the state, since it will effectively function as a tax on electricity prices. So the very good and important jobs that BWW would create if it is built would probably be overwhelmed by the job losses due to the negative economic impact of higher-than-necessary electricity prices, at least for the first 10-15 years of the contract and perhaps longer. As for what DPL has or hasn't done and will or won't do with respect to contracting for onshore projects, I don't pretend to know that. But I do know that long-term contracts would be available, at prices far below what BWW is offering and at largely fixed prices, not escalated at 2.5% a year. If the PSC wants to force DPL to do something, perhaps they should consider forcing DPL to contract with these resources long term (as their sister regulatory commissions in other states have done) rather than forcing DPL to sign a contract that DE ratepayers will come to regret.

Michael T. Hogan

Michael T. Hogan

2:12 PM, March 30, 2008  
Anonymous Anonymous said...

"... negative economic impact of higher-than-necessary electricity prices, at least for the first 10-15 years of the contract and perhaps longer."

Michael, you have not made the case here for this assertion. If on shore wind is such a bargain, why was it not bid during the bidding process?

I recall reading that DPL is investigating 2-5 year contracts for on shore wind. If long term fixed price on shore wind contracts are available and cheaper than BWW, why are they not being pursued?

I cannot help but think there is something fishy going on here, and it has to do with DP&L and affiliates trying to maximize their profits with little to no regard to what is best for their ratepayers.

Perry Hood

10:14 AM, March 31, 2008  
Anonymous Anonymous said...

Perry,

That DP&L is seeking to do what's best for their shareholders is not doubt true, and it is equally true that what is best for their shareholders may not always be best for Delaware ratepayers. In the long run I would argue that the two objectives will tend to converge, but in the short run they are undoubtedly in conflict. That's why DP&L, as a monopoly electric distribution company, is regulated, including the prices they can charge for use of their wires. If Delaware wants DP&L to seek long-term contracts for the renewable supply required to meet their RPS requirements - and you most certainly do want them to seek long-term contracts, as is the case in most if not all other 25 jurisdictions with RPS laws in place - then by all means the PSC and/or the legislature should so obligate them. But to assume that BWW is the only long-term wind power option available is simply mistaken. There may well be something fishy going on with DP&L - at a minimum I would say it is irresponsible of them to accept contract lengths of less than 15 years, since (a) it increases the chances that the project won't be financed and (b) it requires ratepayers to cover the projects' costs in the early years, when they are above market, and denies ratepayers access to the same price in later years, when it may be below market. But again, this is a question of making DP&L run their renewable supply solicitation in a responsible manner, not replacing the solicitation altogether with something far less advantageous to ratepayers.

Michael T. Hogan

1:22 PM, March 31, 2008  
Blogger Chris said...

Michael T. Hogan:
"But I do know that long-term contracts would be available, at prices far below what BWW is offering and at largely fixed prices, not escalated at 2.5% a year."

This makes me sense you're being disingenuous. According to http://www.measuringworth.com/inflation/, the rate of inflation in the U.S. from 2000 to 2007 was on average 2.69%. Therefore, increasing prices by 2.5%, which is under the rate of inflation, seems more than fair to me, and for all practical purposes can be appropriately considered a "fixed" price.

I also object to your generalizations that sea-based wind power is inherently inferior to land-based locations. It's true that the vast majority of current wind farms are located on land, and that the open sea presents new challenges, but there are several factors that make the open sea potentially more suitable for wind farms. First, both the U.S. Department of Energy and the University of Delaware conducted research showing winds off the Delaware coast are significantly higher than winds on land (see http://www.eere.energy.gov/windandhydro/windpoweringamerica/images/windmaps/de_50m_800.jpg).

Secondly, an off-shore location doesn't require any valuable real estate, which is at a premium in tiny Delaware.

Thirdly, an in-state wind farm would be a boon for Delawareans who would like the state to be known for more than just it's corporate tax haven, "F" rated air quality, and poultry production. This may be a more emotional argument, but since Delawareans will be largely footing the bill, not an unjustified one.

8:27 PM, April 06, 2008  

Post a Comment

Links to this post:

Create a Link

<< Home