Speaking at a January 16 hearing, AWEA consultant Nancy Rader was particularly concerned at the lack of sufficient money to subsidise repowering or retrofitting of existing wind projects. She sharply criticised the allocation of 20% of the pool of cash to "emerging technologies" (60% of which would go to photovoltaics) and the CEC's proposal to reserve 17% for market incentives, reserving 15% of this for customer rebates to build demand for renewables.
Nonetheless, the CEC draft plan largely adopts a concept first put forward by the wind, geothermal, biomass and solar thermal power industries. Under the plan each technology group would, for the most part, be awarded state support paid directly to suppliers and tailored to the specific needs of each industry. This is contrary to the wishes of many environmental groups which, instead of using public money on the supply side of the market, prefer to build up the demand side in the form of rebates to taxpayers who buy green power.
It is this argument which apparently prompted the CEC to propose that 15% of the funds be returned to taxpayers who buy renewables power under direct access contracts once the electricity market is deregulated on January 1, 1998. Rader, however, said such "rebate" schemes are doomed since "costs are likely to be high and the bulk of funds are likely to go to green power marketers rather than the production of renewable kilowatt hours." She added: "For customer rebate programmes to be an effective use of public funds, they must be available to larger customers who have the ability of signing long term contracts for large amounts of renewable power."
Aside from the 17% for market stimulation, the CEC draft recommendation allocates 40% of the pool of state cash to existing renewables and at least 43% to support new and emerging renewables. For existing projects, biomass is to get 26% ($140 million) of the 40% allocation; wind 8% ($43 million); and solar thermal, 4% ($22 million). The CEC also sets aside 2% ($11 million) for any existing project -- including geothermal and hydro -- that was not specifically included in allocations in this category.
Rader calculates that the 8% for existing wind projects for production incentives would, if combined with projections for market prices in the wholesale power pool, give $0.035/kWh. She called this payment stream "reasonable for most existing wind projects, but insufficient for some." But she also said the CEC proposal amounts to no more than a $0.003/kWh adder and is not enough to "influence decisions about whether to make investments in turbine repairs." In its proposal to the CEC, the renewable energy coalition suggested a production tax credit amounting to $0.006-$0.01/kWh for wind.
For new projects, the CEC recommends that 12% ($65 million) be set-aside for repowering projects and 11% ($59 million) for new construction. Repowered projects follow the federal Internal Revenue Service definition of 80% new content. This total of $124 million will be subject to competition among all the renewables. However, the CEC assumes that wind would capture most of the repowering funds since it is the lowest cost renewable. Rader argued that repowering of projects should be limited to wind facilities and that, "If new wind projects can be accomplished at less cost than a repower, it should be able to access these funds."
photovoltaics favoured
The CEC recommendation, in contrast to the proposal put forward by AWEA and the joint renewables industry, favours photovoltaics as an "emerging technology." Of the 43% allocation to this sector, 20% ($108 million) is to be targeted to specific projects. Of this, the CEC recommends that up to 60% be devoted to the photovoltaic industry. Not surprisingly, it was the principal opponent to the renewable coalition's proposal. It suggested 8% of the funds should go to emerging technologies such as photovoltaics.
The renewables industry further suggested that wind receive a 23% share of the $540 million, while the largest share, 31%, went to the biomass -- the highest cost renewable. The geothermal industry would get 27% while the solar thermal industry would get 10%. These four technology groups represent 95% of the renewable energy generated in California. Finally, just 1% of the funds would be earmarked for a green marketing effort.
After conferring with five of the largest wind developers, AWEA believed this level of support -- which could amount to as much as $124 million over a four year period -- was the minimum needed to prepare California's wind industry for the rigours of full scale competition in 2002. The money would be paid out as a production tax credit ranging from $0.006-$0.01/kWh. This would have allowed for retrofitting or repowering of 40-70% of existing California capacity, according to Rader, resulting in as much as 1120 MW of wind power. Energy production from wind plant would be boosted by as much as 30% due to new and improved wind turbines.
"First and second generation technology accounts for about 70% of total California wind capacity," noted Rader in testimony, adding that as little as 20% of the wind capacity was "state of the art." A repowering programme is justified, argued Rader, since wind developers expect the California market to be much more favourable by 2002, with higher market prices. Also, customers looking for premium green power supplies will no longer be having to bail utilities out of their unprofitable past investments, such as in nuclear power. By that time, too, the federal government may have introduced legislation for mandatory purchase by utilities of renewable energy, or other policy to promote clean power.
Today, most wind facilities have fallen off the so-called "Year 11" cliff in standard offer power purchase contracts, and energy payments have been reduced, in some cases four fold. "Operators have cut back their O&M staff and are not making major repairs given current low energy payments," said Rader. "Instead, turbines are being run without O&M until they break and then they are cannibalised for parts with which other turbines are repaired." In addition, she claimed some wind farm operators have cut back or halted operations during off-peak periods "because payments don't compensate for operating costs and the wear and tear on the machines. As a result, fewer clean kilowatt-hours are being generated for California, jobs are being lost, and local property tax bases are being eroded." Rader claimed that 150 MW of wind capacity had already been lost under these conditions.
Key concerns
The key concern of the wind industry is the need to convince the financial markets that it will survive the transition to a deregulated electricity marketplace. While proposals by some environmentalists to give state support earmarked for renewables to customers as incentives to buy clean, renewable energy are promising, Rader warned that "steely-eyed bankers" do not look favourably on such approaches given the current uncertainty in the electricity market. Complicated bidding programmes to compete for public funds are also opposed by the wind industry. These competing proposals "will take too long and companies may go bankrupt while they are waiting" for the funds to be divvied up.
At a hearing in late November, Robert Harmon, business development manager for San Rafael-based FloWind Corporation, voiced support for the AWEA proposal, "If current economic conditions persist, we will likely remove over 90% of our fleet over the next five years," said Harmon. He added the company intends to replace its vertical axis machines with its AWT series of horizontal axis turbines developed by FloWind in conjunction with Robert Lynette and the US Department of Energy.
Harmon remarked that "it is difficult to obtain financing to repower even those wind farm sites with the highest annual average wind speeds." Under the AWEA proposal, FloWind "would likely repower between 50% and 100%" of its existing facilities.
When CEC commissioner Michael Moore asked what happened to all of the excess revenues wind developers collected over the first ten years of their lucrative utility power purchase contracts, Steve Thompson of wind company SeaWest Power Systems said most of it "went to pay off debts. I can assure you it did not all go to the bottom line." Thompson underscored the dire conditions facing his company when he pointed out that even repairs costing as little as $500 have not been authorised. "About 30% of our California facilities are currently operating in the red," he added.
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