Wind Energy Weekly #692, Vol 15, 8th April 1996
The following is the electronic edition of WIND ENERGY WEEKLY,
Vol. 15, #692, 8 April 1996, published by the American Wind
Energy Association. The full text of the WEEKLY is available
in hardcopy form for $595/year and is recommended for those with
a serious commercial interest in wind (the electronic edition
contains only excerpts). A monthly hardcopy publication, the
WINDLETTER, more suitable for those interested in residential
wind systems is included with a $50/year individual membership in
the Association. AWEA's goal is to promote wind energy as a
clean and environmentally superior source of electricity. Anyone
sharing this goal is invited to become a member--please help!.
For more information on the Association, contact AWEA, 122 C
Street, NW, 4th Floor, Washington, DC 20001, USA, phone (202)
383-2500, fax (202) 383-2505, email email@example.com. Or
visit our World Wide Web site at http://www.econet.org/awea.
NYMEX opens trading of electricity futures contracts
IPALCO offers 'environmental' restructuring plan; AWEA dissents
BWEA annual meeting to examine NFFO, deregulation impacts
China factory churns out small turbines for Indonesia
RESTRUCTURING GOOD FOR ENVIRONMENT,
UTILITY EXECUTIVE CONTENDS
Restructuring and greater competition in the utility
industry will benefit the environment if it is handled correctly,
according to Michael Banta of IPALCO Enterprises, Inc., a
Midwestern investor-owned utility. But AWEA, while agreeing that
environment-friendly restructuring is possible, said the IPALCO
approach falls short of the mark.
In a paper entitled "The Environmental Benefits of a
Workably Competitive Electricity Industry" which IPALCO released
April 1, Banta takes aim at three undesirable features of most
utility restructuring plans which he says "should be of grave
concern to the environmental community:"
"[A]n alternative, prompt restructuring to allow national
retail competition for all consumers, without these three
elements can produce not only lower electricity prices, but also
very substantial, tangible net benefits for the environment."
- "The assurance of stranded cost protection for high cost
[existing power plants];
- "The continuation of pancaked, distance-sensitive
transmission rates; and
- "A state-by-state approach to retail competition.
"Stranded cost protection" refers to an agreement under
which utilities continue to receive subsidies in some form under
restructuring to help them pay off sunk investment in high-cost
nuclear and fossil-fired power plants. Stranded cost protection
is harmful to the environment, Banta says, because it allows such
plants to continue to operate even though their operating costs
may be high: "Under the existing monopoly system, captive
customers subsidize the high capital costs or high operating
costs, or both of [nuclear] power plants through electricity
prices that far exceed the current long-run marginal cost of
Without such subsidies, Banta argues, power from "existing
non-viable nuclear power plants and inefficient fossil-fuel power
plants . . . could be replaced not only by efficient coal and
gas-fired plants, but also by renewable resource facilities . . .
Banta also criticizes the "pancake" system for developing
transmission charges, under which power that is transmitted from
place to place is subject to separate rates from each utility
jurisdiction it passes through. "[P]ancaked, distance-sensitive
transmission rates for use of the national grid make renewable
power very costly in remote markets," he says, adding, "An
alternative plan providing for a uniform, non-distance-sensitive
price for use of the transmission grid over wide areas of the
nation would allow renewable resources greater access to wider
"Unfortunately, most restructuring proposals, including the
FERC Mega-NOPR, continue to call for pancaked . . . transmission
pricing. For renewable power to reach its true potential, these
unnecessary transmission pricing impediments to fair competition
must be discarded."
Finally, Banta argues that a rapid phase-in of "national
retail competition," in which all customers could select their
power suppliers from anywhere in the U.S., will benefit the
environment by allowing smaller residential and business
customers to vote with their pocketbooks for "green power."
In a statement released April 2, AWEA Executive Director
Randall Swisher, while commending IPALCO for "taking a hard look
at the environmental consequences of utility restructuring and
offering suggestions to reduce negative impacts," took issue with
some of the specifics of its proposal.
"Mr. Banta's broad thesis is that if his policy
recommendations are followed, restructuring and competition will
benefit the environment, but that is not necessarily the case,"
Swisher said. "While it is possible for a competitive market to
be structured in such a way that the environment is protected,
IPALCO's proposal has not gone far enough."
Banta, Swisher said, "calls for the elimination of stranded
cost payments, and notes that if this happens, expensive nuclear
plants will be retired more quickly. But the U.S. Department of
Energy already projects, in its ANNUAL ENERGY OUTLOOK 1996, that
'Between 1994 and 2015, [37,000 MW] of nuclear capacity are
expected to be retired, resulting in a decline of 207 billion kWh
per year, or 32 percent, from current nuclear generation. To
compensate for the loss of baseload capacity and to meet rising
demand, [230,000 MW] of new fossil-fueled capacity will be
needed. The resulting increase in generation from fossil fuels
will increase carbon emissions by 160 million tons, or 32
percent, over current levels.'
"This forecast already threatens to wreak havoc with the
Clinton Administration's pledge to reduce carbon emissions to
1990 levels and stabilize them. In our view, the potential
threat that restructuring poses to the environment cannot be
dismissed so lightly."
AWEA's vision of an approach to restructuring that
would maximize environmental benefits also differs from IPALCO's,
Swisher said. "Where Mr. Banta talks of likely consumer demand
for power from renewable sources ("green power") as a primary
stimulus to renewable energy, AWEA believes it is necessary to
ensure the development of a sustainable market for renewables by
enacting a 'Renewables Portfolio Standard (RPS)' at the national
and/or state levels.
"The RPS is needed because:
The RPS would require each seller of electric power within a
given jurisdiction (e.g., a state) to obtain a minimum percentage
of its power from renewable resources. The requirement would be
tradeable, so that market forces could operate to achieve it as
inexpensively and as efficiently as possible. Renewable energy
producers would bid competitively to provide power.
- "The environmental costs of polluting fuels (e.g., acid rain
cleanup) are not reflected in their prices. Simply allowing
consumers the option of buying 'green power' does nothing to
correct misleading price signals.
- "Renewables provide 'public goods'--their benefits of
reduced pollution, increased price stability and diversity
of supply benefit everyone, not just those who pay for green
power. Why should the cost of these public benefits be
borne only by those who volunteer to pay for them?
- "In markets driven by short-term prices, investors will
prefer low-capital-cost technologies (e.g., fossil fuels),
even though renewables, which have high capital costs, are
more cost-effective over the long term because of low or
nonexistent fuel costs.
- "Electricity markets won't fully account for the public's
exposure to fuel price and supply risks and environmental
regulatory risks. The RPS helps to hedge against such risks
by requiring a minimum amount of renewable generation,
thereby increasing supply diversity and reducing dependence
on polluting fuels."
Concluded Swisher, "The Renewables Portfolio Standard
requires no complex, detailed effort to place a numerical value
on the environmental and social benefits that renewable energy
provides, nor does it require the use of Integrated Resource
Planning or other command-and-control regulation. In our view,
it is the most market-friendly approach that will ensure that the
still youthful renewable energy industries are able to develop
and compete effectively in the electric power marketplace of the
Further information on the RPS is available from AWEA's
World Wide Web site at
http://www.igc.apc.org/awea/aweapol.html. The full text of
AWEA's statement is located at http://www.igc.apc.org/awea/news/960402ipalco.html">
NYMEX ELECTRICITY FUTURES:
THE NEW GAME IN TOWN
Trading in electricity futures began March 29 on the New
York Mercantile Exchange (NYMEX) as "150 braying traders," in the
vivid words of Reuters, gathered in the exchange's newest "pit"
(trading area) to wheel and deal in power contracts.
Prudential Securities said it executed the first trade,
which took place just seconds after the exchange officially
opened at 10:30 a.m. The trade called for delivery in June at
the California-Oregon Border (COB), one of two major switchpoints
where delivery can be specified, at a price of $8.50/MWh (0.85
cents/kWh). Each contract is for delivery over one month of
736,000 kWh, or about the amount of power a thousand average
homes would require.
Power marketers welcomed the advent of the nation's newest
commodity, saying that a NYMEX market for electricity futures
would help them get a better handle on the going price for power
today and in the future (contracts can be dated for up to 18
months ahead). Although companies are already in the field
buying and selling power for future delivery, information about
pricing has not previously been widely available. One marketer
told the HOUSTON CHRONICLE that up to now, he has typically
gathered price information in telephone conversations with
utilities and others in the business. From now on, prices for
current and future contracts will be listed along with those of
other commodities such as oil, orange juice, and the like.
In addition, the ability to trade contracts for future
delivery will make it possible for traders to hedge transactions
against future changes in the price of electric power. For
example, a utility planning to sell power in the future, but
fearing a price decline, could sell a futures contract now at the
price it hopes to obtain. If the actual price of power goes
down, it could then by the contract back at a lower price, and
use the profit from the futures transaction to offset its loss on
the power sale.
In another variation on the hedging theme, the Chronicle
said, Houston Light & Power Co. might buy futures contracts for
power during times of the year when the power it generates itself
is less competitive with market prices. The utility currently is
an active trader in futures for natural gas, a fuel which was
deregulated several years ago.
Besides the COB delivery point, where transmission lines
from California and the Pacific Northwest connect, contracts can
specify delivery at Arizona's Palo Verde nuclear power plant
switchyard, which connects the Southwest with the California
grid. In the future, contracts are also expected to become
available for delivery of power in the East Coast and
Midcontinent markets. However, the commodity markets are likely
to remain regional in nature, reflecting the physical nature of
the national grid--although there are connections between the
regional transmission systems, they are not large, and most power
is distributed on a regional basis.
Most observers said they feel certain that electric power
trading will become a viable business over the longer term.
There was less certainty as to how active the market will be in
the near future, while the utility industry remains in the early
phases of deregulation.
CHINESE FIRM TO BUILD WIND
GENERATORS FOR INDONESIA
China's Shangdu Husbandry Machines Factory will build 500
small wind turbines for shipment to Indonesia in a foreign aid
program, Xinhua reported April 1. The factory is located in
Huhhot in China's Inner Mongolia Autonomous Region, a hotbed of
small turbine production where the top 10 manufacturers turn out
some 40,000 machines annually, the report said.
Shangdu Husbandry Machines is reportedly the first company
in China to build wind turbines, and its machines have been
exported to more than 20 countries worldwide.
* from the *
* AMERICAN WIND ENERGY ASSOCIATION *
For immediate release: July 31, 1996
Contact: Karl Gawell, (202) 383-2500
AWEA CHEERS SENATE AGREEMENT TO RESTORE
$23.7 MILLION TO RENEWABLE ENERGY BUDGETS
The American Wind Energy Association (AWEA) today called
an amendment to the Senate's Energy and Water Appropriations bill
restoring funding to DOE's renewable energy programs a "positive
step which will help ensure a healthy U.S. renewable energy
The amendment was agreed to on Monday and adds $16.5
million to the wind energy program budget, which was originally
slated for $15 million in funding for fiscal year 1997 by the
Senate's Energy and Water Appropriations Subcommittee. The wind
budget now stands at $31.5 million in the Senate and $28.5
million in the House. The program was funded at a level of $32.5
million in FY 1996.
The Senate amendment was sponsored by Sens. Jim Jeffords
(R-Vt.), Bill Roth (R-Del.), Pat Leahy (D-Vt.), Frank Murkowski
(R-Alaska), John Chafee (R-R.I.), Dale Bumpers (D-Ark.), and Tom
Daschle (D-S.D.). It was passed by the Senate by unanimous
"We are extremely pleased with the support we have gotten
from both Houses of Congress in the last two weeks," said Karl
Gawell, AWEA's director of governmental affairs. "Considering
that the House Subcommittee proposed to zero out the wind budget
and terminate the program, we have come a long way."
"Support for the wind program is support for U.S.
competitiveness in foreign markets, job creation, and a cleaner
environment," said Gawell. "We are encouraged that Jim Jeffords,
Bill Roth, and the other backers of this amendment realize these
benefits, and we appreciate their strong leadership on this
The Energy and Water Appropriations bill will now go to a
House-Senate conference committee, where the differences between
the two versions of the bill will be hammered out. The conference
committee will likely meet in August, and the final bill will be
completed in September.