The Bonneville Power Administration (BPA) has proposed a plan in response to a ruling by the Federal Energy Regulatory Commission (FERC) that BPA unduly discriminated against wind energy and gave preferential treatment to hydropower last spring when it opted to curtail 350 MW of wind generation instead of allowing water to spill over hydroelectric dams.
BPA says its proposal compensates wind energy producers within its section of the grid for periodically reducing their output when necessary to keep the electricity supply from exceeding demand during high river flows. It would address the risk of a possible oversupply of energy when hydroelectric power produced by high runoff of water combines with wind generation in low-demand periods, such as late at night.
The risk of electricity oversupply depends on runoff conditions, and BPA expects
reductions in wind generation will be unnecessary in about one of every three years. Reducing hydroelectric generation during high flows sends more water through dam spillways, increasing dissolved gas levels that can harm fish, BPA says.
To control gas levels, BPA maximizes hydroelectric generation in such circumstances and offers the output at a low cost or for free to coal, natural-gas and other thermal power plants, as well as to wind generators, the agency explains, adding that thermal plants then typically shut down and save fuel costs.
However, most wind energy producers continue operating because their revenue from production tax credits, renewable energy credits and contracts depends on continued wind generation.
Under the new proposal, BPA would first work with the U.S. Army Corps of Engineers and the Bureau of Reclamation to manage federal hydroelectric generation and spill water up to dissolved gas limits. BPA would then offer low-cost or free hydropower to replace the output of thermal and other power plants, with the expectation that many would voluntarily reduce their generation to save fuel costs.
If electricity supply still exceeds demand, BPA would then reduce the output of the remaining generation within its system, including wind energy, in order of least cost. The agency would compensate the affected generation for lost revenues, including renewable energy credits and production tax credits, subject to audit.
If BPA decides to proceed with the compensation proposal, the agency will also propose in a rate case to split the cost of the compensation approximately equally between users of BPA's Federal Base System and wind energy producers in its grid, the agency explains.
BPA would cover costs of curtailing wind generation this spring from its transmission reserve account until a rate can be established to recover the costs. The agency would initiate a new rate case in which it would propose dividing compensation costs roughly equally between users of BPA's Federal Base System and wind energy operators within BPA's system.
On average, BPA expects to compensate wind energy producers about $12 million per year for lost revenues related to reduced electricity generation, although the total could range from nothing to more than $50 million in extreme conditions.
The proposal comes after months of discussions with key stakeholders to find an equitable solution to oversupply, and BPA's plan is based on concepts developed in these discussions.
Although the discussions are ongoing, BPA says it is releasing its proposal for public review now so that the agency can meet a March 6 deadline for filing the proposal with FERC. The terms of the proposal would run through 2015, and the proposal is open for public comment until Feb. 21.