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As Lone Star wind developers are currently building more than 7.5 GW of installed capacity, some state regulators are beginning to ask some tough questions about Texas wind energy. And the answers to those questions could potentially alter the structure of the U.S. wind industry’s leading market.

Since the passage of S.B.7 – the law that ushered in Texas’ renewable portfolio standard in 1999 – wind energy in the state has flourished. Currently, there is more than 13.6 GW of installed wind capacity on the Electric Reliability Council of Texas (ERCOT) system.

According to ERCOT, the entity responsible for the grid, wind turbines generated 36.9 million MWh in 2013, a 12% increase from the 33.9 million MWh generated by wind in 2012. Clearly, the energy resource has made tremendous strides in the state. However, not all Texans are embracing wind’s ascent.

In late May, Donna Nelson, chairwoman of the Public Utility Commission of Texas (PUCT) – which regulates the wholesale electricity market in Texas and has authority over ERCOT – let loose with a scathing anti-wind memo that questions what fossil-fuel-based generators have privately thought for years: Does wind energy receive preferential treatment in Texas? Are wind farm owners and operators equally shouldering costs related to transmission upgrades?

In the memo obtained by NAW, Nelson calls for a full review of transmission system upgrades and cost-allocation methodologies related to the build-out of the Competitive Renewable Energy Zones (CREZ) – the $7 billion landmark transmission project that opened up capacity on the wires to transmit 18.5 GW of wind energy from the Panhandle and West Texas to state load centers, such as Dallas, Austin and San Antonio.

Writing to Kenneth W. Anderson Jr. and Brandy D. Marty, PUCT co-commissioners, Nelson explains, “The unique characteristics and often-­remote locations of renewable resources pose challenges to the electric grid, and those challenges are increased as the volume of wind on the system increases.”

Citing an ERCOT study recommending system upgrades, Nelson raises far-reaching – and controversial – policy questions, such as cost allocation, that have dogged regulators and generators from Chicago to Sacramento.

“These potential grid stability issues raise fundamental policy questions,” notes Nelson. “For example, should we ask electric customers to fund further investment in the transmission system to improve stability, or should some of the risk be borne by generators?”

She continues, “It is obvious to me that the Texas Legislature intended that wind developers should have skin in the game, but we need to further flesh out what that means as wind generation becomes an increasingly large percentage of installed capacity in the ERCOT market.”

In an instant, the memo re-opened long-standing and often heated debates among fossil fuel generators and the wind industry.

Michael Goggin, research director at the American Wind Energy Association (AWEA), says many of Nelson’s criticisms are unfounded.

“There is no technical basis for what she is claiming,” he explains. “Texas has always assessed cost allocation broadly because the whole system benefits. It would be totally unreasonable to single out wind energy. That’s inconsistent with how [ERCOT] treats other generators.”

Still, Mark Bruce, a consultant at Austin-based Stratus Energy Group and a longtime ERCOT market watcher, cautions that the Nelson memo carries weight and, therefore, bears watching. Unlike previous rounds of the cost-allocation debate, he notes, “This one is coming top down from the PUCT, rather than bottom up from the stakeholder process.”


ERCOT market dynamics

At the heart of Nelson’s critique is the fundamental question of market fairness. Because wind developers receive federal tax subsidies, Nelson contends that other generators within ERCOT are placed at an unfair disadvantage. She believes that the tax subsidies received by the wind industry completely destroy ERCOT market dynamics – although she does not address the federal tax subsidies received by other generators of electricity within ERCOT.

“The federal production tax credit distorts wholesale electric markets, including the ERCOT market,” Nelson writes. “With wholesale rates that hover around $40/MWh in ERCOT, a federal program that pays wind generators $23/MWh ultimately destroys the economic underpinnings of the wholesale competitive electric market. As wind installations continue and wind capacity in our market becomes a larger percentage of ERCOT capacity – not because it makes sense from an economic standpoint, but because investment is driven by a federal government subsidy – our market faces the very real possibility of losing base load generation.”


Unlike previous debate, one market watcher says, ‘This one is coming top down from the PUCT, rather than bottom up from the stakeholder process.’


Again, AWEA’s Goggin refutes Nelson’s assumption. Citing AWEA analyses, Goggin notes that the federal tax incentives have virtually zero direct impact on investment or operational decisions for other power plants due to the fact that – outside of extremely rare occurrences in isolated pockets on the grid – wind energy almost never sets the electricity market clearing price. “The market clearing price is set by the most expensive generator that had to run to meet demand, which is almost always a fossil-fired plant and rarely a wind plant.”

Other stakeholders maintain that such rhetoric is only to be expected in a competitive energy market, such as ERCOT. Paul Thompson, a former Texas-based wind developer, says the system pits winners against losers.

“In Texas, all the generators, regardless of type, compete on a price basis,” he explains. “In an energy-­only market, generators get paid only when they operate. If you look at periods when wind power production is high and demand is relatively low, you will see power prices at very low levels.” Thompson also notes that there have been periods of time when the market pricing fell near or below zero.

“On days when demand is low and wind production is high, the market will see the lowest pricing,” he continues. “This is bad if you are a gas-fired generator, because you may not run, and if you do, the prices are certainly lower than if the wind power was not online. Wind power has definitely put downward pricing pressure on the ERCOT market.”


The grid

Much of Nelson’s concerns are rooted in keeping the grid reliable and safe. In her memo, she warns against further instances of subsynchronous resonance (SSR), a grid event that occurs due to the interaction of series-capacitor-compensated transmission lines and wind turbine generators.

The SSR phenomenon manifests itself as grid voltage and current oscillations below the fundamental 60 Hz frequency of the North American grid. Simply put, as a wind farm becomes connected electrically closer to series-compensated transmission lines, the possibility for SSR-related issues becomes greater.

Wind turbines exposed to SSR may be damaged if they are susceptible to two types of interactions with this resonance, namely subsynchronous control interactions (SSCIs) and subsynchronous torsional interactions.

In the memo, Nelson warns, “Some of the series-compensated transmission lines that are part of the CREZ build-out can cause subsynchronous oscillation issues that must be resolved in order to avoid damage to the transmission grid and generation resources.”

In fact, an SSR event that occurred in the Zorillo area of southeast Texas wiped out a pair of Type 3 wind turbine generators from the ERCOT system. The event only lasted for 1.5 seconds before the series-connected caps were bypassed and initiated the event’s conclusion. Prior to the event, conventional wisdom held that wind turbine technology was immune to SSR issues based on historical operation. Because the wind turbines near Zorillo were the first to experience damage from SSCI – and the fact that more than a dozen series-­compensated lines entered service by the end of 2013 – ERCOT now requires all newly proposed projects to provide studies of potential SSR-related interactions.

ERCOT stakeholders have long voiced concerns about grid reliability. In 2010, oil and natural gas interests within ERCOT raised similar operational concerns. In fact, the opponents pushed for costly retrofits of new and existing wind turbines to make them grid compatible. That time, the wind industry prevailed.

So, what does Nelson’s memo mean for Texas wind generators? Does it signal the end of a golden era of wind energy in Texas?

“We are taking the issue seriously,” explains AWEA’s Goggin. “We are confident the facts will prevail and Texas will continue to treat all resources fairly, as it would be a major reversal for Texas to single wind out when all other sources of energy have always had their very large transmission and integration costs broadly allocated to customers.” w

Spotlight: Texas

Should Lone Star Wind Owners Brace For Texas-Sized Trouble?

By Mark Del Franco

Despite a near-term boom in construction-related activity in Texas, wind developers in the state may be facing increased development and operating costs going forward.





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