Infrastructure Upgrades Mean Texas No Longer Wasting Wind Power

According to a report by the Energy Information Administration, curtailments of wind generated electricity in Texas have dropped steadily and substantially since 2011 thanks mostly to the state’s completion of 3,500 miles of transmission lines as part of the Competitive Renewable Energy Zones program.  A curtailment refers to an event where a power plant is asked to slow or stop feeding electricity to the grid.  This happens when the supply of electricity greatly outweighs the current demand for electricity.  When this happens electricity production has to be reduced (curtailed) in order to keep an oversupply of power from causing a disruption of the power grid.

Because wholesale electricity prices in Texas are allowed to fluctuate based on real-time market demand, prices for wind generated electricity have in the past sometimes gone negative.  This creates the odd circumstance where wind power producers actually pay market participants to accept their electricity.  This is only really possible in the world of wind power because federal production credits pay wind producers for every kilowatt of power they produce and sell to the grid; even if they are selling the power for a negative price.  Instances of negative pricing have also dropped substantially since the CREZ project was completed.

Texas experienced a boom in wind capacity from 2006-2009 resulting in the production of over 7,000 megawatts of wind capacity.  Since most of these wind turbines were built in West Texas and most of the state’s population is in the eastern part of the state, Texas experienced what is known as transmission congestion.  There weren’t enough large power lines and transmission equipment to get the power from the western part of the state to where it was needed in places like Dallas / Fort Worth, Waco, and Austin.

In an effort to address this imbalance between the available supply in the west and the demand in the east, the Texas Public Utility Commission in 2008 created a plan which established 5 zones where there was a lot of wind power in place or the potential for a lot of wind power.  These were called Competitive Renewable Energy Zones.  They then authorized a large number of projects to build massive new power lines to carry this electricity to the state’s businesses and homes.

The projects completed in 2013 with a total cost of around $7 billion.  Now that the Texas grid has the capacity to effectively move West Texas wind power across the state, curtailments of wind power have been substantially reduced, and occurrences of negative pricing have all but disappeared.  For 2013 wind generation in Texas was up 13%.


Wind Industry’s Desperate Move to Retain Federal Subsidies

The wind power industry is so desperate to maintain its lifeline of federal subsidies that it has put forth a plan to phase out the wind energy tax credit in the next several years in exchange for an immediate extension of the current production tax credit into 2013. 

The wind energy sector has benefited substantially for years from a federal tax credit paid to companies that produce electricity from wind and sell it to the grid.   The credit equals 2.2 cents per kilowatt hour and has been essential to the growth of the industry. 

According to the American Wind Energy Association (AWEA), the Production Tax Credit “has succeeded in incentivizing an average of $15.5 billion a year in private investment in U.S. wind farms over the past five years.”

However, the tax credit is set by law to expire at the end of 2012 and despite a long battle, proponents of the credit have failed to get an extension of the subsides passed in to law.  As a result, the federal money will run out on December 31st, 2012,  leaving the economics of electricity generated from wind substantially changed.

With time running out and Fiscal Cliff debate dominating the agenda in Washington, the proposal by AWEA is a Hail Mary attempt to get an extension of tax credits passed in some form and perhaps buy more time to secure a more favorable deal for the industry at a later time.

The proposal would sunset the tax credit in 2018 after slowly reducing it for the next several years.

For projects put in service in:

  • 2013 – 100% of the 2.2 cents per kilowatt hour
  • 2014 – 90%
  • 2015 – 80%
  • 2016 – 70%
  • 2017 – 60%
  • 2018 – 60%
  • 2019 – Subsidy ends for projects coming on line this year and beyond.

Clearly the new proposal is not the kind of deal the wind energy industry would prefer.  But these are desperate times for an industry that despite years of government subsidies is not able to compete with other energy sources on a purely economic basis. 

Texas is the largest producer of wind electricity in the United States despite the fact that extremely low natural gas prices have meant cheap electricity for the state in recent years.  With electricity rates being so low, the state has struggled to insure there will be enough capacity to meet future demand for power.  This loss of federal subsidies for wind could further hinder the state’s efforts to gain more capacity.