RENEW Wisconsin Newswire – June 17, 2003

RENEW: Wind Energy Less Risky Than Gas

MADISON -- Intervening in a docket considering Madison Gas & Electric’s application to build a gas-fired power station in Madison, RENEW Wisconsin introduced testimony last week contending that natural gas prices are likely to remain at elevated levels throughout this decade. RENEW witnesses also recommended that MGE add more renewable power sources as a hedge against fuel price volatility.

MGE’s current supply plan leans heavily in the direction of adding new fossil fuel sources. In addition to building a 150-megawatt (MW) generator on the University of Wisconsin-Madison’s campus by 2005, MGE proposes to lease 100 MW of new coal-fired capacity that We Energies seeks to construct in Oak Creek later this decade. The only renewable generation that appears in MGE’s supply plan is a 25 MW windpower facility, to be placed in service in 2009. This 25 MW increment is included because state law requires MGE to add to its renewable electricity supplies before 2011.

In its economic analysis of MGE’s West Campus Cogeneration Facility, the Public Service Commission projects that natural gas prices will rise annually by 4% from a floor of $3.50/MMBtu (in 2002 dollars). The current spot market price for natural gas is $5.60/MMBtu, and many industry analysts expect that number to rise as winter approaches. When the PSC modeled the West Campus project at a higher fuel price ($6/MMBtu), it became less attractive compared with other expansion scenarios that involve larger increments of windpower.

One of RENEW’s expert witnesses, Richard Ferguson, submitted testimony discussing the many uncertainties surrounding future natural gas supplies, and examining the physical and economic conditions that will drive prices higher and keep them there. Noting that gas production from conventional sources has been flat in recent years, Ferguson believes that prices must remain high to attract sufficient capital to keep supply volumes from declining. The amount of investment needed to construct new pipelines to the Arctic and increase imports of liquefied natural gas (tankers, terminals and related infrastructure), will be massive, Ferguson says, and is not likely to come about if gas prices sag down to the $3.50 - $4.50 range and stay there.

At the higher price modeled by the PSC, windpower becomes an economically attractive option. Another RENEW expert witness, Elizabeth Hutchinson, states that MGE, if it wanted to, could purchase or build up to 100 MW of cost-effective wind generating capacity within 100 miles of its corporate headquarters. As a resource that has no fuel price, wind generation can provide pricing stability to a utility planning to add gas-fired capacity. The current crop of wind generators, using taller towers and longer blades, have been optimized for Wisconsin’s Class 3 wind resources (14.1-15.7 mph at 60 meter hub height), Huchinson says, resulting in greater energy capture and lower production costs.

Hutchinson also urges MGE to consider accelerating its windpower acquisition timetable to take advantage of federal tax credits. While the current 1.8 cents/kWh credit is set to expire by year’s end, Congress is working on energy legislation that includes a three-year extension, through 2006. If MGE decided to buy or build up to 100 MW of windpower by 2006, it should make its commitment either this year or next.

MGE’s windpower program could be reactivated to acquire some of the new renewable capacity, says RENEW Executive Director Michael Vickerman, who also submitted testimony in the proceeding. Using differential pricing to help reduce acquisition costs would enable MGE to aim at a higher renewable energy target, Vickerman says, noting that Governor Doyle has challenged utilities on several occasions to do exactly that.

Vickerman’s testimony also included a discussion on GreenChoice, Austin Energy’s highly successful green pricing program. GreenChoice departs from typical green pricing programs in that the renewable electricity is marketed through a fixed offering that lasts 10 years. The advantage of GreenChoice is that allows subscribers to capture the price stability benefits that is renewable power provides. By this time next year the 10-year price for renewable electricity could be less than the standard fuel-based rate, which fluctuates from one year to the next.

Technical hearings on MGE’s West Campus project will begin July 15.

About RENEW’s out-of-state experts:

Richard Ferguson is Research Director of Center for Energy Efficiency and Renewable Technologies (CEERT), in Sacramento, California. He is the author of a 2002 report published by CEERT titled Risky Diet: America’s Growing Appetite for Natural Gas.

Elizabeth Hutchinson is Director of Project Development – Upper Midwest Region for Houston-based Zilkha Renewable Energy, a windpower development company.

For more information contact: Michael Vickerman, RENEW Wisconsin.

Phone: 608.255.4044. E-mail: mvickerman@renewwisconsin.org