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Wind Web Tutorial WIND ENERGY POLICY ISSUESI've heard that the U.S. utility industry is being "restructured." How will that affect wind energy? Where wind energy is concerned, utility restructuring has both positive and negative impacts. On the positive side, as with long-distance telephone service, restructuring offers consumers a chance to choose to buy their electricity from among a number of different service providers. Since electricity generation, unlike phone service, has major environmental impacts, it seems likely that some of these service providers will choose to offer "green" (environmentally-friendly) products from clean power sources like wind. Indeed, many electric utilities are already offering wind-generated electricity as an option today. On the negative side, the primary purpose of restructuring is to allow large industrial companies to shop among power suppliers for the cheapest price. It does this regardless of the environmental impacts of the sources that are used. This has led to increasing generation from older, dirtier coal-fired plants that were "grandfathered" (exempted from having to install new pollution controls) under the Clean Air Act. To the degree that restructuring encourages cheap generation regardless of environmental costs, it is harmful to wind energy. One solution that has been suggested to some of the problems posed by restructuring is the Renewables Portfolio Standard (RPS) (see next question). What is the Renewables Portfolio Standard and how does it work? The Renewables Portfolio Standard (RPS) would require each company that generates electricity in the U.S., or in a given state, to obtain part of the electricity it supplies from renewable energy sources such as wind. To meet this requirement, the company could either generate electricity from renewables itself or buy credits or electricity from a renewable generator such as a wind farm. This "credit trading" system has been used effectively by the federal Clean Air Act to require utilities to reduce pollutant emissions. Aside from the "minimum renewable content" requirement, the RPS imposes very few other requirements on companies--they are free to buy, trade, or generate electricity from renewables in whatever fashion is most efficient and economical for them. The RPS is therefore often described by its supporters as being "market-friendly," because it allows market forces to decide which renewable energy sources will be developed where, and also allows price competition. Several federal restructuring bills have included an RPS, and at least 20 states have also adopted RPS laws. One federal proposal, for example, would require 20% of U.S. electricity to come from non-hydro renewable energy sources (wind, solar, biomass, geothermal) by the year 2020. Typically, the RPS gradually increases over time, by 1% per year or some such number, in order to provide a foundation for the sustained, orderly development of renewable energy industries. More reading: Is it feasible to supply 20% of US electricity from non-hydro renewable sources by 2020? Yes. The United States is blessed by an abundance of renewable energy resources from the sun, wind, and earth. Good wind areas, covering only 6% of the land area of the "lower 48" states, could theoretically supply more than one and a third times the total current national demand for electricity. A 12,000-square-mile area in Nevada could produce enough electricity from the sun to meet annual national demand. There are large untapped geothermal and biomass (energy crops and plant waste) resources. Of course, there are limits to how much of this potential can be used economically, because of competing land uses, competing costs from other energy sources, and limits to the transmission system. The important question is how much it would cost to supply 20% of our electricity from renewable energy sources other than hydroelectric power. Not very much. A major study in 2002 by the U.S. Energy Information Administration (EIA)—using very high estimates of renewable energy costs—found that an RPS of 20% by 2020 would raise electricity costs by about 0.2 cents per kilowatt-hour (kWh), from 6.6 cents/kWh to 6.8 cents/kWh (See Figure 1). Further, most of the increase would be offset by reductions in the price of natural gas for home heating. Other studies, using more realistic assumptions developed by the U.S. Department of Energy’s Interlaboratory Working Group, consisting of the five national energy research labs, have found that a 20% RPS, when combined with energy efficiency programs, could save consumers billions of dollars.
What exactly is "green power"? Can you tell me more about it? How can I buy it? Green power is a term applied to electricity that is generated from wind and other renewable energy sources, such as solar, geothermal, biomass, and small hydropower. Typically, the environmental impacts of these sources are quite modest compared to those of coal and other conventional sources. Green power programs vary, but one common approach, called "green pricing," is for a utility to offer its customers the option of buying electricity generated from wind at a premium price. For example, a customer might be able to sign up to receive a certain number of 100-kilowatt-hour "blocks" of electricity from wind each month for an extra $2 each (that is, for 2 cents per kilowatt-hour). A customer signing up for 2 blocks at $2 would pay $4 more for electricity each month and "receive" 200 kilowatt-hours of wind-generated electricity. The utility would then add enough wind capacity to its generating mix to provide the additional electricity required. (The utility cannot deliver specific electrons from any of its plants to a specific customer. Instead, its generating mix should be thought of as a pool. Power plants add electricity to the pool and customers take it out. With green power, the utility adds more wind energy to the pool based on the amount customers have said they desire to purchase.) A second form of green power is used in states that have opened their electricity markets to competition (in much the same way as long-distance telephone service is now open to competition). In these states, electricity suppliers offer electricity "products" from renewable and other sources, and customers are free to sign up for the product and company they prefer. One company, for example, might offer a product that is called "Earth Saver" that is 50% wind-generated electricity and 50% electricity from landfill gas, and charge 1.5 cents/kWh more than "system power" (regular commodity electricity from the regional generating mix). A third form of green power is called "green tags" and can be used by consumers anywhere to "green" their electricity supply. With this approach, when a certain amount of electricity (for example, 1,000 kWh) is generated from a renewable source, a certificate called a "green tag" is created. The generator sells the electricity into the commodity wholesale market, but keeps the certificate (which represents the beneficial environmental attributes of the electricity) and sells it to an interested buyer for an agreed-upon price (for example, $20, or 2 cents/kWh). By buying green tags that represent the amount of renewable generation equal to your electricity use, you can, in effect, "green" your power supply in much the same way that you would through "green pricing" or "green power"—you are paying extra, and extra renewable energy is being delivered to the utility system based upon your payment. No one knows yet how successful green programs and products will be in the electricity marketplace. If consumers learn more about the air pollution, strip mining, and other harmful environmental impacts of electricity generation and decide to "vote with their dollars" for clean energy, green power could become a large and growing business over the next decade and beyond. Customers in many states have the option today to participate in green pricing or green power programs, while of course, customers anywhere can buy green tags. To find out more about your options, check the U.S. Department of Energy's Green Power Network Web site at: More reading: Some of the most common reasons why people buy green power are to:
Green power can also offer protection against rising electricity prices or price volatility. We have seen the devastating effects of volatile wholesale electricity prices in California in 2000 and early 2001. In addition, natural gas prices, which influence electricity prices, have "spiked" three times in the last five years, rising sharply above historic ranges. More reading: Electricity from the Wind: Wind Energy and the Natural Gas Crisis, Wind Energy and Natural Gas: Balancing Price and Supply Volatility, National Wind Coordinating Committee, When I pay extra for green power, does it really come directly to my home? Probably not--the flow of electricity usually follows the path of least resistance to the nearest demand, so you probably don't get "green" electrons flowing directly from a wind farm to your home. The electricity system operates like a large pool of water, with many pumps (power plants) adding water and many outlets (customers) withdrawing it. When you buy green power, instead of actually getting it at your home or business, you are helping to change the mix of generating plants that put electricity into the "pool." Each green power provider either generates, or purchases from a generator, enough wind or other renewable energy to supply the amount of electricity that green power customers are purchasing. By selecting wind energy over conventional electricity generation, consumers indicate support for the growth of America's wind energy industry and encourage utilities to add and expand green power programs. As the popularity of green power grows, power producers have to build additional wind plants to meet growing demand. If I buy green power, will my electricity supply be reliable when the wind isn't blowing? Yes. Remember that the wind energy is not delivered directly to your home. Instead, the wind energy goes into a "pool" along with all other types of energy generation. It is this "pool" that serves all electricity users. This is true whether or not the wind blows. Therefore, if one plant, say a wind turbine (but also any other power plant), isn't generating, then another plant will be asked to generate more electricity to meet demand. (The green power provider does not have to guarantee a steady supply of green electricity, but rather only to generate or buy as much green electricity over the course of a year or month as you pay for.) Most power outages or interruptions in your service are not caused by whether or not a particular generator is operating. Instead, the problem is usually in the distribution system--for example, power lines downed from a storm. So you'll still call your local distribution utility when you have a problem. Governments federal, state, and local are jointly the largest consumer of energy and electricity in the United States. In 1998, the federal government alone consumed 1,077 trillion British thermal units (Btu) of energy, or 1.14% of the nation's total energy use. Within that total, it consumed approximately 54 billion kilowatt-hours of electricity, or about 1.6% of total national electricity use. The federal government's total energy bill was $8 billion, or 2% of the federal consumption of goods and services. Its electricity bill was approximately $3.5 billion. Perhaps more important, in 1998 the federal government used more than twice as much electricity as was generated by all the solar, wind, and geothermal facilities owned by utilities and the industrial sector nationwide. Federal energy dollars could have a great impact on renewable energy markets. By and large, the potential of government purchases to encourage clean energy industries has not been realized. In early 1999, President Clinton issued an Executive Order that urges government agencies to consider the federal government's policy of supporting renewable energy in making energy purchases. More recently, the federal Environmental Protection Agency (EPA) has announced that one of its facilities in California will be entirely supplied by green power, and the U.S. Army has announced plans to develop wind energy at Fort Bliss, New Mexico. More commonly, though, government agencies, like industrial companies and many individual consumers, look for the cheapest electricity source, regardless of environmental consequences. Is wind energy heavily subsidized? More than other forms of energy? Wind energy currently receives a direct subsidy, the Production Tax Credit (PTC). The PTC provides a tax credit of 1.5 cents per kilowatt-hour (adjusted for inflation, currently 1.9 cents) to the producer of electricity from wind energy. The PTC was an acknowledgement that wind energy can play an important role in the nation's energy mix. It was also a recognition that the federal energy tax code favors established, conventional energy technologies. The PTC currently is scheduled to expire December 31, 2007. All energy technologies are subsidized by the U.S. taxpayer. Subsidies come in various forms, including payment for production, tax deductions, guarantees, and leasing of public lands at below-market prices. Subsidies can also be provided indirectly, for example through federal research and development programs, and provisions in federal legislation and regulations. For example, loopholes in the Clean Air Act currently exempt older power plants from compliance with federal pollution standards and become, in effect, a subsidy that lowers the price of electricity from coal-fired power plants. Here are some conclusions from a detailed 1993 study of energy subsidies by the Alliance to Save Energy (Federal Energy Subsidies: Energy, Environmental, and Fiscal Impacts): "Energy subsidies in 1989 favored mature, conventional energy supply resources by $32.3 billion to $3.8 billion over non-conventional energy resources." ($21 billion went to fossil fuels, $11 billion to nuclear, and $900 million to all renewable energy sources including wind.) "There is currently no free market in energy. Given the size of federal energy subsidies, now and in the past, it is erroneous to speak of a 'free market' in energy... It may be appropriate to subsidize emerging energy resources, but mature resources should stand the test of the market. When this test is applied to subsidies in 1989, the pattern appears to be almost completely backward. In other words, the mature, conventional technologies received almost 90% of the subsidies." The pattern of subsidies that the Alliance found is also flatly opposed to the views of the American public. In numerous public opinion surveys over the past several years, those surveyed have favored providing government assistance to clean energy sources and not to nuclear or fossil fuels. For example, in one national poll conducted in mid-1999, 80% of respondents said they favor the use of tax incentives to increase the use of renewable energy for the production of electricity. What is "net metering" and how does it work? Net metering is a term applied to laws and programs under which a utility allows the meter of a customer with a residential power system (such as a small wind turbine) to turn backward, thereby in effect allowing the customer to deliver any excess electricity he produces to the utility and be credited on a one-for-one basis against any electricity the utility supplies to him. Example: During a one-month period, John Doe's wind turbine generates 300 kilowatt-hours (kWh) of electricity. Most of the electricity is generated at a time when equipment in John's household (refrigerator, lights, etc.) is drawing electricity and is used on site. However, some is generated at night when most equipment is turned off. At the end of the month, the turbine has generated 100 kWh in excess of John's instantaneous needs and that electricity has been transmitted to the utility system. During the month, the utility also supplied John with a total of 500 kWh for his use at times when the wind turbine was not generating or was insufficient for his needs. Since the meter ran backward while 100 kWh was being transmitted to the utility, the utility will only bill John for 400 kWh, rather than 500 kWh. Net metering can improve the economics of a residential wind turbine by allowing the turbine's owner to use her excess electricity to offset utility-supplied power at the full retail rate, rather than having to sell the power to the utility at the price the utility pays for the wholesale electricity it buys or generates itself. Many utilities have argued against net metering laws, saying that they are being required, in effect, to buy power from wind turbine owners at full retail rates, and are therefore being deprived of a profit on part of their electricity sales. However, wind energy advocates have successfully argued that what is going on is a power swap, and that it is standard practice in the utility industry for utilities to trade power among themselves without accounting for differences in the cost of generating the various kilowatt-hours involved. Today, net metering's popularity is growing. Thirty-four states have enacted it in some form, and others are considering it. 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