Randall Swisher
If there’s a silver lining in California’s disastrous experiment with energy deregulation, it may be heightened public interest in expanding sources of clean, renewable energy. Wind is one such source. Although wind-energy producers have taken it on the financial chin during the state’s energy crisis, Randall Swisher still sees a bright future for this “green power.”
As executive director of the American Wind Energy Assn., a Washington-based lobbying group, Swisher represents some 700 wind-powered electricity producers, utilities, wind-turbine manufacturers, law firms and academics. Formed in 1974, the association promotes low-cost wind technology, wind-related legislation, the nationwide restructuring of the electricity industry and investment into research and development.
In 1978, Congress passed the Public Utility Regulatory Policies Act requiring utilities to buy some of their power from alternative and renewable energy sources. During the 1990s, wind became the world’s fastest-growing renewable energy source, expanding at average annual rates ranging from 22.6% to 30%. By mid-1999, U.S. capacity reached nearly 2,500 megawatts.
The wind industry, now a global concern, really began in California. The state leads the nation in wind-generating capacity with 1,646 megawatts, even though the AWEA ranks California 17th in terms of wind-energy potential (North Dakota is No. 1). Last month, California approved more than 400 megawatts of new wind-generating capacity. But 2,000 megawatts, Swisher insists, is still far short of the state’s current projected capacity of 5,000 megawatts, enough to light more than 1.5 million homes.
Swisher has served as AWEA’s executive director since 1989. Before that, he worked as the legislative representative for the American Public Power Assn. and as energy program director for the National Assn. of Counties. Swisher’s involvement with renewable energy dates to 1975, when he was a staff member of the House Interior Committee’s subcommittee on energy and water.
What wind-energy producers need now, says Swisher, are an extension of the federal tax credit for wind production and a renewable portfolios standard requiring that a certain percentage of the electricity produced in the U.S. come from renewable energy sources. About 11% of California’s electricity comes from such sources.
Swisher lives in Silver Springs, Md.
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Question: How does the cost of wind-generated electricity compare to the cost of electricity produced by natural-gas-powered plants?
Answer: It is cheaper today to generate electricity from a new wind plant than a new gas plant. And it is significantly cheaper to generate electricity from modern wind technology, compared with the technology that was installed in California in the 1980s. Natural-gas-generated electricity costs between 15 and 20 cents a kilowatt hour in California, compared with 3 to 6 cents for wind.
Q: It’s been reported that “green energy” producers in California have been severely hurt by the state’s energy crisis, even though the higher prices they receive are in line with current natural gas costs. Is that true?
A: Let me clarify a couple of things. You are talking about the contract price--what wind generators are supposed to be paid. Until recently, that payment was somewhat higher than the cost of natural gas.
Q: The state’s biggest utilities, Southern California Edison and Pacific Gas & Electric, have not been paying wind-energy producers for their power, right?
A: Not since November.
Q: And the utilities are trying to negotiate a deal to cut the price they owe from 12 to 15 cents a kilowatt hour to about 7 cents?
A: The price that wind generators have been getting has been tied to the cost of natural gas. Two years ago, when the price of natural gas was very low and wind companies were struggling to survive, that connection didn’t seem to concern the big utilities. Now that the price of gas has gone up something like 600%, they are looking to change the terms of the deal.
Q: Why were wind energy costs tied to the price of natural gas?
A: It wasn’t just wind. It was all independent energy generators. The general policy guiding regulators in setting a price is called “avoided cost.” In other words, by purchasing energy from independent generators, the utilities are avoiding the costs of either generating their own electricity or purchasing it on the open market. Certainly, no one expected that the cost of natural gas would go up 600%.
Q: Yet, it is being reported that alternative energy sources, such as wind, are more expensive than natural gas.
A: Many of the contracts signed by California’s utilities in the mid-1980s were for 30 years. There are two components to these contracts. The first 10 years were negotiated as a fixed-cost period: Prices were based upon what the state and the utilities projected the cost of fossil fuels would be over the next 10 years. Back in the 1980s, people believed that the cost of fossil fuels was going to escalate forever, so buying renewable energy was seen as cheap insurance against our increasing dependency on fossil fuels. During the 1990s, the cost of natural gas went down. But those lower prices did not affect the [contracts’] fixed-cost period, during which [wind-energy] prices escalated to between 10 cents and 15 cents a kilowatt-hour. So [wind energy] was very expensive power in comparison to gas. However, in the 11th year of these contracts, the prices paid to wind and geothermal developers dropped to what was the avoided cost of gas-fired generation. At that point, the cost went from 15 cents to about 3 cents a kilowatt-hour, and a lot of wind energy companies struggled to survive.
Q: So you don’t expect that the prices paid to alternative-energy suppliers, under new long-term contracts, will again be tied to the cost of natural gas?
A: I don’t think they should be. The old contracts provided too much uncertainty for the consumer, the utility and the developer. The cost of wind doesn’t fluctuate with the cost of natural gas, so why should [wind energy] producers get paid next to nothing when the cost of natural gas goes way down, then paid more when the cost [of natural gas] doubles? If the state and the utilities are [prepared] to commit to long-term contracts at a fixed rate that is fair, the wind industry is more than ready to agree to that kind of a bargain.
Q: During the first two years of deregulation, the utilities got a lot of money to retire their stranded costs. Wasn’t part of that money supposed to go to alternative-energy producers?
A: The major stranded cost on the table was nuclear facilities. The utilities were given the opportunity to recover their capital investments [in these facilities]. That money went to their shareholders and their corporate parents.
Q: But weren’t some stranded costs associated with alternative-energy producers?
A: Those associated with contracts [to satisfy the 1978 legislation requiring utilities to buy from independent energy sources]. For every year a utility is obligated to buy electricity from, say, a wind developer, that is considered a stranded cost. The utilities have tried to buy out the remaining years of the contracts, but they have been unwilling to offer anything the [alternative-energy] developers regard as fair market value.
Q: Since energy prices have skyrocketed, wouldn’t wind energy producers be better off letting the utilities buy out their contracts so they could sell their electricity on the open market?
A: No. The main reason is that they don’t have transmission agreements that would allow them to readily sell into the market.
Q: Are you saying that some wind energy producers have energy to sell but they can’t get it to market?
A: Yes. Tehachapi is the major wind-resource area in California, and Edison hasn’t ever had sufficient transmission capacity coming out of there. You have situations like you did two months ago, when you had a Stage 2 emergency. Wind developers were being told to curtail their generation, because there wasn’t sufficient transmission capacity to transmit all the power [they were producing].
Edison has being paying wind developers for years to curtail generation because it hasn’t had sufficient transmission capacity to meet the need. And it has refused to make the investment necessary to take advantage of all the wind potential that is there.
Q: Upgrading the state’s grid should be a high priority item for the state, then.
A: Transmission is a huge problem in California, and not just in Tehachapi. The whole north-south connection is insufficient. Yes, those investments needed to be made, and I think it’s clear they weren’t.
Q: If the grid investments were made in California, how much of the energy pie could be supplied by wind?
A: We could certainly do at least five times as much wind capacity as we have in place right now. We could easily provide at least 10,000 megawatts of wind [generated electricity] over a certain period of time.
Q: What would have to be done today to start that process?
A: The state’s transmission system is the key. And the way the system operates needs to be modified to accommodate the intermittent nature of the wind. You have to recognize the wind generates energy whenever it blows, and the rules that guide the transmission system right now are not very sensitive to that fact.
Q: Texas is home to some of the country’s biggest energy companies. What is the state of wind-energy development there?
A: Texas has had a real wind rush this year, with an expected billion dollars in new wind-turbine installation. Also, a number of companies have moved their headquarters to Dallas and Austin.
Q: Will that make the Bush administration more receptive to alternative energy sources?
A: President Bush certainly has a familiarity with the role that wind can play. He signed the state legislation that established a renewable portfolio standard in Texas.
Q: What did that legislation do?
A: It called for 2000 megawatts [of power] from renewable [energy] sources by the year 2009. The utilities went out and solicited the first increment of the power. The bids were so cheap that they realized wind is their least costly source of power. The utilities now have some huge projects that will be coming on line, and Texas will satisfy its goal well in advance of the deadline.
Q: What are you expecting from the Bush administration?
A: I think it will support additional incentives for wind energy. I think there will also be revisions in tax policy and an extension of wind production tax credit. Bush supported it as a presidential candidate and will likely support it in the Congress.
