Wind Energy: A Thorough Examination

of Economic Viability
Energy and Energy Policy
University of Chicago, 2008
Tao Xie
Nikola Pejnovic
Andre !ischer "ees
Eve Eing
This #a#er ill deter$ine the econo$ic via%ility of ind energy thro&gh
e'a$ining recent develo#$ents in t&r%ine technology, trans$ission technology, and the
#olicy environ$ent( Advances in t&r%ine technology have the #otential to increase the
efficiency of ind)%ased electricity #rod&ction( *i$ilarly, the i$#le$entation of ne
trans$ission technologies, s#ecifically those regarding +igh ,oltage -irect C&rrent, $ay
have the #oer to %ring ind)generated electricity to &nta##ed $arkets( !inally, the
#olicy environ$ent is critical to sha#ing the ter$s &#on hich ind energy co$#etes
ith traditional for$s of electricity generation( A n&$%er of #olicy varia%les can have a
strong effect on ind energy.s %otto$ line, hether thro&gh affecting the #rice of ind
energy or thro&gh the develo#$ent of innovative technologies that red&ce cost( Using
this knoledge, e then dra &# an analysis of the average cost of ind)generated
electricity &nder to scenarios/ servicing local $arkets and trans$itting electricity to
0
distant $arkets via +,-C( 1e then consider hether ind)generated electricity o&ld
%e co$#etitive in vario&s $arkets( 1e find that ind energy generated in the interior
U(*( is co$#etitive in the distant California energy $arket &nder all conditions( !&rther,
e find that &nder certain conditions, ind energy is econo$ically via%le to service the
local $arkets near to here ind reso&rces are fo&nd(
2
The Policy Environment for Wind Energy
Overview of the Problems and Challenges
1ind Poer Energy has %eco$e increasingly #o#&lar to investors, govern$ent
officials, and the general #&%lic since its co$$ercial advent in the 0230s( The aakening
of significant invest$ents in ind energy as ca&sed %y a groing reali4ation of the
need for energy sec&rity( +oever, there are n&$ero&s #ro%le$s and challenges to
develo#ing ind energy, %oth in the short and the long ter$(
The U(*( -e#art$ent of Energy identifies several key challenges in ind energy
develo#$ent/ risk #erce#tion, the trans$ission and grid li$its, the lo co$#etitiveness
of ind energy, lo)s#eed ind location &sage, lack of infrastr&ct&re for trans$ission,
reg&latory #olicy, environ$ental #olicy, environ$entalists, and general #&%lic o#inion
5-6E 2003, 8, 087( 1e ill address each of these challenges in t&rn, ith a s#ecific
foc&s on the #olicy #ro%le$s that these challenges e$%ody(
8isk #erce#tion is a challenge for any develo#ing technology9 hoever, this is
#artic&larly the case ith ind energy, since it de#ends on the #resence of an
&ncontrolla%le in#&t/ ind( :any ind&stries o#erate in the #resence of nat&ral constraints9
for e'a$#le, glo%ally agric&lt&re too de#ends on eather 5rain and s&nny days7( ;&t
hile agric&lt&re has a tho&sand)year history and large data sa$#le fro$ hich to
esti$ate the risk, ind energy is a relatively yo&ng technology ith little ac<&ired
knoledge( Even tho&gh the technology for installing ind energy at %etter locations is
cost efficient co$#ared to other technologies, the $arket considers ne technologies as
very risky 5-6E 2003, 8, 027(
=
!ro$ the investor #oint of vie, ind energy itself is still #erceived as too costly(
The $arginal cost of ind energy is co$#etitive ith the latest conventional
0
technologies9 nonetheless, the fi'ed costs of ind energy.s technical develo#$ent is still
too high 5-6E 2003, 8, 027( 8ed&ction of these costs ill ena%le the ind energy to %e
&sed at an even $ore co$#etitive rate( Policies s&ch as the 8enea%le Electricity
Prod&cer Ta' Credit have the #otential to c&t the cost of t&r%ines thro&gh #ro$oting
innovation and creasing sta%le $arket de$and(
As an additional set%ack, develo#$ents in ind energy $&st occ&r in tande$ ith
invest$ents in trans$ission technology/ otherise, there is no ay to deliver ind)
generated electricity to the $arket( Trans$ission channels o#erate &nder strict
reg&lations and o#erational #olicies( These trans$ission restraints and the lack of
knoledge of ind generated energy.s i$#act on the grid s&s#end ind energy
develo#$ent 5-6E 2003, 8, 027( Therefore, develo#ing ind energy itho&t the
develo#$ent and research of trans$ission is inefficient(
1e therefore concl&de that ind energy and trans$ission develo#$ent are closely
related( The fall in cost of ind energy yields only a li$ited res&lt if s&ch energy $ay not
reach its cons&$ers cost)efficiently 5-6E 2003, >>7( Trans$ission develo#$ent is
enco&raged %y the groth in ind energy, hich in t&rn cannot develo# itho&t cost)
efficient trans$ission( Policy has the #otential to infl&ence these develo#$ents in to
ays/ 07 %y fostering the develo#$ent of ne t&r%ine technologies9 and 27 %y increasing
the attractiveness of an invest$ent in ind energy( Ulti$ately, develo#ing do$estic
1
Conventional refers to all non-renewable energy resources, primarily: Coal, Natural
Gas, and Nuclear
>
Energy #rod&ction ill &lti$ately hel# ?sec&re @the U*A energy econo$yB 5-6E 2003,
227(
overnmental incentives and !rograms
There are $&lti#le incentives, $onetary and logistical, that govern$ent #rovides
to foster groth of 1ind Poer Energy develo#$ent/ research, develo#$ent, and
de#loy$ent co)o#eration 58-C-7, #rod&ction ta')credit 5PTC7, 1ind Energy Progra$
51EP7, 1ind Poering A$erica 51PA7, -istri%&ted 1ind Technologies 5-1T7, Energy
Policy Act 200D 5EPA7, Energy and Policy Conservation Act 5EPCA7, !ederal Energy
:anage$ent Progra$ 5!E:P7, 8enea%le Portfolio *tandards 58P*7, Advanced Energy
Enitiative 5AEE7, Advanced 1ind T&r%ine Progra$ 5A1TP7, and Clean 8enea%le
Energy ;onds 5C8E;7(
The 8-C- #rogra$s are fostered to develo# ne technologies in a $anner that
o&ld hel# investors $anage 1ind Poer far$s that are econo$ically feasi%le( This is
achieved %y cond&cting research that red&ces the technology cost 5-6E 2003, 227( En
addition to f&nding #rivate research, the -e#art$ent of Energy also ai$s to cond&ct its
on %asic research in ind energy in order to $ake high)risk energy so&rces $ore
attractive to investors in the long r&n 5-6E 2003, 2=7( *o$e research re<&ires significant
&#front e'#endit&res( !or e'a$#le, there are t&r%ine testing #rojects that re<&ire s&ch
facilities and infrastr&ct&re 5-6E 2003, 2=7( These #rogra$s hel# the govern$ent
develo# data to esti$ate national standard #ara$eters hile red&cing the co$$ercial risk
for investors 5-6E 2003, 2=7( *&ch #rojects are &s&ally r&n either %y federal agencies or
in #&%lic)#rivate #artnershi#s 5-6E 2003, 2=7( *ince the #rojects have %enefits for the
D
govern$ent and significantly red&ce risk for investors, the #&%lic)#rivate testing #rojects
are econo$ically j&stified( These #artnershi#s have the #otential to &nearth ne
innovations that $ay re#lace the #revailing t&r%ine technology ith so$ething chea#er
and $ore #oerf&l(
The 8enea%le Electricity Prod&ction Ta' Credit 5PTC7, $eant to incentivi4e
invest$ents in ind energy, has often had j&st the o##osite effect( !o&nded as a #art of
the Energy Policy Act of 0222, the PTC s&##orts energy generated thro&gh renea%le
energy so&rces %y allocating a 2 centsFk1h ta' credit 520037 for the first 00 years of
o#eration 5287( The #rogra$ has %een highly s&ccessf&l at sti$&lating invest$ents in
ind)generated electricity( The -6E esti$ates that PTC sti$&lated the #rod&ction of
nearly 02G1 of ind #oer 5207( +oever, the PTC has received s#oradic s&##ort
since its ince#tion, ca&sing large de$and shocks in the t&r%ine $arket( The fig&re %elo
ill&strates the fl&ct&ations in de$and attri%&ta%le to the PTC(
*o&rce/ 1iser et( al 2003
The sings in ind #oer groth have $ade the de$and for t&r%ines very
volatile, driving so$e t&r%ine fir$s into %ankr&#tcy( T&r%ine #rod&ction as largely
H
o&tso&rced to E&ro#ean fir$s 5207, an event hich $ay have #ro$#ted a significant loss
of h&$an ca#ital in the U(*( t&r%ine ind&stry( En addition, the varia%ility in ta' credit
#olicy $ay have the effect of driving &# the #rice of t&r%ines once the credit is reinstated,
as #ent)&# de$and o&tstri#s the s$all s&##ly of t&r%ine $an&fact&rers a%le to eather
the stor$( The shortage of t&r%ine #rod&ction ca#acity leads fir$s to raise their #rices for
t&r%ines, th&s negatively i$#acting the overall co$#etitiveness of ind)generated
electricity( !inally, the &ncertainty associated ith the PTC $ay disco&rage #otential
investors, ho $&st incl&de the risk of #olicy change in their rate)of)ret&rn calc&lations(
;y decreasing the #olicy &ncertainty s&rro&nding the PTC, the $arket for t&r%ines ill
%eco$e $ore sta%le, ith the effect of loering #rices, increasing orders, and attracting
technical talent to the t&r%ine ind&stry, there%y increasing the rate of technological
innovation(
Transmission
Trans$ission #olicies ill also have a large effect on the econo$ic via%ility of
ind)generated electricity( As e have seen, ind #oer $arkets are <&ite de#endent on
that availa%ility of high voltage trans$ission lines, itho&t hich they ill not %e a%le to
trans#ort large a$o&nts of electricity any si4ea%le distance( -&e to this de#endence on
trans$ission lines, ind energy is #artic&larly sensitive to the cost of trans$ission(
!&rther$ore, once the trans$ission line is %&ilt there is the #ossi%ility of &nder)&tili4ation
d&e to lo ind yield 5237( *o for co$#anies that have to develo# their on
trans$ission netork, the ind energy itself $ight %e e'tracted cost)efficiently yet the
trans#ortation $ay raise the costs to a #rohi%itively)high level( 6ne ay $eas&re -6E
s&ggests is to red&ce c&rrent average distance %eteen D0 national load centers fro$ D00
$iles to 000 $iles, red&cing the trans$ission cost &##er %racket and loering the risk of
trans$ission %lockage of ne't generation ind develo#$ent 5D07( Another #ro#osal
3
involves the &se of +igh ,oltage -irect C&rrent, rather than +igh ,oltage Alternating
C&rrent, to s#an the vast distances %eteen ind reso&rces and the &tilities that receive
the$( 1e ill investigate this later #ro#osal in the &#co$ing section(
Another #olicy #ro#osal o&ld force trans$ission lines to %e a%le to direct energy
fro$ different energy #rod&cers to s#ecific cons&$ers( This is tr&e in *eden here
cons&$ers have the #ossi%ility of choosing their electricity #rovider %ased on hether or
not the #rovider.s electricity has so$e ?greenB
2
or all ?greenB energy 5Ek, 0807( En the
case of electricity fro$ ?greenB #roviders there as a #re$i&$ cons&$ers had to #ay
50807( *&ch $eas&res $ay %e effective in areas here the #&%lic has a strong #ositive
attit&de toards renea%le energy, %&t #revio&s research shos that one cannot e'#ect
the n&$%er of those illing to #ay $ore for ?greenB to %e high 508=7( Treating ?greenB
energy as a different #rod&ct ith a different #rice o&ld allo ind energy to co$#ete
ith other for$s of renea%le energy in a l&'&ry energy $arket( En s&ch a $arket, ind
o&ld e'cel( Policies that served to se#arate renea%le and traditional electricity
trans$issions therefore have the #ossi%le effect of $aking ind energy $ore
econo$ically via%le( A&stin Energy, a #&%lic)oned &tility in Te'as, has created s&ch a
$arket hen it la&nched its GreenChoice #rogra$ in 2000( The #rogra$ has %een very
s&ccessf&l, and has the #otential to take hold elsehere, ith significantly #ositive effects
for ind energy(
Wind energy technology basics
The importance of wind speed
Iinetic energy in ind can %e ca#t&red %y ind t&r%ines and converted to $echanical
energy( Generators #rod&ce electricity fro$ the $echanical energy( *i$#ly, ind t&r%ines
2
Green refers to electricity generated from a renewable energy source
8
ork like a fan o#erating %ackards( Enstead of electricity $aking the %lades t&rn to %lo
ind fro$ a fan, ind t&rns the %lades in a t&r%ine to create electricity(
1ind t&r%ines range in si4e fro$ a fe h&ndred atts to as large as several $egaatts(
The a$o&nt of #oer #rod&ced fro$ a ind t&r%ine de#ends on the length of the %lades
5or the ter$ of se#t area7 and the s#eed of the ind( The #oer in the ind is
#ro#ortional to the c&%e of the ind s#eed9 the general for$&la for #oer in the ind is/
P " #$% & ' & A & V
(
here P is the #oer availa%le in atts, J is the density of air 5hich is a##ro'i$ately
0(2kgF$
=
at sea level7, A is the cross)section 5or se#t area of a ind$ill rotor7 of air
flo of interest and , is the instantaneo&s free)strea$ ind velocity(
;eca&se of this c&%ic relationshi#, the #oer availa%ility is e'tre$ely sensitive to ind
s#eed( A do&%ling the ind s#eed increases the #oer availa%ility %y a factor of eight(
Even a s$all variation in ind s#eed converts to a s&%stantial difference in #oer o&t#&t(
The sa$e t&r%ine on a site ith an average ind s#eed of 8 $Fs ill #rod&ce tice as
$&ch as electricity as an on a site ith H $Fs

56-P:, 200>(7
The &s&al c&t in s#eed is D $Fs and f&ll)load attained a%ove 02 $Fs, hile the &s&al c&t
o&t s#eed is 2D $Fs
=
( Th&s develo#ers e'#end considera%le effort to identify and sec&re
the sites hich are $ost consistently in the o#ti$&$ range( N8E" divides ind s#eeds
into ind #oer classes designated Class 0 5loest7 thro&gh Class 3 5highest7 5Ta%le 07(
Class 2 and a%ove ind s#eeds can #rovide s&fficient energy to drive a s$all ind
t&r%ine( Utility si4ed t&r%ines &s&ally need at least Class = ind conditions to o#erate(
Ta%le 0 1ind #oer classes at 00 $ and D0 $ elevation
Poer
class
00 $ D0 $
1ind s#eed 5$Fs7
Poer -ensity
51F$27
1ind s#eed 5$Fs7
Poer -ensity
51F$27
!
Cut-in "peed is t#e minimum wind speed needed to turn a wind turbine and produce
electricity Cut-out "peed is t#e ma$imum wind speed t#at a turbine can #andle
%urbines automatically stop spinning at winds speeds greater t#an t#e cut-out speed
to prevent damage to t#e turbine
2
0 0)>(> 0)000 0)D(H 0)200
2 >(>)D(0 000)0D0 D(H)H(> 200)=00
= D(0)D(H 0D0)200 H(>)3(0 =00)>00
> D(H)H(0 200)2D0 3(0)3(D >00)D00
D H(0)H(> 2D0)=00 3(D)8(0 D00)H00
H H(>)3(0 =00)>00 8(0)8(8 H00)800
3 3(0)2(> >00)0,000 8(8)00(2 800)2,000
1ind s#eed is #artly a f&nction of height and generally eaker near the gro&nd d&e to
friction %eteen earth.s s&rface and air flo( *o #lacing t&r%ines on hills and on large
toers gives access to higher ind s#eeds( A taller toer not only $akes it #ossi%le to
reach faster inds %&t also acco$$odate a %igger rotor for a larger se#t area(
All these factors have driven $an&fact&rers to $ake ever %igger t&r%ines( The t&r%ines of
the $id)0220s se#t ten ti$es the area of earlier $achines 5Gi#e, 200>(7 The si4e of
ind t&r%ines has do&%led a##ro'i$ately every >KD years 51i4eli&s, 2003(7 T&r%ines
ith an installed generator ca#acity of D to H :1 and a dia$eter of 000)020 $ dia$eter
are r&nning as #rototy#e, see fig&re =(
!ig&re = the develo#$ent of ind t&r%ine si4e(
Source: Gijs van Kuik et al., 2006.
ntermittence
1ind s#eed variation has syste$)ide effects for the electricity generation sector( 1ind
s#eed can decrease or increase %y a factor of to very ra#idly( Each ti$e this ha##ens,
00
generation fro$ a Lind car#et. M na$ely, the total n&$%er of t&r%ines in a relevant
geogra#hical area M decreases or increases %y a factor of eight( !l&ct&ation in ind
availa%ility leads to s&dden dro#)o&ts and s&rges in electricity s&##ly, re<&iring L&#
reg&lation. and Ldon reg&lation. %y conventional generating #lants

5*4arka, 2003(7 The
%igger the Lind car#et., the $ore #rono&nced these effects are( This creates the #ro%le$
of Linter$ittence., hich has to different co$#onents( The first is the total a%sence of
ind energy M and therefore of generation M d&ring high #ress&re events( The second is
ra#id &# or don variation in ind s#eeds and #oer o&t#&t( The first can %e #redicted
%y eather forecasts ith increasing acc&racy( Predictions of the second are i$#roving M
d&e to %etter $ethodologies and tools 5e#ically &nder short ti$e)fra$es7 M %&t ill
alays re$ain a #ro%le$ %eca&se ind s#eed variation is inherently a stochastic
#heno$enon 5*4arka, 2003(7
!peration
T&r%ines #rod&ce direct c&rrent 5-C7 or alternating 5AC7 #oer, de#ending on the
generator( 5En o&r case the #ri$e $over is the rotor(7 +oever, neither ay is 000 #ercent
efficient at transferring ind #oer( The rotor ill deliver $ore #oer to the generator
than the generator #rod&ces as electricity( This leads to another f&nda$ental
consideration on the si4e of ind t&r%ines( The si4e of a generator indicates only ho
$&ch #oer the generator is ca#a%le of #rod&cing if the ind t&r%ine.s rotor is %ig
eno&gh, and if there.s eno&gh ind to drive the generator at the right s#eed( Th&s f&rther
confront the fact that a ind t&r%ine.s si4e is #ri$arily governed %y the si4e of its rotor
5Gi#e, 200>(7
1ind s#eeds are cr&cial for generating &tility)co$#ati%le electricity( To ada#t ind s#eed
variation, electrical generators can %e o#erated either at varia%le s#eed or at constant
s#eed( En the first case, the s#eed of the ind t&r%ine rotor varies ith the ind9 in the
second, the s#eed of the ind t&r%ine rotor re$ains relatively constant as ind s#eed
fl&ct&ates(
00
En nearly all s$all ind t&r%ines, the s#eed of the rotor varies ith ind s#eeds( This
si$#lifies the t&r%ines. control hile i$#roving aerodyna$ic #erfor$ance( 1hen s&ch
ind $achines drive an alternator, %oth the voltage and fre<&ency vary ith ind s#eed(
The electricity they #rod&ced isn.t co$#ati%le ith the constant)voltage, constant)
fre<&ency AC #rod&ced %y the &tility( Electricity fro$ these ind t&r%ines cannot %e &sed
in $ost o&r daily e<&i#$ents( The o&t#&t fro$ these $achines $&st %e treated or
conditioned first, &s&ally e<&i##ed ith feat&res to #rod&ce correct voltage and constant
fre<&ency co$#ati%le ith the loads(
Altho&gh nearly all $edi&$)si4e ind t&r%ines, s&ch as the tho&sands of $achines
installed in California d&ring the early 0280s, o#erated at constant s#eed %y driving
standard, off)the)shelf ind&ction generators, a n&$%er of $an&fact&rers of $egaatt)si4e
t&r%ines today have sitched to varia%le)s#eed o#eration
>
( :any of these &se a for$ of
ind&ction generators, hich $ay i$#rove aerodyna$ic #erfor$ance(
"stimatin# output
Ann&al energy #rod&ction 5AEP
D
7 is calc&lated %y a##lying the #redicted ind
distri%&tions for a given site to the #oer #erfor$ance c&rve of a #artic&lar ind t&r%ine(
The site ind distri%&tions are nor$ally %ased on a 8ayleigh distri%&tion
H
that descri%es
ho $any ho&rs 5or #ro%a%ility7 each year the ind at a given site %los at a #artic&lar
ind velocity 5!ig&re >5a77(
The second ste# in this #rocess re<&ires the #oer c&rve for the chosen t&r%ine( !ig&re >
5%7 is an e'a$#le of a #oer c&rve for a 0(D):1 t&r%ine that is characteristic of c&rrent
technology(
&
N'(), see #ttp:**wwwnrelgov* for furt#er information
+
,any companies use t#e -argon ./(01 2annual energy output3
4
/ subset of a 5eibull distribution wit# a s#ape factor of 26 "ee
#ttp:**wwwnrelgov*wind*coe#tml for met#odology information
02
!ig&re > 5a7 5%7 Poer c&rve $ethod of calc&lating ann&al energy o&t#&t
1hat $ay not %e stated &#front is that ind s#eeds of 00)2D $Fs are necessary to reach a
0,D00 k1 o&t#&t( The #oer o&t#&t of a t&r%ine for ind s#eeds $&st %e deter$ined
s#ecific to a s#ecific site( 1ind t&r%ine develo#ers can #ro#erly install a t&r%ine that is
ell)s&ited for each site(
The #rod&ct of first to c&rves ill %e a c&rve s&ch as that shon in !ig&re > 5c7( ;y
integrating the area &nder this c&rve, it is #ossi%le to deter$ine the ann&al energy
#rod&ction( !or a $ore acc&rate calc&lation it is necessary to acco&nt for %oth the
$echanical and electrical #oer conversion efficiency, hich varies at different t&r%ine
#oer level losses as descri%ed in the o#erating characteristics a%ove, and the #rojected
$achine availa%ility(
0=
!ig&re > 5c7 Poer c&rve $ethod of calc&lating ann&al energy o&t#&t
$onclusion
1ind t&r%ine technology is in good health/ the availa%ility of t&r%ines is K28N, hich
$eans that d&ring 2N of the ti$e they cannot #rod&ce d&e to $aintenance or fail&res( En
general, ele$entary design r&les dictate that the %igger the t&r%ines are to de#loy as $&ch
as #ossi%le(
En United *tates, the overall #otential is vast( 1ind #oer energy has %een esti$ated as
one of the co&ntry.s $ost a%&ndant energy reso&rces( A%o&t one)fo&rth of the total land
area of United *tates has inds #oerf&l eno&gh to generate electricity as chea#ly as
nat&ral gas or coal at today.s #rices( The ind energy #otential in all of the to# states M
North -akota, Iansas, *o&th -akota, :ontana, and Ne%raska M is #rinci#le s&fficient to
#rovide all the electricity the co&ntry.s c&rrent &ses 5Ta%le 2(7 En fact, 20N of the land
areas in these :idest and the 8ocky :o&ntain states %elong to N8E" Class >, hich
are s&fficient to $ake yo&r ind energy %&siness #rofita%le(
+oever, fe of those #otential good sites ith a high ind s#eed have %een f&lly
develo#ed yet( En hat follos, e ill #oint to ho ind energy develo#$ent is likely
to %e cost)effective( Al%eit the one)ti$e invest$ent on t&r%ines is high, the $argin cost
#er o&t#&t ill %e relative s$all( En a certain f&t&re, ith groing large t&r%ine $achine,
s&##orting technologies 5+,-C syste$ in ne't section7 and govern$ental incentive
instr&$ents 5s&%sidies andFor ta' credits7, electricity #rod&ced %y giant ind t&r%ines in
:idest ill %e $arket co$#etitive and %eco$e candidate sol&tion to the co&ntry.s
energy inde#endence(
Table 2 Comparison of wind energy potential vs. installed capacity in selected
contiguous states (GWh/year)
Source: %akhijani, 200&. http:''www.ieer.or#'car(onfree' and ")*.
State Wind potential Installed capacity
0>
orth !a"ota #$2#% #&'
(ansas #$%)% 22)
*outh !a"ota #$%+% ,)
-ontana #$%2% #
ebras"a .'. +#
Wyoming )&) '&+
/"lahoma )20 +0+
0D
Transmission Technologies: )V*C
+igh)voltage direct c&rrent 5+,-C7 syste$s offer an alternative sol&tion to the
#ro%le$ of electrical trans$ission, one ith strengths not offered %y the traditional AC
grid syste$( 1hile -C)%ased syste$s are not a ne technologyOat the advent of the
electrical era, Tho$as Edison envisioned that they o&ld %eco$e the #redo$inant choice
Othe a%ility to incor#orate the$ ith the e'isting AC grid is a relatively ne
develo#$ent(
En general, trans$itting electricity fro$ the generator to the cons&$er at a higher
voltage red&ces the a$o&nt of #oer lost in the #rocess( +oever, there are f&nctional
li$itations that $ake trans$itting across high)voltage AC lines an ineffective o#tion(
+,AC lines lose large a$o&nts of #oer d&e to ind&ction, ca#acitance, the ?skin effectB
5herein the c&rrent $oves to the o&tside of the ca%le, for$ing a ?skinB and th&s failing
to &tili4e the ca%le in its entirety7, and the ioni4ation of the air aro&nd the ca%le, hich
dras electrons aay fro$ the #ath of trans$ission( +,-C, %y eli$inating the
alternating c&rrent, eli$inates these #ro%le$s, %&t introd&ces a ne challenge/ sitching
to an +,-C grid necessitates either the constr&ction of -C generators to re#lace the AC
generators c&rrently in &se, or the syste$atic conversion of AC to -C at the #oint of
trans$ission( As AC generators are generally &nderstood to %e less e'#ensive and easier
to $aintain than -C generators, the second o#tion is $ore desira%le(
1hile cr&de technologies for this sort of conversion e'isted as early as the 02=0s,
it as not &ntil the 0230s that conversion %eteen the AC #oer e$itted fro$ generators
and the -C #oer s&ita%le for high)voltage 5and th&s lo)loss7 trans$ission co&ld %e
achieved ith a great degree of efficacy( The converter stationOthe keystone of +,-C
technologyO is generally designed ith d&al)conversion ca#a%ility9 each can convert AC
#oer to -C 5a #rocess called rectification7 and -C #oer to AC 5inversion7( The device
o#erating at the core of the conversion #rocess is the thyristor, a se$icond&ctor hich
can only carry c&rrent in one direction( The thyristor acts as a sort of ?gateayB in the
converter, alloing the voltage and the direction of #oer flo to %e controlled re$otely(
0H
:ost often, thyristors are arranged in a series to for$ thyristor valves, in a ty#e of syste$
knon as nat&ral co$$&tated conversion( This %asic syste$ can %e i$#roved ith the
addition of co$$&tation ca#acitors, hich, inserted %eteen the converter transfor$ers
and the thyristor valves, increase the acc&racy ith hich the valves ?fireB in
synchronicity to control the direction and $agnit&de of #oer( This kind of syste$ is
knon as a ca#acitor co$$&tated converter( A third kind of converter station, the voltage
so&rce converter, is %&ilt ith se$icond&ctors hich can t&rn off or on via re$ote control
al$ost instantaneo&sly, alloing for an even greater degree of load control, as ell as the
a%ility to control active and reactive #oer inde#endently of one another( This allos the
converter station to act as a $echanis$ to control reactive #oer, f&rther reg&lating the
voltage of the syste$(
Thyristor valves are arrayed in gro&#s of si', #erfor$ing si' co$$&tations #er
#eriod( The n&$%er of thyristors that co$#rises each valve can %e varied to #rod&ce the
desired voltage o&t#&t( As they are the $ost f&nda$ental ele$ent of the converter station
and therefore of +,-C technology, develo#$ent of ne $odels of thyristor have driven
i$#rove$ents in +,-C technology overall( !or instance, #hotons can %e &sed to trigger
their valve action, alloing the develo#$ent of light)o#erated thyristors ith an 80N
red&ction in necessary co$#onents(
+,-C syste$s are not flaless9 they have i$#ortant dra%acks to consider( The
synchrono&s #&lses that allo the converter station to o#erate create har$onics hich
can ca&se interference ith neigh%oring teleco$$&nications syste$s, as ell as
$echanical da$age over the long ter$( Us&ally, har$onic filtering syste$s $&st %e
installed to co&nteract the #otential for da$age( The station itself is s&sce#ti%le to a high
level of load stress, re<&iring o%servation and $aintenance as it is s&%jected to ear(
+oever, the $ost significant disadvantage of an +,-C syste$ is the cost of the
converter station, hich $&st %e designed and constr&cted to ork in conj&nction ith
the e'isting generator at a site(
Even ith this cost in $ind, +,-C can still %e a $ore econo$ical o#tion overall
in sit&ations here AC syste$s are ina##ro#riate or fall short of $eeting a de$onstrated
need( En areas here adjacent regions ishing to share #oer have netorks ith
different no$inal fre<&encies, +,-C ca%les are so$eti$es &sed to allo #oer
03
e'change( They can also %e &sed to trans$it #oer &nderater, or overhead in cases
here AC lines o&ld %e too e'#ensive or &nsightlyO-C lines re<&ire only to $ain
cond&ctors, hereas AC lines re<&ire three and th&s cons&$e $ore s#ace and $aterials(
1hether the %enefits and dra%acks of an +,-C syste$ $ake it an efficient
o#tion or a astef&l is idely varia%le %ased on individ&al sit&ations9 the site of
generation and cons&$#tion, the #ath of trans$ission, the ty#e of #oer, and the nat&re
of the e'isting grid can all %e factors( +oever, over long distances, +,-C has #roven to
%e an e'cellent choice( En addition to sta%ility it adds to the grid, an +,-C syste$
s&cceeds here as an AC ca%le o&ld fail, %eca&se the latter s&ffers fro$ greater line
losses and the need for inter$ittent s&%stations to reg&late c&rrent( Therefore, AC
syste$s can only effectively trans$it #oer a certain distance %efore %eco$ing
ineffective( 5*ee !ig&re 3>(7
08
+igure ,-
Even after acco&nting for the costs
associated ith converter stations,
+,-C %eco$es a $ore efficient o#tion
than AC syste$s over long distances(
The %reak)even #oint is generally
ass&$ed to %e %eteen >00 and D00
$iles +8&dervall,
.s it Com!etitive/ A Cost Analysis of Wind
Energy
Overview of the section:
En this section e ill disc&ss the feasi%ility of ind)%ased electricity generation in
A$erica( 1e ill first address the to #ri$ary disadvantages of ind)%ased electricity
generation/ availa%ility and varia%ility of reso&rces( 1e then #resent to scenarios of the
#otential $arket for ind)generated reso&rces in A$erica( The first ass&$es that ind)
generated electricity ill co$#ete in the $arket of the nearest $ajor $etro#olitan area(
The second ass&$es that ind)generated electricity ill take advantage of variation in
the #rice of electricity across states( *#ecifically, e consider the #ro#osed !rontier "ine,
an +,-C line that o&ld trans$it large a$o&nts of electricity to 1estern cities fro$
re$ote generation sites( 1e then analy4e the cost of ind)generated electricity &nder
%oth scenarios( 1e find that ind)generated electricity is not co$#etitive in near%y
energy $arkets, %&t is co$#etitive to service Californian de$and( !inally, e consider
the i$#act of to #olices o&ld have on the econo$ic via%ility of ind energy/ the
8enea%le Electricity Prod&cer Ta' Credit and a ca#)and)trade(
The Availability of Wind 0esources
6ne legiti$ate dra%ack to ind)%ased electricity generation is that the in#&ts to
#rod&ction are geogra#hically fi'ed( Unlike fossil f&els or &rani&$, ind reso&rces
cannot %e e'tracted fro$ the earth and trans#orted to de$and sites( Enstead, they $&st %e
converted to electricity at the site here they are fo&nd, and the electricity $&st %e
trans$itted to de$and sites(
This li$itation is not inherently #ro%le$atic, %eca&se in $any scenarios ind reso&rces
are very close to de$and sites( -en$ark, for e'a$#le, receives a large #ro#ortion of
their energy fro$ offshore inds that are <&ite close to de$and sites( The U(*( also has
a%&ndant offshore ind reso&rces, and ith D=N of the U* Po#&lation living in a coastal
02
co&nty 5Crosset 200>7, $any electricity de$and sites have a large #otential s&##ly of
ind)generated electricity near%y(
The $a# %elo is #&%lished %y the National 8enea%le Energy "a%oratory 5N8E"7, a
facility o#erated %y the U(*( -e#art$ent of Energy( Et ill&strates the availa%ility of ind
reso&rces at different ind #oer classes 51PCs7( C&rrent technology li$its ind)%ased
electricity generation to 1PCs of > and a%ove, hich ro&ghly corres#onds to inds
average s#eeds greater than 02(D $#h( These corres#ond to the #ink, #&r#le, red, and
%l&e areas on the $a# %elo(
*o&rce/ N8E"
En the a%ove $a#, offshore ind reso&rces stand o&t as e'e$#lary( +oever, o&r
analysis ill foc&s e'cl&sively on terrestrial ind reso&rces( Unfort&nately, terrestrial
ind reso&rces are concentrated in the Great Plains, far fro$ electricity de$and sites( To
access s&ch $arkets, electricity $&st %e trans$itted s&%stantial distances(
20
The re$oteness of ind reso&rces adds to the cost of ind)generated electricity in to
ays/ 07 it necessitates large ca#ital invest$ents in trans$ission lines9 and 27 it increases
the si4e of trans$ission losses( +oever, the e'tent of these costs are #oorly &nderstood(
6&r cost analyses ill consider these costs, and their effect on the co$$ercial via%ility of
ind energy(
1cenario A: Transmission to 2ocal Electricity 3ar4ets
6&r first scenario esti$ates the cost of ind)generated electricity delivered to the nearest
electricity de$and site( -&e to the #artic&larly re$ote location of terrestrial ind
reso&rces, e hy#othesi4ed that trans$ission costs o&ld for$ a significant #ortion of
overall electricity costs, and th&s atte$#ted to $ini$i4e trans$ission costs %y calc&lating
the shortest distance fro$ each ind reso&rce site to the nearest electricity de$and site(
1ind reso&rce site data as $ade availa%le %y N8E" in the for$ of GE* 5Geogra#hic
Enfor$ation *yste$7 files( These files contain the 1ind Poer Class data for each s<&are
kilo$eter of land in the 1estern states( ;eca&se N8E".s ind reso&rce data%ase is still
%eing %&ilt, data files ere &navaila%le for $any states of interest, incl&ding :innesota,
Eoa, Iansas, 6klaho$a, and Te'as( +oever, $any of the states ith the %est ind
reso&rces ere $ade availa%le for analysis( These incl&ded North and *o&th -akota,
Ne%raska, :ontana, 1yo$ing, and Colorado(
Electricity de$and sites ere selected as the to# 2D :etro#olitan *tatistical Areas,
according to the 2003 esti$ates %y the U(*( Cens&s ;&rea&( The a%sence of city)level
electricity cons&$#tion data $akes it i$#ossi%le to verify if #o#&lation rank $atches &#
ith electricity cons&$#tion rank( +oever, e can %e confident that each of the 2D
$ost #o#&lated :*A cons&$e a large a$o&nt of electricity, and are therefore #otential
$arkets for re$ote ind)generated electricity(
Proced&rally, e &sed ArcGE* softare to calc&late the centroid of each :*A( 1e then
created a $a# layer of Thiessen #olygons, #olygons that contain e'actly one :*A and all
20
the #oints nearest to that :*A( All ind reso&rces sites falling ithin a #artic&lar
Thiessen #olygon o&ld trans$it electricity to the :*A ithin the #olygon, %eca&se that
is the nearest $ajor electricity de$and site(
The to gra#hics %elo dis#lay the res&lts of this analysis( The first sho the Thiessen
#olygon #rojection for the to# 2D :*A in A$erica( Et is a##arent fro$ this #rojection
that -enver, Colorado is the nearest :*A for the $ajority of s&ita%le ind sites( 1e th&s
sho a larger i$age of the -enver #olygon(
22
The Thiessen #olygons allo &s to deter$ine the $a'i$&$ distance fro$ a ind
reso&rce site to the nearest :*A( !or each :*A, the straight)line distance to the %order
of the Thiessen #olygon is the longest distance ind)generated electricity o&ld need to
travel to reach a $ajor cons&$#tion site( !or -enver, D00 $iles is the $a'i$&$
straight)line distance electricity o&ld need to travel to reach a cons&$#tion site( 6ver
these distances, an +,AC line is $ore co$#etitive than an +,-C line( Therefore, e
ill &se +,AC grid esti$ates in o&r cost analysis of this scenario(
1cenario 5: Ex!loiting Price Variation
6&r second scenario #redicts that ind)generated electricity ill %e trans$itted to
cons&$#tion sites here it can e'#loit variation in #rices( Electricity #rices vary
considera%ly across states, as is evident fro$ the $a# on the folloing #age of average
200H #rices/
2=

*o&rce/ Energy Enfor$ation Ad$inistration, !or$ EEA)8H0, PAnn&al Electric Poer
End&stry 8e#ort(P 2008(
2>
The average #rice of electricity is very lo in states here ind reso&rces are sited(
Th&s, altho&gh these $arkets are near%y, ind energy faces stiff co$#etition hen
co$#eting in local $arkets 51yo$ing, a state ith a%&ndant ind reso&rces, had the
third loest average #rice of any state in 200H, at j&st D(23 centsFk1h7( +oever, a long)
distance trans$ission line co&ld carry ind)generated electricity to higher)#rice $arkets
here it $ight #rove $ore co$#etitive( At 02(82 centsFk1h, the Californian electricity
$arket looks #artic&larly a##ealing( *&ch a #roject o&ld re<&ire trans$ission %eyond
the D00 $ile %reak)even #oint %eteen +,AC and +,-C, leading #olicy$akers to favor
the &se of an +,-C line(
En fact, #ro#osals to %&ild a long)distance +,-C trans$ission line are c&rrently %eing
heard( 1estern governors have for$ed a task gro&# to research $any trans$ission
invest$ents, incl&ding the !rontier "ine, a high)voltage trans$ission line that o&ld
connect 1yo$ing energy s&##ly to California loads( 1ith energy de$and increasing at
2N a year, California $&st add 0,000 :1 of electric ca#acity every year to kee# #rices
constant 518TEP 20037( A#art fro$ needing additional electricity, California also favors
renea%le energy( En 2002 the state esta%lished the 8enea%le Portfolio *tandard
Progra$, $arking a co$$it$ent to achieve 20N of electricity fro$ renea%le so&rces
%y 2003( 1ith j&st 00(2N of electricity co$ing fro$ renea%les 5EEA 2003a7, there is
significant roo$ for e'#ansion to $eet this co$$it$ent( California is therefore an eager
$arket for 1yo$ing ind)generated electricity(
The !rontier "ine o&ld address the to $ajor disadvantages of ind energy( !or one,
an +,-C line $ini$i4es trans$ission costs, th&s addressing the iss&e of ind reso&rce
availa%ility( *econdly, the !rontier "ine is ell)#ositioned to eather ind reso&rce
varia%ility d&e to it.s origin in 1yo$ing( Not only does 1yo$ing have a%&ndant ind
reso&rces9 it also ho&ses the nation.s largest s&##ly of coal( 1hen the ind is not
%loing, coal #lants can generate electricity to kee# the trans$itted s&##ly constant at
000N of line ca#acity( Th&s, ind)%ased electricity generation can %e %acked &# %y coal)
%ased generation, in $&ch the sa$e ay that the -anish ind energy syste$ decreases
2D
varia%ility %y relying on the Ger$an coal)fired grid( Therefore, the !rontier "ine $ay
avoid the to $ajor #itfalls of ind energy, availa%ility and varia%ility of ind reso&rces(
Cost Analysis
1e t&rn no to considerations of cost( Thro&gh o&r cost analysis e ill deter$ine the
econo$ic via%ility of ind #oer &nder o&r to scenarios( The cost analysis is
organi4ed as follos/ *ection 0 ill cover ass&$#tions concerning ind far$ costs and
o&t#&t( *ection 2 addresses o&r ass&$#tions a%o&t financing the trans$ission line in
*cenarios A and ;( *ection = #resents a Cost *#readsheet &sing the #revio&sly)descri%ed
ass&$#tions( After analy4ing the findings of this s#readsheet, e co$#are ind)
generated electricity costs to $arket electricity costs for %oth scenarios, th&s for$ing o&r
initial concl&sion of the econo$ic via%ility of ind energy( En *ections > e consider
variations in the #olicy environ$ent, and the effect of s&ch variations on o&r initial
concl&sion( *ection D concl&des(
1ection #: Wind +arm Assum!tions
6&r analysis re<&ires $any ass&$#tions, ith the j&stifications fro$ a&thoritative
so&rces( The ne't to sections #rovide the logic %ehind o&r ass&$#tions(
P0O6ECT 1.7E: 1e ass&$e the creation of a ind far$ ith =G1 of generation
ca#a%ility( There are $any sites in o&r data set ith develo#a%le ind reso&rces on this
scale( *&ch a site o&ld re<&ire 2,000 0(D:1 T&r%ines, each re<&iring a%o&t 20 acres,
for a total land re<&ire$ent of 080,000 acres 5or 3=0 k$
2
7 5so&rce A1EA 20037(
P0O6ECT 1.TE: Project siting co&ld occ&r at $any locations in the interior U*(
+oever, *cenario ; re<&ires a site ith ade<&ate ind reso&rces and near%y coal
reso&rces, to serve as %ack)&# ca#acity for ind generation and so ens&re that the
!rontier "ine re$ains at ca#acity( This leads &s to choose the +anna ;asin in Car%on
Co&nty, 1yo$ing as o&r ind far$ location for *cenario ;( To re$ain consistent, e
&se the sa$e site for *cenario A(
2H
CAPAC.T8 +ACTO0: The ca#acity factor of a ind far$ refers to the #ercent of
theoretical energy o&t#&t that the ind far$ in fact #rod&ces( This is de#endent on a
n&$%er of varia%les M t&r%ine design, #roject siting, and eather M and so is diffic&lt to
#redict ith a great degree of certainty( 1e therefore follo the ass&$#tions #&t o&t %y
8yan 1iser and :ark ;olinger of "arence ;erkeley National "a%oratory, ho
calc&lated the average ind ca#acity in :o&ntain region ind far$s to %e >0N 51iser
and ;olinger 20037(
.91TA22E* CAP.TA2 CO1T1: 6&r ass&$#tion for initial costs of installed ca#ital
co$e fro$ a recent large ind t&r%ine deal( 6n :ay 0D, 2008 :esa Poer ""P signed a
Q2 ;illion ith GE to #rod&ce HH3 0(D :1 t&r%ines( The #ro#osed ind far$ o&ld
therefore have a generating ca#acity of 0,000 :1, leading to a ratio of Q2 :illionF:1
installed ca#acity( This ratio is higher than $any esti$ates 51iser and ;olinger 200379
e therefore consider it an &##er)%o&nd on installed ca#ital costs( 1e do not antici#ate
econo$ies of scale %eyond 0,000:1, and therefore ass&$e this ratio to hold for a =,000
:1 ind far$(
P0O6ECT +.9A9C.9: 1e ass&$e a =0)year $ortgage agree$ent ith ann&al
#ay$ents and 3N interest(
2A9* CO1T1: 1e re<&ire 080,000 acres of 1yo$ing land to achieve a generation
ca#acity of =,000 :1( +oever, installed ca#ital ill only occ&#y a s$all #ortion of
this land( T&r%ines, electrical facilities, and service roads average %eteen 0(2D and 0(D
acres #er t&r%ine 5N8E" 200H7( Taking the higher of these to esti$ates, e antici#ate
land needs of j&st 0,000 acres( 1e then calc&late the costs of #&rchasing this land( This
oversi$#lifies the land negotiations for a large ind far$ #roject9 hoever, %eca&se
far$land in Car%on Co&nty, 1yo$ing sells at less than Q200Facre, additional land
e'#endit&res ill not significantly affect #roject via%ility( Pro#erty ta'es are also
negligi%le in the state of 1yo$ing(
23
0.* .9TE0AT.O9 CO1T1: -&e to its varia%le nat&re, ind #laces an e'tra
%&rden on the grid( 1hen the ind is not %loing 5or is not %loing s&fficiently
strongly7, other so&rces $&st generate additional electricity to ens&re that de$and for
electricity does not o&tstri# s&##ly( Therefore, e'tra electricity)generating ca#acity $&st
%e installed( En o&r case, the e'tra ca#acity ill consist of $ine)$o&th coal #lants that
ill share a high)voltage trans$ission line ith the ind far$( The a$o&nt of e'tra
ca#acity is deter$ined %y a n&$%er of factors M the ca#acity factor of the ind far$, the
e'#os&re of the destination $arket to ind #oer, the fle'i%ility of the destination
$arket, the #resence of a s$art grid, etc( 1e ass&$e in o&r analysis that grid integration
costs re<&ire an add)on of Q0(00H2Fk1h, the &##er)%o&nd of recent esti$ates 5,TT
20037(
OPE0AT.O9 A9* 3A9AE3E9T CO1T1/ 6#eration and :anage$ent Costs are
relatively s$all for a ind far$( 1e &se the inflation)adj&sted esti$ates of 1iser and
Iahn, a$o&nting to an add)on of Q0(0082Fk1h 51iser and Iahn 022H7(
.91:0A9CE CO1T1: 1e si$ilarly &se 1iser and Iahn.s esti$ates for #ro#erty
ins&rance, hich are calc&lated as a #ercentage 50(000DN7 of installed ca#ital costs( This
a$o&nts to an add)on of less than nine)h&ndredths of a #enny #er kiloatt ho&r 51iser
and Iahn 022H7(
.9+2AT.O9: To get cost esti$ates in 2008 dollars, e adj&st $any of o&r fig&res for
inflation( !or all fig&res older than 200H, e ass&$e that inflation $atched CPE groth(
1e adj&st 200H fig&res according to recent CPE infor$ation s#ecific to the electricity
ind&stry( Electricity #rices gre at a year)over)year rate of DN in the 02 $onths #rior to
:ay 2008( Ass&$ing that this trend held for the 03 $onths since -ece$%er 200H, e
adj&st all 200H fig&res ith a 3(DN inflation rate(
1ection %: Transmission 2ine Assum!tions
1CE9A0.O A: 1e first consider $oving electricity fro$ ind reso&rce sites to the
nearest $ajor $etro#olitan area( !ro$ o&r #roject site at the +anna ;asin :ine in
28
Car%on Co&nty, 1yo$ing the nearest de$and site is -enver, j&st 0D0 $iles aay( This
distance $akes +,AC trans$ission o#ti$al( To $odel the costs of this line, e &tili4e
the ass&$#tions of the 1estern 8egional Trans$ission E'#ansion Partnershi# for a
si$ilar)length +,AC line %eteen :ona, Utah and Northeastern Nevada( This line had
an esti$ated cost of Q0 ;illion( 6#eration and :anage$ent fees are incl&ded in the
initial esti$ate( "ine losses are ass&$ed to %e 00N over the co&rse of the line(
1CE9A0.O 5: 1e ne't consider $oving electricity fro$ the +anna ;asin :ine in
Car%on Co&nty, 1yo$ing to "os Angeles( This trans$ission line, s#anning 2H0 $iles,
has %een $odeled %y A;; Grid *yste$s( *tation costs of Q>20 :illion are added to
trans$ission line costs of Q0,800,000 #er $ile, leading to a #roject total of Q2(0 ;illion(
6#eration and :anage$ent fees are calc&lated as a #ercentage of the total one)ti$e grid
#ay$ent( "ine losses are esti$ated at 8N over the co&rse of the line 5;ahr$an 200H7(
1ection (: Cost Analysis and .nter!retation
Given the a%ove ass&$#tions, e are a%le to #erfor$ the calc&lations fo&nd on
the folloing #age( These calc&lations lead to an esti$ate of the average total cost #er
k1h for ind)generated electricity 5the standard #ricing &nit in the electricity ind&stry7(
1e find that in *cenario A, here ind energy is &sed to service local electricity de$and,
the average total cost is Q0(03>DFk1h( En *cenario ;, here ind)generated electricity is
trans#orted to distant loads, the average total cost is Q0(082DFk1h(
22
Wind +arm Costs
Ca!ital Costs
T&r%ine Costs/ -ollarsFk1 Generation Ca#acity 2,000
Targeted Generation Ca#acity 5k17 =,000,000
T&r%ine Costs QH,000,000,000
"and Costs/ -ollarsFAcre 200
Acres needed 0000
"and Cost Q200,000
6ne)Ti$e Ca#ital Costs QH,000,200,000
Ann&al Ca#ital Pay$ent, =0)year loan ith 3N interest Q>8=,D=>,D=8
Variable Costs
6#eration and :anage$ent Q88,22>,0H2
Ens&rance Q2,00H,020
Grid Entegration Costs QH0,>D2,>D2
Total ,aria%le Costs Q0D8,H22,D>2
Total Annual eneration Costs QH>2,2=>,080
=0
A 5
rid Costs
-istance 5$iles7 0D0 2H0
Cost of Trans$ission "ine, QF$ile Unavaila%le Q0,800,000
Trans$ission "ine Cost Unavaila%le Q0,328,>=2,H00
Total 6ne)ti$e Cost Q0,000,000,000 Q2,0>8,>=2,H00
Ann&al Grid Pay$ent Q80,D8H,>0> Q03=,0=D,020
6#eration and :anage$ent, Rearly Unavaila%le Q0,>DH,DH2
Rearly Grid Cost Q80,D8H,>0> Q03>,D20,D20
Annual Payments; All +ixed Costs <=>-;#%?;@-% <>=A;#%>;#%@
Total Annual Costs <,%%;A%?;-A( <A#>;A%=;>,#
Ex!ected Electricity eneration
Generation Ca#acity 5k17 =,000,000 =,000,000
Ca#acity !actor >0N >0N
"ine "osses 00N 8N
Total Electricity Generation 5k1hFyear7 2,H23,=20,000 2,202,80H,000
Average Generation Cost 5QFk1h7 Q0(0HH2 Q0(0H>8
Average Trans$ission Cost 5QFk1h7 Q0(008= Q0(003D
Average Total Cost 5QFk1h7 Q0(03>D Q0(082>
=0
To dra concl&sions a%o&t the co$#etitiveness of ind energy &nder each scenario, e
$&st co$#are the average total cost to $arket #rices( +oever, e $&st incl&de a
delivery charge to calc&late the average total cost of electricity service( The average
national delivery charge in 200H a$o&nted to Q0(0=20Fk1h 5EEA 2003%7, or
Q0(0=>DFk1h after adj&sting for inflation( Adding this delivery cost to %oth o&tco$es,
e find the average cost of electrical services to %e Q0(0020Fk1h in *cenario A and
Q0(00H2Fk1h in *cenario ;(
1e are no #re#ared to consider the econo$ic via%ility of %oth scenarios( En *cenario A,
ind)generated electricity o&ld co$#ete in the -enver electricity $arket( ;eca&se no
city)level data is availa%le, e ass&$e that -enver #rices $atch average electricity #rices
across Colorado( This #rice is Q0(0808Fk1h after adj&sting for inflation 5EEA 2003c7( At
Q0(0020Fk1h, ind)generated electricity is significantly $ore e'#ensive( And hile it is
in the nat&re of averages to have so$e fig&res a%ove and other fig&res %elo, a nely)
installed electricity generating facility o&ght to %e %elo the average cost, so that it can
contin&e to co$#ete as its technology %eco$es o&tdated( Therefore, ind)generated
electricity is too costly to co$#ete in the -enver electricity $arket, $aking *cenario A as
econo$ically infeasi%le(
En *cenario ;, ind)generated electricity o&ld co$#ete in the "os Angeles electricity
$arket( Again, ass&$ing city)level #rices to reflect state)level data, the o%served $arket
#rice for electricity is Q0(0=32Fk1h 5EEA 2003c7( At Q0(00H2Fk1h, ind)generated
electricity is co$#etitive in the far)aay "os Angeles $arket( -&e to variations in
average electricity #rices across states, ind energy in 1yo$ing is econo$ically via%le
in distant Californian $arkets(
1ection -: Policy Variables
En this section e ill consider the effect of #olicy varia%les on the econo$ic via%ility of
ind energy in local and distant $arkets( *#ecifically, e ill consider the effect of the
=2
Prod&cer Ta' Credit ithin o&r $odel, and the #otential effect of a ca#)and)trade sche$e
for Car%on e$issions(
The Producer Tax Credit
6&r original $odel ass&$ed a ne&tral #olicy stance ith res#ect to ind energy(
;y &sing this a##roach, e o%serve that ind energy is via%le in *cenario ; even itho&t
the Prod&cer Ta' Credit 5PTC7( +oever, &tili4ing this credit $ight drive don the costs
of ind)generated electricity, f&rther increasing co$#etitiveness and #otentially o#ening
&# ne $arkets( Therefore, e no consider the effect of the Prod&cer Ta' Credit(
The 8enea%le Electricity Prod&cer Ta' Credit 5PTC7 #rovides a 2 centsFk1h ta'
credit to all ind far$ #rojects( Tho&gh still not as large as ta' credits for coal, oil, and
nat&ral gas, the PTC co&ld significantly %oost the #rofita%ility of ind energy(
Unfort&nately, the PTC is largely inaccessi%le to ind energy #rod&cers( ;eca&se it is a
ta' credit rather than a direct s&%sidy, the PTC is only orthhile hen co$#anies have
ta' lia%ilities that they ish to eli$inate( Cor#orate ta' lia%ilities o&ld occ&r hen
co$#anies are generating #rofits( +oever, d&e to the high ca#ital costs of ind far$s,
#rod&cers are not #rofita%le &ntil after their =0)year loans are re#aid( And %eca&se the
PTC only lasts for 00 years, it cannot %e accessed %y ind energy #rod&cers( Th&s, this
#olicy is largely ineffect&al at increasing the co$#etitiveness of ind)generated
electricity(
+oever, %eca&se these ta' credits are so $assive 5over Q080 $illion ann&ally for
o&r =G1 #roject7, creative #rod&cers ill find clever ays to ca#t&re the$( The si$#lest
5and #erha#s $ost co$$on7 $ethod of &tili4ing the PTC is for #rod&cers to a##ly the ta'
credits to se#arate so&rces of #rofit( !or e'a$#le, a large ranching fir$ $ight decide to
%&ild a ind far$ on a #ortion of their land 5t&r%ines and cos coe'ist <&ite ell7( The
fir$ can then &se the ta' credits ac<&ired fro$ selling ind energy and a##ly the$ to
their ranching inco$e, hich &nlike the ind far$ #resents ta'a%le near)ter$ #rofits(
==
This arrange$ent has the #otential to create so$e odd %edfellos in the ind energy
ind&stry(
6verall, the Prod&cer Ta' Credit is #oorly designed to increase the
co$#etitiveness of ind)generated electricity( Ta' credits in general are ineffective tools
for %ringing ne technologies to $arket, %eca&se they #res&$e that the technology is
already in the $arket and earning a ta'a%le #rofit( A n&$%er of refor$s co&ld re#lace the
PTC ith a federal incentive that did increase the co$#etitiveness of ind)generated
electricity, the si$#lest of hich o&ld %e a direct s&%sidy( 1e ill ne't consider an
indirect ro&te to increasing the co$#etitiveness of ind energy/ a ca#)and trade #olicy for
car%on e$issions(
Ca!BandBTrade
The c&rrent #olicy environ$ent co&ld not %e $ore favora%le to a ca#)and)trade
syste$ for car%on e$issions( 1ith all three $ajor Presidential candidates advocating a
ca#)and)trade #olicy, car%on e$issions ill likely #ose a financial lia%ility in the near
f&t&re( *&ch an o&tco$e is #artic&larly favora%le to non)e$itting so&rces of energy,
incl&ding ind energy( ;eca&se o#eration costs for its co$#etitors ill rise, ind)
generated electricity $ay %eco$e econo$ically via%le in ne $arkets(
To analy4e the i$#act of a ca#)and)trade syste$, e ass&$e that the #rice of
car%on in A$erica ill %e Q>0Fton of car%on, a n&$%er derived fro$ E&ro#ean #rices
5c&rrent as of S&ne 0 20087( 1e then look at ann&al car%on e$issions in California and
Colorado, foc&sing on the largest electricity so&rce(
En California, the largest electricity so&rce is nat&ral gas, ith >0(DN of the
$arket( Nat&ral gas #lants e$it D0,H20,000 $etric tons of car%on ann&ally( :&lti#lying
this fig&re %y the cost of car%on and dividing %y ind&stry o&t#&t, e find that a ca#)and)
trade syste$ o&ld lead to a Q0(02Fk1h add)on to gas)generated electricity #rices in
California( Ass&$ing that gas)generated electricity #rices are e<&al to average electricity
=>
#rices, e find the ne average #rice of electricity to %e Q0(0D32Fk1h( At Q0(00H2Fk1h,
ind)generated electricity is significantly chea#er(
En Colorado, the largest electricity so&rce is coal, ith 30(DN $arket share(
Colorado coal #lants e$it =H,2H2,>2D,000 tons of car%on every year M a startlingly)high
fig&re( Under a ca#)and)trade syste$, these e$issions o&ld %e #riced at Q>0FtonC,
re<&iring Q0(> %illion in credit #&rchases( Averaged over o&t#&t, this leads to a
Q0(0>Fk1h increase in the cost of coal)generated electricity( This o&ld raise the average
#rice of electricity to Q0(0208Fk1h, ell a%ove the average cost of ind)generated
electricity 5Q0(0020Fk1h7( Therefore, &nder a ca#)and)trade sche$e ind energy is
econo$ically via%le in the -enver $arket( *cenario A, in hich ind)generated
electricity as trans#orted to local de$and sites, is via%le in the #resence of ca#)and)
trade(
1ection =: Conclusion
6&r cost analysis shos that ind)generated electricity is co$#etitive &nder a
variety of scenarios( Under o&r c&rrent #olicy environ$ent, e find that ind)generated
electricity is not co$#etitive in local $arkets, %&t is co$#etitive hen trans$itted to
distant $arkets to e'#loit regional #rice variations( Ef a ca#)and)trade syste$ ere
ado#ted, e #redict that ind)generated electricity o&ld %e co$#etitive in %oth near and
distant $arkets(
=D
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1htt#/FF(eia(doe(govFcneafFelectricityFstV#rofilesFeV#rofilesVs&$(ht$l2(
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of *edish ind #oer,P PEnviron$ental ,al&ation in -evelo#ed Co&ntries,P
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=H
E&ro#ean Co$$ission ( 0223( P Energy for the f&t&re/ 8enea%le so&rces of energy M
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Thtt#/FFe&ro#a(e&Fdoc&$entsFco$$FhiteV#a#ersFU(
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=3
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=8
APPE9*.C TO
Wind Energy: A Thorough Examination
of Economic Viability
Energy and Energy Policy
University of Chicago, 2008
Tao Xie
Nikola Pejnovic
Andre !ischer "ees
Eve Eing
A!!endix Ex!lanation
-&ring o&r research e have ran into $any #olicies and e'a$#les of 1ind Poer
andFor energy trans$ission o%stacles( *ince not all of these can %e directly &sed in o&r
research #a#er, the a##endi' is an additional so&rce of infor$ation one $ay ant to
kno a%o&t the s&%ject(
=2
Overview of the Problematic and Challenges
1ind Poer Energy has %eco$e $ore and $ore #o#&lar to the investors,
govern$ent, and general #&%lic since the 0230s( The aakening of higher invest$ents in
ind energy as ca&sed %y groing need for energy sec&rity( There are, hoever,
n&$ero&s #ro%le$s and challenges, %oth short and long ter$, ith develo#ing ind
#oer generation(
The U(*( -e#art$ent of Energy identifies several key challenges in ind #oer
energy develo#$ent/ risk #erce#tion, the trans$ission and grid li$its, the lo
co$#etitiveness of ind energy, lo s#eed ind location &sage, lack of infrastr&ct&re for
trans$ission, reg&latory #olicy, environ$ental #olicy, environ$entalists, and general
#&%lic o#inion 5-6E 2003, 8, 087(
8isk #erce#tion is a challenge since ind energy is #erceived risky since it
de#ends on the #resence of ind( !or e'a$#le, glo%ally agric&lt&re too de#ends on
hether 5rain and s&nny days7, %&t for agric&lt&re e have a long history and large data
sa$#le fro$ hich to esti$ate the risk( Even tho&gh the technology for installing ind
energy at %etter locations is cost efficient co$#ared to other technologies, the $arket has
a high risk #erce#tion of the availa%ility of ne technologies 5-6E 2003, 8, 027(
Trans$ission channels o#erate &nder strict reg&lations and o#erational #olicies(
These trans$ission restraints and the lack of knoledge of ind generated energy.s
i$#act on the grid s&s#end ind energy develo#$ent 5-6E 2003, 8, 027( Therefore,
develo#ing ind energy itho&t the develo#$ent and research of trans$ission is
inefficient(
>0
The ind energy itself is still costly( The cost of ind energy is co$#etitive to the
latest conventional
3
technologies9 nonetheless, the syste$ cost of ind energy.s technical
develo#$ent is still too high 5-6E 2003, 8, 027( 8ed&ction of these costs ill ena%le the
ind energy to %e &sed at an even $ore co$#etitive rate(
The lo s#eed ind locations are econo$ically not as risk)safe as high s#eed
ind locations d&e to #erce#tion of higher ind location yielding $ore energy than loer
ind location( Nonetheless, they too are a reso&rce and hile the e'cellent ind
locations are %eing &sed and attached to grids there is a need to #re#are cost)effective
access to lo ind generating areas 5-6E 2003, 8, 027(
The e'isting trans$ission netork is li$ited 5-6E 2003, 8, 027( The netork needs to
%e e'#anded to reach o&t to the distant locations at hich often renea%le energy
reso&rces are located(
The reg&latory agency has set &# reg&lations #revio&sly adj&sted to non)
renea%le energy reso&rces and no they need to %e adj&sted for the renea%le energy
so&rces( The reg&latory energy a##rovals are confo&nd to &nclear #redis#ositions9 even
$ore so, the se#arate reg&latory #roced&res e'ist across local, state, and federal levels
increasing costs of ind energy far$ installation5-6E 2003, 8, 027(
6ne can therefore concl&de that 1ind energy and Trans$ission develo#$ent are
closely related( The fall in cost of ind energy yields only a li$ited res&lt if s&ch energy
$ay not reach its cons&$ers cost)efficiently 5-6E 2003, >>7( Trans$ission develo#$ent
is enco&raged %y 1ind Poer Energy groth hich cannot develo# itho&t cost)
7
Conventional refers to all non-renewable energy resources, primarily: Coal, Natural
Gas, and Nuclear
>0
efficient trans$ission( -evelo#ing do$estic Energy #rod&ction ill &lti$ately hel#
?sec&re @the U*A energy econo$yB 5-6E 2003, 227(
overnmental incentives and !rograms
There are $&lti#le incentives, $onetary and logistical, that govern$ent #rovides
to foster groth of 1ind Poer Energy develo#$ent/ research, develo#$ent, and
de#loy$ent co)o#eration 58-C-7, #rod&ction ta')credit 5PTC7, 1ind Energy Progra$
51EP7, 1ind Poering A$erica 51PA7, -istri%&ted 1ind Technologies 5-1T7, Energy
Policy Act 200D 5EPA7, Energy and Policy Conservation Act 5EPCA7, !ederal Energy
:anage$ent Progra$ 5!E:P7, 8enea%le Portfolio *tandards 58P*7, Advanced Energy
Enitiative 5AEE7, Advanced 1ind T&r%ine Progra$ 5A1TP7, and Clean 8enea%le
Energy ;onds 5C8E;7(
The 8-C- #rogra$s are fostered to develo# ne technologies in a $anner that
o&ld hel# investors $anage 1ind Poer far$s that are econo$ically feasi%le( This is
achieved %y cond&cting research that red&ces the technology cost 5-6E 2003, 227( The
-e#art$ent of Energy ai$s to also cond&ct %asic research in high)risk energy so&rces in
order to long ter$ $ake the$ $ore attractive to investors 5-6E 2003, 2=7( Therefore
hat o&ld %e fi'ed #reli$inary costs in research for 1ind Poer investors is no
cond&cted %y the govern$ental agency, res&lting in loer cost of research9 $ore so,
co$#anies can no re)allocate research $oney for $ore concrete research( Any s&ch
govern$ental research is the #&%lic access of that infor$ation, red&ces co$#etitive
advantage of investors in 1ind Poer(
>2
*o$e research re<&ires high risk heavy ca#ital invest$ent here in c&rrent
govern$ent needs to ste# in the $arket econo$y( There are t&r%ine testing #rojects that
re<&ire s&ch facilities and infrastr&ct&re 5-6E 2003, 2=7( The #rogra$ hel#s the
govern$ent develo# data to esti$ate national standard #ara$eters hile red&cing the
co$$ercial risk for investors 5-6E 2003, 2=7( *&ch #rojects are &s&ally r&n either %y
the !ederal agencies or in #&%lic)#rivate #artnershi#s 5-6E 2003, 2=7( *ince the #roject
has %enefits for the govern$ent and significantly red&ces risk of sink cost in #reli$inary
research for investors, the #&%lic)#rivate testing #rojects $ay %e econo$ically j&stified(
1EP is #art of the 1ind and +ydro#oer Technologies Progra$, and
concentrates on research that o&ld develo# the relia%ility of 1ind technology, cost)
efficiency of 1ind Prod&ction, and s$all)scale ind technology to &lti$ately sho the
feasi%ility of investing in ind 5-6E 2003, 007( Aare of i$#ortance of the grid to 1ind
energy distri%&tion, 1EP also concentrates on researching the challenges %ehind the
integration of the #oer grid, trans$ission and technological co$#ati%ility ith energy
fro$ 1ind #rod&ction far$s 5-6E 2003, 027( There are fo&r $ain s&% #rogra$s of
1EP( 6ne #rogra$ is a technological ,ia%ility research of large)scale ind t&r%ines/
"arge 1ind Technologies 5"1T7 5-6E 2003, ==7( *econd #rogra$ addresses the
research of ?s$aller distri%&ted ind technologyB 5==7( Third #rogra$ cond&cts
technology a##lication research addressing the research in trans$ission and syste$
integration 5*E7 5==7( !o&rth #rogra$ is technology acce#tance seeks the o&treach
activities ith different gro&#s s&ch as state)%ased organi4ations, environ$ental st&dies,
and &tility #artnershi#s 5==7( Ulti$ately 1EP e'#lores sol&tions to nat&ral varia%ility of
>=
1ind energy #rod&ction, the interconnection of s&ch volatile energy so&rce ith the grid,
and trans$ission of the energy to a##ro#riate load centers 5=07(
The "1T in addition to $entioned activities s#ecifically orks on lo ind
s#eed technologies as ell as the off)shore ind t&r%ines 5=>7( The strong ind areas are
%eco$ing $ore interesting, yet the lo ind s#eed areas are act&ally also &sa%le yet
$ore research needs to %e cond&cted( -1T also e'a$ines lo s#eed areas %&t that is
%eca&se the research in -1T e'a$ines #ossi%ilities of local &sage of 1ind T&r%ines that
o&ld release %&rden on the grid 5H27( ;y local one $eans schools, far$s, factories, and
general #&%lic and #rivate facilities 5H27( Also -1T can hel# so$e secl&ded, isolated,
re$ote, andFor r&ral areas 5=D, D0, H27( The research of energy s&##ly in re$ote areas on
s$all scale can save h&ge costs of develo#ing a #oer line to the national trans$ission
grid( 6n the other hand, develo#ing s$all scale re$ote ind #oer generators can have
i$$ense costs9 after all, 0:1 t&r%ine has an a##ro'i$ate cost of 0 $illion dollars(
*yste$ integration #art of 1EP serves $ostly the govern$ent thro&gh collecting data
fro$ ind far$s, analyses the grid o#erations, develo#s grid reg&lations, and #lans
trans$ission and grids 5=>7( Thro&gh *E, researches are enco&raging trans$ission
ind&stries to have $ore ind #oer clean energy #assing thro&gh the #oer lines to final
cons&$er, the federal and states. officials to i$#le$ent $ore #olicies favoring this action
%y trans$ission fir$s 58H7( A $entioned #revio&sly the #erce#tion of high risk is a Lred
light. in ind energy, and *E orks on ed&cating the energy ind&stry of real state of
develo#$ent of ind energy(
The 1PA #roject that started in 0222 concentrated on the LA$erica. as#ect/ the
#roject enco&raged a higher federal involve$ent to enco&rage national not j&st regional
>>
develo#$ent 5037( Prior to the #rogra$ California and :innesota ere $ost advanced
ind #oer develo#ers d&e to state initiatives 5037( This infor$ation fro$ -6E does not
hoever %ack)&# 1PA.s direct i$#act on the develo#$ent of ind #oer(
There are #rogra$s that -6E clai$s to have had significant i$#act in attracting
ind #oer ca#acity e'#ansion( 8enea%le Portfolio *tandards 58P*7 are state)%ased
initiatives hel#ing the develo#$ent of ind energy 5227( The #ercentage of ind #oer
ca#acity %&ilt in 0222 as aro&nd DDN for that to rise to 3DN %y 2003 5-6E Ann&al
2003, 287( The data shos that states itho&t state)%ased #olicies dro##ed their
#ercentage fro$ >DN to 2DN( +oever, the infor$ation does not take into acco&nt that
states have significantly different levels of $a'i$&$ #ossi%le ind #oer ca#acity and
that in %eteen 0222 and 2003 $ore states $ight have started 8P* #olicies(
Nevertheless, a j&$# fro$ DDN to 3DN is a sign that $ore ind #oer ca#acity facilities
have %een %&ilt( Inoing that ind energy groth is so recent that e have risk of
#erce#tion #ro%le$s d&e to lack of data, the groth co&ld have %een i$#acted %y other
#olicies(
The Prod&ction Ta' Credit 5PTC7 on the other hand has left %ehind so$e
interesting effects that sho ho after its first i$#le$entation it had significant i$#act of
ind #oer ca#acity groth( The PTC as fo&nded in 0222 and since had a fe
$odifications9 PTC s&##orts energy generated thro&gh renea%le energy so&rces %y
allocating a 2 cents #er k1h 520037 for first 00 years of o#eration 5287( The #rogra$ as
not active every year and as s&s#ended in years 2000, 2002, and 200>( The years the
PTC as not enacted there as a significantly strong dro# in ind ca#acity groth, hile
all the other years 0222, 2000, 200=, 200D, and 200H there as a $&ch higher ca#acity
>D
groth 5-6E 207( Therefore the PTC is highly sti$&lating federal incentive( The -6E
esti$ates that PTC sti$&lated the #rod&ction of nearly 02G1 of ind #oer 5207(
The PTC data gave $&ch enco&raging data to officials %&t res&lted in a disaster
for the t&r%ine ind&stry( The sings in ind #oer groth have $ade the de$and for
t&r%ines very volatile, hich then res&lted in higher costs and shift of cons&$#tion of
t&r%ines to foreign %ased co$#anies 5207( 1hat is interesting is that this negative effect
co&ld have %een #redicted( En the 028Hs in California there as a c&t of ta' credits and
other incentives res&lting in %ankr&#tcies of t&r%ine $an&fact&rers 50>7( The negative
effects the ta' credit incentive can ca&se are th&s very dangero&s( The effort ta' credit
allocates to increase the groth of ind energy ca#acity can %e econo$ically di$inished
%y the risk of ind infrastr&ct&re #rod&ctivity dro#s(
En the after$ath of the %ankr&#tcies in the t&r%ine $an&fact&ring ind&stry,
Advanced 1ind T&r%ine Progra$ 5A1TP7 as la&nched in 0220( The #rogra$ ind&ced
the cor#orations to have their ind t&r%ine designs incl&de neer technologies that the
#rogra$ recogni4es as necessary for $aintaining co$#etitiveness on the $arket 50D7( En
the second #hase, the #rogra$ #rovided logistics in testing t&r%ines for Class > ind
hich targeted the ga# sector in t&r%ine develo#$ent/ %eteen earlier and f&t&re)ne)
generation t&r%ines 50H7( The A1T efforts $ight %e a%le to %e a good ay of enco&raging
do$estic ind&stry to develo# innovations itho&t directly affecting their cash flo ith
direct financial incentives(
2ocal; 1tate; 0egional; +ederal organiDation and regulation
>H
The ad$inistration hoever in so$e sit&ations ca&ses #ro%le$s, challenges, and
disr&#tion to the incentives #rod&cing a co&nter effect( 6ne reg&latory #ro%le$ is that
incentives $ay not %e sa$e across state %orders( 1hile so$e states are favora%le to 8P*
other states have no advanced initiative toards ind #oer generation9 $eanhile, in
all states the PTC is availa%le( 1hat is orse, certain areas of the co&ntry $ay %e
&nderdevelo#ed in ter$s of technology and logistics in #lanning and hel#ing trans$ission
co$#anies that hel# the distant ind #oer #lants trans$it ind #oer generated
electricity to other states(
The -6E reali4es that a federal s&##ort is necessary in enco&raging develo#ing
the ind technologies across states 52>7 5-6C 2003, 827( *o state)%y)state e'#ands to %e
region)%y)region, according to *E, aare that each region in U* has different grid
netorks ith different e'#ectations, reg&lations, sched&ling, reserves, and line voltage
532, 837( En recent years the #ro%le$ as a##roached %oth on regional and national level(
Energy Policy Act of 200D 5EPA7 assigned !ederal Energy 8eg&latory Co$$ission
5!E8C7 to ?a##rove #ro#osed ne trans$ission facilities in @corridors re#orted %y the
National Electric Trans$ission Co$#ression 8e#ort 5NETC87A if the states fail to do so
ithin one yearB 5-6E Ann&al 2003, 237( These corridors are the *o&thest Area
National Enterest Electric Trans$ission Corridor and the :id)Atlantic Area National
Enterest Electric Trans$ission Corridor(
6n the other hand reg&lation charges across states is different here in so$e
states the ind #oer o#erator needs to #ay the reg&lation charges in so$e states and
regions ?@reg&lation is a service #rovidedA %y the #oer syste$ or regional trans$ission
organi4ation 58T67Yith costs #aid %y the load)serving entitiesB 5-6C 2003, 8=7(
>3
Therefore creating a corridor does not $ean that ind o#erators or load)services can
feasi%ly %&ild these netorks hen reg&lation and #olicy changes state)%y)state(
Another reg&lation that is ind #oer s#ecific is height li$it( *o$e co&nties
andFor local a&thorities li$it the height of the t&r%ine 53=7( The technological
develo#$ent res&lted in greater energy yield in ne ind t&r%ines that are higher, and
therefore $ore econo$ically feasi%le than the older loer t&r%ines( Therefore, ind
energy faces legislation that %locks the #ossi%ility of technological develo#$ent in s&ch
areas, sloing don the co$#etitiveness to conventional and other renea%le energy
generators(
Transmission
!E8C also adj&sted the 6rder 888 #enalties to costs for energy i$%alance that
as a %&rden for ind energy 5-6C Ann&al, 237 5-6C 2003, 827( The trans$ission
co$#anies too are affected %y the sa$e, 820, !E8C order( Trans$ission co$#anies are
re<&ired to &ndergo ?o#en trans$ission #lanningB ith regional and local a&thorities9
f&rther$ore, if a fir$ tries to &se #oint)to)#oint trans$ission and that service cannot %e
#rovided %y the trans$ission co$#any, the trans$ission co$#any needs to e'a$ine
alternative trans$ission #ossi%ilities 5-6C Ann&al, 237( The Le'a$ine. definition does
not i$#ly an Lo%ligation(. The !E8C order $ight dont&rn the #ossi%ility of invest$ent
in trans$ission d&e to &ncertainty the trans$ission co$#anies of costs in alternative
trans$ission re<&ire$ent in case of lack of e'tra ca#acity(
>8
The trans$ission lines have to %e ca#a%le of directing energy fro$ different
energy #rod&cers to s#ecific cons&$ers( This is tr&e in *eden here cons&$ers have
the #ossi%ility of choosing their electricity #rovider %ased on hether or not the
#rovider.s electricity has so$e ?greenB
8
or all ?greenB energy 5Ek, 0807( En the case of
electricity fro$ ?greenB #roviders there as a #re$i&$ cons&$ers had to #ay 50807(
*&ch $eas&res $ay %e effective in areas here the #&%lic has a strong #ositive attit&de
toards renea%le energy, %&t #revio&s research shos that one cannot e'#ect the
n&$%er of those illing to #ay $ore for ?greenB to %e high 508=7( Treating ?greenB
energy as a slightly different #rod&ct ith a different #rice $ay %e j&stified yet s&ch
action does not hel# the ind #oer energy %eco$ing $ore cost)effective( Peo#le are
free to choose their #roviders in s&ch $arkets and can therefore shift %ack to loer)cost
energy #roviders in hardshi#9 s&ch #rice #olicy $akes ?greenB #oer $ore of a l&'&ry
good(
.nstitutions
*o$e govern$ental instit&tions have a #ro%le$ ith t&r%ines %eing set &# in their
neigh%orhood( 6ne diffic&lty is that t&r%ines $ay inflict ith the radar syste$s 5-6C
2003, 22)0007( As a res&lt of an Enteri$ Policy %y the -e#art$ent of -efense and the
-e#art$ent +o$eland *ec&rity there ere h&ndreds of #rojects that had to %e sto##ed
50007( These events are i$#ortant as they send negative signals to investors that there are
#olicies that $ight %e i$#le$ented on a trial)error %asis( :eaning, there are no higher
varia%le f&t&re costs that co$#anies $ight &se in calc&lating the cost of invest$ent that
8
Green refers to electricity generated from a renewable energy source
>2
$ight t&rn don their interest in ind energy( The -6E $entions that there is a ?lack of
&nderstanding of ind t&r%ine technology, dyna$ics, availa%le reso&rcesB res&lting in
lack of infor$ation for %oth the #&%lic and investors 50007( "ack of infor$ation for
investors increases risk, and higher risk res&lts in less investors(
The environ$entalists too are concerned in t&r%ines affecting the nat&re in the
near%y areas( Nonetheless, the lack of concrete knoledge of the environ$ental i$#acts
co$#licates additionally the a##roval of #rojects d&e to inca#a%ility of the a&thorities to
#redict the environ$ental effects 50007( These &ncertainties increase ti$e and e'#enses
so that fir$s cannot #redict ell the econo$ic feasi%ility of the #rojects they ant to
invest in( :oreover, the local and state officials to lose data ith hich to j&stify their
s&##ort in ind energy develo#$ent s&##ort in areas here the #&%lic $ight %e rel&ctant
toards ind #oer generation 50007(
The ind #oer does hoever generate 4ero)e$issions that can enco&rage the
states to enco&rage the develo#$ent of ind #oer energy generation in order to loer
the air #oll&tion levels 5N8E", 07 5N8E" 1ind, 27( The states have to co$#ly to federal
li$itations on nitrogen o'ide 5>7( The N6' ca# enco&rages invest$ent in ind #oer as
investors do not have to inc&r #resent and f&t&re #ossi%le ta'ations, fees and ca# #olicies
for air #oll&tion(
There are *&##le$ental Environ$ental Projects that let co$#anies redirect their
#enalty for air #oll&tion into invest$ent of renea%le energy develo#$ent, f&t&re
#oll&tion #revention andFor co$$&nity environ$ental #rojects(
200
The #olicy does not
9
:nited "tates (nvironmental ;rotection /gency, "upplemental (nvironmental
;ro-ects, #ttp:**wwwepagov*compliance*resources*policies*civil*seps*sepguide-
mempdf, 2<<2
1<
National 'enewable (nergy )aboratory, "upplemental (nvironmental ;ro-ects
:sing 'enewable (nergy: / New /pproac# to /ddressing /ir =uality >iolation
;enalties, #ttp:**wwwnrelgov*docs*fy<1osti*29441pdf, 2<<1
D0
affect the cost)efficiency of s#ecific ind #oer co$#anies, yet #ro$otes clean air #oer
generation(
The &ncertainties $ay %e the e'#lanation hy no to# !ort&ne 000 co$#anies
invest in ind energy, hile there are co$#anies in solar energy generation field( The
-6E goes f&rther and &ses this infor$ation to state that lack of !ort&ne 000 co$#anies is
hy ind does not get as $&ch #&%licity necessary to raise #&%lic aareness 5-6C
2003, 327( *&ch a concl&sion does not have any $ore significant statistical %ack&#(
The 3ar4et
1ind Poer $arket also de#ends on the trans$ission $arket( Therefore the
trans$ission develo#$ent and cost)efficiency also co$es afloat( The ti$e needed for an
investor to develo# the ind far$ is often shorter than the lengthier ti$e necessary for
ne trans$ission lines to %e set)&# 5-6E Ann&al 237( 6ne to three $illion U*- is the
-6E esti$ate of one $ile of ne trans$ission line for ind #oer generated electricity
58=7( !&rther$ore, once the trans$ission line is %&ilt there is a #ossi%ility of not reaching
o#ti$al ca#acity &sage d&e to lo ind yield 5237( *o for co$#anies that have to develo#
their on trans$ission netork, the ind energy itself $ight %e e'tracted cost)efficiently
yet the trans#ortation $ay increase the costs to a non efficient level( *i$ilarly, the $ore
cost efficient the ind ca#acity the greater the s#ace for the cost of trans$ission in
$aintaining the cost)efficiency 5D07( 6ne ay $eas&re -6E s&ggests is to red&ce c&rrent
average distance %eteen D0 national load centers fro$ D00 $iles to 000 $iles, red&cing
the trans$ission cost &##er %racket and loering the risk of trans$ission %lockage of
ne't generation ind develo#$ent 5D07( These #ro%le$s are addressed in EPA here
D0
there -6E is in charge of develo#ing a dialog&e a$ong all levels of elected a&thority
5local thro&gh !ederal7 and other gro&#s that ill res&lt in consens&s decision on
develo#$ent of trans$ission infrastr&ct&re 5807(
1ind as a renea%le energy so&rce that constantly %eco$es $ore and $ore can
%e effected not only %y #olicies concerning the ind andFor other renea%le energy
reso&rces %&t also %y #olicies in conventional energy reso&rces( The fact that the ind
energy is not a constant so&rce of electricity, %eing o#en to varia%ility levels, s&##orts
ind energy facing different challenges than other energy so&rces 5D27( !ederal #lans for
f&t&re energy develo#$ent allot D0N of the 00 %illion %&dget to coal and 20N to n&clear
energy ind&stry alone 5227( These ind&stries have a co$#etitive advantage of %eing close
to the &tility grid and have the a%ility to co$#ly ith c&rrent $arket r&les 5807( 1hat
-6E refers to is the fact that $ost ind #oer far$s are distant fro$ load centers and
final &sers and have to develo# hole netorks of trans$ission( The c&rrent $arket r&les
have costs for insta%le s&##ly of electricity( The ind energy #rod&ces very &nsta%le
<&antities of electricity hile the conventional energy reso&rces s&##ly a sta%le level of
electricity( 8eg&lation e'ists, as $entioned, here sta%ility of s&##ly is essential or else
the o#erator has to #ay charges(
Nonetheless, so$e of these #ro%le$s can %e avoided or orked aro&nd( The
offshore t&r%ines yield at the right locations the $ost ind #oer electricity( The offshore
ind #oer far$s are often close to the $ainland and the load centers, shortening the
costs of trans$ission 5=07( 6ffshore t&r%ines $ay %e greater in dia$eter and yield
co$#aratively $ore energy than $ainland t&r%ines at sa$e ind s#eeds( -&e to high
initial e'#enses in the offshore #rojects, the U* $ight have to ait another decade for
D2
this #roject to develo# 5=07( +oever, e'#erience in E&ro#e has shon that the Lshallo)
ater. #rojects cost 0(= to 0(D ti$es as $&ch d&e to $ariti$e environ$ental costs9 not to
$ention, the accessi%ility of land and t&r%ines the$selves at the sea is $ore e'#ensive
than $ainland constr&ction and o#erations 5D27(
En order to receive a #er$it to %&ild a ind t&r%ine one needs to cond&ct
#reli$inary ork and higher hole staff that ill develo# a #ro#er a##lication( The
offshore sites in the U*A have a greater chance of %eing ref&sed than $ainland sites 5D>7(
The risk of a##lying to offshore %eco$es an econo$ical #ro%le$ for the co$#anies ill
#refer to a##ly to less energy yielding energy generating #oer far$ locations in order to
avoid s&nk costs fro$ an offshore t&r%ine #roject rejection(
1ind #oer energy generation has significantly risen since 0222, and lacks
historical develo#$ent conventional energy generators had e'#erienced( "ack of data
ca&ses lo relia%ility of t&r%ines9 nonetheless, %eing a yo&ng energy ind&stry, ind
#oer lacks $aintenance and logistical s&##ort 53>7( En addition to #revio&s ga#s in
infor$ation, the risk level as s&ch that the investors illing to invest in ind energy are
the ones that in 2003 have %een affected %y the credit crisis 5-6E Ann&al, 0>7
CoBo!eration
6ne #ro#osal -6E e'e$#lifies $ight solve <&ite so$e #ro%le$s( There is a
#ossi%ility of coo#eration %eteen the ind #oer and hydroelectric #oer #lants( The
to co&ld %e &nited into one gro&# here hen ind o&ld generate electricity the
hydro#oer #lant co&ld fill the reservoir and then hen ind #oer is not generating
eno&gh electricity, the hydro #oer co&ld fill in the ga# 5-6E 2003, 827( *&ch a #roject
D=
co&ld hel# the investor $ake a $ore relia%le esti$ate of daily electricity #rod&ction,
ena%ling hi$Fher to $ake a clearer esti$ate of inco$e for k1h s&##lied( Nonetheless,
there is real #ossi%ility that the no the hydro#oer #lant o&ld not o#erate at its
o#ti$al level( Also, hydro#oer #lants are very de$anding and heavy fi' cost #oer
#lants re<&iring $&ch s#ace and ater reso&rces(
D>