Lumbering Toward a New Grid
September 4, 2013
Traditional Utility generation – the hub-and-spoke model, with a big power plant servicing many small users, is on the way out, as new technologies and transmission options become available – typically in patchwork fashion, around the country. Because we have no national plan for rethinking our aging grid infrastructure, and because the sclerotic congress seems content to allow America’s electric grid to lapse into third world status, corporations and state authorities have been building new connectivity piecemeal, with disruptive results.
The stories illustrate how cheap renewable energy is steadily blowing away competition and blowing up old business models when it comes online.
The U.S. grid is actually three grids: power generated in the east can’t really move to the west; power generated in the west can’t really move to the east. And Texas – in true Texas fashion – is an electrical state unto itself.
This Balkanized power grid, however, appears to be on the verge of breaking open, with the result that at least some electrons will be free to flow as the market dictates. And that could have particularly positive implications for generators of renewable power.
“This is a ground-breaking project,” said Russ Stidolph, senior vice president and chief financial officer of Tres Amigas, a company that aims to unite the three grids. The project, which has the same name, will be constructed near Clovis, New Mexico, where the interconnections come close to converging.
The developers are seeking $550 million to fund the first phase, which Stidolph said the company expects to begin building by the end of December. The first phase would allow 750 megawatts to move between the eastern and western grids (by way of comparison, the average coal-fired power plant in the U.S. can generate about 550 megawatts). The Tres Amigas developers envision a second phase that would establish a connection between the eastern grid and the Texas grid, allowing for the movement of 1,500 megawatts.
“There’s significant demand for transfer among the three grids,” Stidolph said. His company envisions an interconnection that continues to grow along with demand for the capacity to move electricity from one grid to another.
Power moving across longer distances
The power transmission system in the U.S. was built to accommodate a very local electricity market, in which power was sold to customers located nearby. Tres Amigas will help to enlarge the electricity market, which should help to make power more reliable and cheaper, and to enhance the movement of renewable energy.
“We think this holds great promise for delivering some of the best winds in the country to other parts of the country,” said Pat Pelstring, president and chief operating officer of National Renewable Solutions, a Wayzata, Minnesota-based developer of wind farms.
Pelstring’s company is developing a wind farm in New Mexico, close by the planned interconnect. He expects by the end of this year to complete the first phase, which will generate 20 megawatts. But National Energy Solutions is leasing 86,000 acres that straddle the border between New Mexico and Texas, where Pelstring thinks he can generate between 500 and 600 megawatts of power. Then, at least theoretically, he could send it almost anywhere in the country.
Meanwhile, in Texas, new transmission is beginning to bring huge new wind resources from remote West Texas to cities in the east – creating disruptive new realities for utilities.
A $7 billion project that will send wind power from remote areas in West Texas to Dallas, Houston and other big cities is on the verge of completion, and that could pound yet another nail into the coffin for U.S. nuclear power and, for that matter, coal. The new Texas wind power project was authorized by the state’s Public Utility Commission (PUC) in 2008. When completed some time this year it will include 3,500 miles of new line carrying up to 18,456 megawatts, and according to a trade news report, PUC is already looking to order more wind power transmission lines, apparently with connections to out of state markets.
The question is, does this really mean that nuclear and coal power are on the way out?
Well yes, eventually, according to Christopher Crane, the CEO of energy giant Exelon. In an interview with the Chicago Tribune last week, Crane predicted that the influx of low cost wind power would lead the company to start shuttering its nuclear plants.
That’s no idle conjecture (or threat, as the case may be). Direct costs and risk management issues are already casting a shadow over the nuclear industry in Texas.
In 2011, rival utility giant NRG was set to build two new power plants in Texas but backed off as a wind power surplus combined with a stiffer regulatory environment for nuclear power, consequent on the Fukushima nuclear disaster.
The U.S. market isn’t the only place where nuclear energy is getting a chilly reception due to cost and safety concerns. The U.K.’s ambitious plan to build 10 new nuclear power plants just lost the backing of British utility Centrica, which is apparently going to concentrate its resources on renewable energy as well as natural gas.
Coal is on even more shaky ground, partly because new wind farms and other clean energy facilities are beginning to offer more competitive alternatives, and also because existing coal power plants are being converted to other fuels, namely biomass and natural gas.
As for nuclear energy, the nation’s stock of aging nuclear facilities is creating one giant headache for local emergency planners to say nothing of ratepayers and taxpayers.
It’s also creating a conundrum for diversified energy companies like Exelon, which operates the nation’s largest fleet of nuclear facilities but is also rapidly embracing wind and other renewables in its portfolio.
Exelon’s first commercial wind farm only started operating in January 2012, and the company already has 44 wind projects operating in 10 different states.
SAN FRANCISCO – For the first time, Texas is connecting most of its wind farms to its largest cities. That’s bringing cheap electricity into the service area of Energy Future Holdings Corp., bad news to holders of $32 billion of the power company’s debt from the biggest-ever leveraged buyout.What began as a trickle of power to Dallas and Austin from competitors’ windmills in West Texas has started flooding the market. The supply uses new transmission cables being stretched about 3,600 miles (5,800 kilometers) across the state in a $6.8 billion project set to be fully built by December.
Subsidized wind power together with natural gas that’s plentiful from shale drilling are curbing profit at Energy Future’s atomic and coal-fed power plants. That’s eroding value to banks and investors in the event of a bankruptcy. Creditors may have to fight over a shrinking pie of profit at the company formerly known as TXU, which was taken private for $48 billion.
“The transmission is finally there in Texas to bring all the wind power to the population centers and it’s a disaster for the generation companies,” Andy DeVries, an analyst at CreditSights Inc., said in a telephone interview.
Traditional power companies across the U.S. and Europe are struggling to compete in wholesale markets with newer generators supplying subsidized wind and solar energy. In Texas, wind has more than doubled in the past six years and now makes up 13 percent of the state’s generation capacity.
Electricity prices for 2014 also have fallen. The on-peak North Texas power price for next year has dropped 19 percent since reaching a peak on May 23, according to data compiled by Bloomberg.
During a heat wave in the first week of August, ample wind supplies served to keep a lid on prices that would’ve normally spiked from the higher demand, NRG Chief Executive Officer David Crane said during a call with investors on Aug. 9.
“Wind energy reduces electricity prices and that is good for consumers,” said Michael Goggin, an analyst for the American Wind Energy Association, an industry trade group. “Wind energy has no fuel costs, allowing it to replace more expensive and polluting sources of energy.”
Once complete, Oncor’s power lines will be part of a system that can eventually deliver about 18,500 megawatts of wind power, nearly double the amount now available in Texas and 25 percent of the state’s current generation capacity.