Wind Power Is Ready

Wind Power is Ready Clean Energy Technology for Our Economy and Environment American Wind Energy Association, 2002 Image courtesy of NEG Micon

Wind Power Market Overview

Ancient Resource Meets 21 st Century Technology

Wind Turbines: Power for a House or City

Ready to Become a Significant Power Source Wind could generate 6% of nation’s electricity by 2020. Wind currently produces less than 1% of the nation’s power. Source: Energy Information Agency

Wind is Growing Worldwide Source: AWEA’s Global Market Report 1. Germany: 8754 MW 2. U.S.: 4260 MW 3. Spain: 3195 MW 4. Denmark: 2492 MW 5. India: 1507 MW

Wind Taking Off in the U.S.

U.S. installed nearly 1,700 MW in 2001

Wind power capacity grew by 66%

Over 4,265 MW now installed

Expecting over 2,500 of new capacity in 2002-2003 combined

Source: AWEA’s U.S. Projects Database

United States Wind Power Capacity (MW) 4,270 MW as of 07/31/02 Alaska 0.9 California 1,715.9 Colorado 61.2 Hawaii 1.6 Iowa 324.3 Kansas 113.7 Maine 0.1 New Hampshire 0.1 Massachusetts 1.0 Michigan 2.4 Minnesota 322.7 Montana 0.1 Nebraska 3.5 New Mexico 1.3 New York 48.2 North Dakota 1.3 Oregon 156.9 Pennsylvania 34.5 Tennessee 2.0 Texas 1,095.5 Utah 0.2 Vermont 6.0 Wisconsin 53.0 Wyoming 140.6 Washington 180.2 South Dakota 2.9 Source: AWEA’s U.S. Projects Database

1,697 MW added in 2001 Kansas 112 Wisconsin 30 Pennsylvania 24 New York 30 Oregon 132 Washington 180 Iowa 82 Minnesota 218 Texas 915 Main Areas of Growth in 2001 Source: AWEA’s U.S. Projects Database

U.S. Wind Power Capacity Growth *Source: AWEA’s U.S. Projects Database

Wind Power Economics

Cost Nosedive Driving Wind’s Success 38 cents/kWh 2.5-3.5 cents/kWh Levelized cost at excellent wind sites in nominal dollars, not including tax credit

Wind Power Cost of Energy Components

Cost ( ¢ /kWh) = (Capital Recovery Cost + O&M) / kWh/year

Capital Recovery = Debt and Equity Cost

O&M Cost = Turbine design, operating environment

kWh/year = Wind Resource

Capital Costs

Revenue Streams

Commodity Power Sale: $30-$45/MWh

Production Tax Credit: $18/MWh

“ Green Credit”: New Market, Values Vary

Debt/equity ratios close to 50%/50%

Increased debt/equity ratios can significantly increase return

Long-Term Debt

Better loan terms with longer-term power purchase agreement (PPA)

Loan terms up to 22 years, determined largely by PPA

Debt coverage ratios close to 1.4

Equity Considerations

Return requirements vary with risk

Percieved risk of wind projects may be larger than real risk

Returns evaluated after tax credit

Wind energy projects can expect return in low teens

Turbine Technology Constantly Improving

Larger turbines

Specialized blade design

Power electronics

Computer modeling produces more efficient design

Manufacturing improvements

How big is a 2.0 MW wind turbine? This picture shows a Vestas V-80 2.0-MW wind turbine superimposed on a Boeing 747 JUMBO JET

Construction Cost Elements

Technology Improvements Leads to Better Reliability

Drastic improvements since mid-80’s

Manufacturers report availability data of over 95%

1981 '83 '85 '90 '98 % Available Year 0 20 40 60 80 100

Improved Capacity Factor

Capacity Factors Above 35% at Good Wind Sites

Performance Improvements due to:

Better siting

Larger turbines/energy capture

Technology Advances

Higher reliability

Examples: Project Performance (Year 2000)

Big Spring, Texas

37% CF in first 9 months

Springview, Nebraska

36% CF in first 9 months

Bottom Line 20 Years of Wind Technology Development Economy of scale reduces price per kw of capacity Technology improvements yield more energy bang for the buck Combined, they dramatically reduce turbine price per unit of energy produced 1.5 2.2 2.6 3.6 5 9.6 Amortized cost of turbine per unit of energy 84,000 33,000 22,200 8250 3300 675 MWh produced over 15 years 39% 33% 31% 28% 25% 21% Capacity Factor $790 $950 $1,050 $1,333 $1,650 $2,600 Cost/kw $1300 $730 $580 $300 $165 $65 Total Cost 1650 750 550 225 100 25 KW 71 50 40 27 17 10 Rotor (Meter) 2000 1999 1996 1990 1985 1981

Benefits of Wind Power

Advantages of Wind Power

Environmental

Resource Diversity & Conservation

Cost Stability

Economic Development

Benefits of Wind Power Environmental

No air pollution

No greenhouse gasses

Does not pollute water with mercury

No water needed for operations

Electricity Production is Primary Source of Industrial Air Pollution Source: Northwest Foundation, 12/97

Benefits of Wind Power Economic Development

Expanding Wind Power development brings jobs to rural communities

Increased tax revenue

Purchase of goods & services

Benefits of Wind Power Economic Development Case Study: Lake Benton, MN $2,000 per 750-kW turbine in revenue to farmers Up to 150 construction, 28 ongoing O&M jobs Added $700,000 to local tax base

Benefits of Wind Power Fuel Diversity

Domestic energy source

Inexhaustible supply

Small, dispersed design reduces supply risk

Benefits of Wind Power Cost Stability

Flat-rate pricing can offer hedge against fuel price volatility risk

Electricity is inflation-proof

Wind Project Siting

Siting a Wind Farm

Winds

Minimum class 4 desired for utility-scale wind farm (>7 m/s at hub height)

Transmission

Distance, voltage excess capacity

Permit approval

Land-use compatibility

Public acceptance

Visual, noise, and bird impacts are biggest concern

Land area

Economies of scale in construction

Number of landowners

Power in the Wind (W/m 2 ) Density = P/(RxT) P - pressure (Pa) R - specific gas constant (287 J/kgK) T - air temperature (K) Area =  r 2 Instantaneous Speed (not mean speed) kg/m 3 m 2 m/s = 1/2 x air density x swept rotor area x (wind speed) 3  A V 3

Perceived Market Barriers

Siting

Avian

Noise

Aesthetics

Intermittent Fuel Source

Actual Market Barriers

Transmission constraints

Financing

Operational characteristics different from conventional fuel sources

Wind Characteristics Relevant to Transmission System

Intermittent output

Generally remote location

Small project size

Short/flexible development time

Low capacity factor

Wind Development Issues Transmission Grid Operating Rules

What wind wants:

Liquid, transparent spot market for imbalance settlements

Near real time, flexible scheduling protocols

Robust secondary markets in transmission rights (“flexible firm”)

Postage stamp pricing allocated to load (or volumetric pricing)

Statistical determination of conformance to load shape to set value

What wind gets:

System designed exclusively to transport firm, fixed blocks/commodity strips

Rigid advance scheduling protocols/onerous imbalance charges

License plate pricing allocated to incremental generation

Grid balkanization/rate pancaking

Wind Development Issues Transmission Expansion

What wind wants:

Pro-active regional planning with political buy-in.

Programmatic expansion focused on shared goals.

Public infrastructure financing repaid through user fees.

What wind gets:

Reactive, piecemeal gridlock decoupled from political process.

Project specific expansion focused on immediate needs of existing players.

Uncertain capacity rights as sole rate recovery mechanism.

Consequences of Wind Characteristics

Remote location and low capacity factor = higher transmission investment per unit output

Small project size and quick development time = planning mismatch with transmission investment

Intermittent output can = higher system operating costs if systems/protocols not designed properly

Federal and State Policies to Promote Wind Power

Production Tax Credit

Lowers price of electricity to make it more accessible to customers

Currently provides credit of 1.8 ¢ per kWh

Industry needs long-term extension to encourage investment

Renewable Portfolio Standard

Requirement that U.S. suppliers get 10% of supply from renewable sources by 2020

Texas example shows how RPS can enable green power markets to flourish by creating a supply of reasonably-priced renewable energy

Can create incentives to solve transmission issues

Standard Market Design & Interconnection

Wind is “square peg in a round hole”

Intermittent

Site-specific, often rural

Small, with short construction lead time

SMD & Interconnection NOPRs designed to make markets more efficient, which could make a big difference in cost and availability of wind power

Clean Air Act

Expect to see amendment to the Clean Air Act before 2004 elections

Without set-asides or direct allocation for renewables, would strip wind projects of ability to claim emissions reductions

Output based compliance that includes NO x , SO 2 and CO 2 could add revenue stream of 0.4 - 0.5 cents per kWh

Small Turbine Incentives

30% Investment Tax Credit

Net metering

State Incentives

State renewable portfolio standards

Public Benefits Funds

Electricity source disclosure

Government procurement

Green Power Market

Places a monetary value on environmental benefits

Raises visibility of renewable power & promotes customer awareness

Usually small scale, short-term contracts

Premium prices

Different Ways to Buy

Green Pricing

Regulated utility offers customers choice to support wind power construction

Green Marketing

In competitive market, customers empowered to choose service providers that contract to purchase renewables

Green Tags

environmental attributes divorced from energy

Competitive Green Market

Has encouraged about 25 MW in CA & PA to date

Will encourage more than 75 MW in PA in next two years

Green Pricing

Has encouraged over 15 new wind projects to serve green pricing market

Smaller projects

Spread throughout the U.S. – raises visibility of wind power

Green Tags

Two or three products offered now

BEF

PureWind

Has encouraged new capacity in New York, Iowa

The Story So Far...

40% of households have access to green power

Green Pricing: 20 million

Competitive Markets: 17 million

380,000 households are buying green power

Green Pricing: 130,000 households

Competitive Markets: 250,000 households

165,000 in CA; 80,000 in PA, much less elsewhere

330 aMW of renewables being supported

Green Pricing: 50 aMW

Competitive Markets: 280 aMW

Small Wind Turbine Market Development

Programs for small wind development

Buy-down programs

Exemptions from sales, property tax

Standardized zoning requirements

Buy-down programs

CA renewables fund refunds 50% of the cost of a renewable system

CA sales account for over half of the small wind turbine market

MA buy-down program refunds 10% capped at $100

does not appreciably affect the market

Property-Sales Tax

Property or sales tax exemption offered in several states

Programs to affect initial purchase price work best

Net metering programs (equalizing kWh costs paid and received by residential generators) do not seem to drive purchasing decisions

Future Trends in Wind Power

Expectiations for Future Growth

2,500 MW new added by end of 2003

20,000 total installed by 2010

6% of electricity supply by 2020

= 100,000 MW of wind power installed by 2020

Wind Energy “U.S. Proven & Probable Reserves” Nameplate MW 600,000 36,000 4,000 4,262 Total 600 100 20 2 South 40,000 --- 300 1,016 Texas 7,000 500 330 90 East 350,000 400 500 900 Midwest 200,000 35,000 2,750 2,254 West @$4 natural gas @$2 natural gas Developable in Reserve In Development On-Line Region

Future Cost Reductions