A Utility Perspective of Wind Energy - Wind Turbine Technology: Fundamental Concepts of Wind Turbine Engineering - page 738

Wind Energy Utility Business Outlook and Trends
Since the passage of PURPA in 1978, the United States electric utility industry has seen
increasing competition from independent energy producers. By the late 1980s, nearly 10 per-
cent of California's electricity was generated by non-utility sources, and much of the state's
new generation was built by independent energy producers. That trend has continued and in
2007 independent power producers owned 83 percent of the wind market [Wiser 2008].
Structural changes in the electric utility industry also played a major role in enabling
independent energy producers to gain and maintain a foothold. Major financial burdens from
large power plants during a period of high interest rates brought several utilities to the brink
of bankruptcy during the 1980s. High prices slowed growth in electricity consumption, and
regulatory agencies were under pressure to protect rate payers from the cost of expensive and
potentially risky new facilities. Independent energy producers offered both the utilities and
their regulators lower-cost, lower-risk alternatives to building these large new plants.
Changes in the Regulatory Environment
Because some electric utilities are monopolies, regulatory changes affecting them also
have wide-reaching consequences for the wind industry. If, for example, regulatory agencies
dictate that utilities must hold an auction for the next increment of generation, and the low-
est bid must be used to build the capacity, wind generation will often (if not always) lose to
cogeneration because cogeneration receives firm capacity credits .
Unregulated Subsidiaries
Under PURPA, utilities were initially prohibited from owning a controlling interest
(more than 50 percent) in a so-called qualifying facility (QF) , such as a wind power station,
but that prohibition was later eliminated. Under the Economic Stimulus Act of 2008 utility
investors could also qualify for QF status and Production Tax Credits. Originally this prohi-
bition was designed to encourage competition and eliminate self-dealing ( e.g. , offering more
favorable treatment to a utility subsidiary than to independent producers). For several years
after its passage, this provision caused little concern to the utilities. But by the mid-1980s, as
the independent producers became increasingly successful, this prohibition frustrated utili-
ties who sought to diversify into unregulated subsidiaries that would build, own, and operate
renewable energy plants.
Participation as an unregulated subsidiary permits the utility to act much like an indepen-
dent energy producer, raising capital, building plants, and selling energy in an unregulated
environment. Several U.S. utilities have established unregulated subsidiaries that finance
and invest in cogeneration and other small power plants.
Least-Cost Planning and Fixed-Price Contracts
Another change that proved to be detrimental to the wind energy industry is the regula-
tory emphasis on least-cost planning . Under this type of regulation, a new generation source
of electricity can be added only if it has been found to be the least costly, regardless of who
the developer is. Bidding by independent energy producers to sell least-cost electricity pits
wind generation against cogeneration and other fossil-fuel plants, but the true costs of envi-
ronmental and health effects are not considered. Bidding, however, works fairly well when
long-term costs are used. In the future it expected that regional transmission organizations
will transition to least-carbon dispatch even if the price is higher.