When a Delmarva Power customer pays more for the utility to buy wind power, what is it they’re actually buying?
The answer explains why Delmarva customers will be saving a little less money this summer than the company originally expected.
The summer bill will reflect the utility’s first foray into the wind-power market and involved energy generated by the first of three wind farms Delmarva Power signed contracts with in 2008 to help it meet a state requirement to buy 25 percent of its load from renewable power sources by 2025.
As the math now stands, the first gusts from those contracts will mean that what looked like a 4.3 percent rate cut probably will end up a whole lot smaller – like 1.9 percent.
And that’s not because the wind power is more expensive. It’s because it is cheaper. And because the impact on the bills results from Delmarva’s sales of wind power into the teeth of an open market dominated by the rock-bottom price for natural gas-generated power.
“Right now, the price for wind is just not competitive,” said Delmarva spokeswoman Bridget Shelton. “We’re hoping that changes in time.”
How all of that is possible is a bit convoluted.
It begins with the system for calculating what constitutes a utility’s renewable- energy load.
Delmarva’s contracts with alternative-energy firms involve buying both wind power and renewable-energy credits, both of which count toward the 25 percent requirement.
Once the turbines start spinning, the utility has a choice of what it will do with the actual electricity, which pours into the regional PJM Interconnection grid along with current from coal, natural gas, oil and other sources.
It can use the wind-generated electricity as part of the current it must bring in from PJM Interconnection to meet customer usage.
But, as wind-power critics are quick to point out, wind ramps up and dies down. If Delmarva used the wind electricity, workers in its control room would have to monitor the hourly wind forecast, and adjust its other fuel sources accordingly.
There are utilities that do this – that accept a lot of wind power, and are generally located near wind farms, said Amy Grace, an analyst at Bloomberg New Energy Finance.
But for those utilities new to wind, or those that use less – like Delmarva – another option proved more attractive.
After buying the wind power and the renewable-energy credits, Delmarva resells the electricity on the open market, buying its needed power from other sources.
This, Delmarva officials say, allows wind to remain on the system, displacing dirty energy somewhere else in PJM. But it is no longer, strictly speaking, offsetting Delmarva’s baseload needs.
This approach allows Delmarva to use just the renewable-energy credits toward satisfying state requirements.
“The reason you might do a buy-sell is just, that simplifies things,” said Ray Dotter, spokesman for PJM.
Delmarva has so far chosen to satisfy its state requirements using only credits, not energy, Shelton said. And this extends to all its contracts for renewable energy, and would apply to the offshore wind farm NRG-Bluewater still says it plans to build someday off the coast of Delaware.
For instance, Delmarva’s investment in the Dover Sun Park is all in credits, while the electricity itself is being purchased by the City of Dover.
The utility hasn’t ruled out accepting some electricity in the future, but it plans to largely stick to credits, Shelton said.
Jeremy Firestone, an associate professor at the University of Delaware who has been an outspoken supporter of the offshore wind farm, said wind has represented a hedge for Delmarva against high fossil-fuel prices.
But he said a central idea behind the push for an offshore wind farm was to fight off high grid congestion charges by delivering the power right onto the peninsula from a nearby source.
To sell the energy away is “a little peculiar,” Firestone said.
Having Bluewater there would relieve electricity congestion on the peninsula, regardless of how Delmarva uses the energy, Shelton said.
“You don’t know when the wind is going to blow. You can’t rely on it for your baseload. That’s why we’re choosing to turn around and sell it,” Shelton said.
That debate aside, the “hedge” factor has not worked out well for Delmarva – or its customers – so far.
When Delmarva signed the land-based wind contracts in 2008, a consultant for the utility estimated that all of the contracts would add 24 cents to customers’ bills, in 2007 numbers; another Delmarva consultant pegged the number at $1.91 more a month, in 2016 figures.
Delmarva built into its Standard Offer Service rates $1.15 a month, per average customer, for all renewables, Shelton said.
But that turned out to be too low, because Delmarva was expecting to offset the overall cost with profits from its sales of wind power onto the open market.
But cheap natural-gas prices made the higher-priced wind power look less attractive to traders, Shelton said.
So last month, Delmarva filed a notice with the Public Service Commission stating that overall savings to customers from the overall lower-cost electricity marketplace would be just $2.79, or 1.9 percent, per month. That’s a big drop from the utility’s February savings estimate of $5.88 per month – a decrease of 4.3 percent.
Shelton said the change largely resulted from losses on the resale of the wind power.