South Dakota’s wind power market right now seems to be in the doldrums.
Developers point to the usual culprit – a longstanding lack of adequate transmission – but also to a prolonged slump in electricity demand, sluggish growth in the broader economy and rock-bottom prices for natural gas, which competes with wind.
Steve Wegman, executive director of the South Dakota Wind Energy Association, can rattle off a list of wind projects in the state that have stalled or been shelved as the market continues to struggle.
“Every business goes through a cycle. Right now we’re on a plateau, maybe down a little,” Wegman said. “So we’ve gotten to the top of the ridge. The question is, do we go down or do we go up? We don’t know.”
The state gets about 8 percent of its electricity from wind and is fifth among states for wind generation potential, according to the American Wind Energy Association.
Electricity prices have fallen generally, but not as much as natural gas prices, which have been driven down by the shale gas boom. Nationwide, gas reserves have tripled in the past few years, and prices have plummeted as new extraction methods – namely, horizontal drilling and hydraulic fracturing – pushed production to an average annual growth rate of 48 percent from 2006 to 2010, according to the federal Energy Information Administration.
The spot price Friday afternoon for natural gas futures was hovering around $4.50 per million Btu; during its most recent peak, in 2008, futures traded for $12 and $13.
About the same time Friday, according to the Midwest Independent Transmission System Operator ticker, the marginal price for a megawatt-hour of electricity from Big Stone was $27.44 – which translates into $8.04 per million Btu.
Utility demand has fallen as the economy continues its slow recovery: Every restaurant that doesn’t get built means less demand for electricity for lights and dishwashers and flat-screen TVs. So utilities pare their buying.
“You’re kind of waiting for the market to bounce back, but more specifically, you’re looking for that one utility that’s willing to buy,” said Tim Seck, managing director for wind business development at Iberdrola Renewables.
Projects on hold
The Spanish developer has three projects in eastern South Dakota and is exploring others. But Seck said the company won’t move on anything – including a series of expansions to the Buffalo Ridge wind farm in Brookings County and a new project in northwestern Minnehaha County – until the transmission is in place to handle the output.
A recent Federal Register notice saying that Florida developer NextEra was “suspend(ing) further action” on a 150-megawatt wind project in Codington and Grant counties – and that the Western Area Power Administration had canceled its environmental review – led to some speculation that the company had pulled the plug on Crowned Ridge.
Not so, company spokesman Steve Stengel said. He said the project is still alive; the company is just looking at a different connection point.
“We think that the Big Stone area is a better place for interconnection,” he said. “We’re still studying that, and we’re still talking to potential customers for the output.”
East River developers, at least, are pinning much of their transmission hopes on the Brookings segment of the CapX2020 project, a 345-kilovolt line that would run from Brookings County to the Twin Cities.
The project has secured its state-level siting permits and is waiting for Midwest ISO to approve a cost-sharing scheme. A final decision could come later this year.
In West River, Black Hills Power last month backed out of a plan to build a $38 million, 20-megawatt wind farm near Belle Fourche after the Public Utilities Commission declined to rule pre-emptively on whether the project is necessary and cost-effective.
The company had argued that the project would help meet the state’s nonbinding goal of 10 percent renewable generation by 2015 and sought confirmation of the commission’s approval. The commission said it didn’t have the legal authority to issue such a ruling, and Black Hills Power dropped it.
Case for optimism
Despite the market headwinds, Wegman, at least, is taking a long view. The next project on deck is an expansion of the wind farm in Highmore, but not until 2015. He noted, too, that he was one of the original analysts for the CapX2020 project when he worked at the PUC – back in 1992.
Meanwhile, Wegman is working on a report on the future of wind power in the state in the medium term, 2015 to 2020, and he sees some bright spots.
“People keep using electricity,” he said. “The economy is down, but the economy is going to recover at some point.”
For instance, there is potential for new demand in the controversial Keystone XL pipeline, which would pass through South Dakota on its way from Alberta to Texas, and which would need power for its pump stations.
“And any time I get new load, it gives me an opportunity to sell new wind,” Wegman said.
And as old power plants go offline, whether pushed out by more stringent environmental regulations or destroyed by natural disasters or simply aged out, there will be a need for new generation, he said.
But transmission is the key that opens all doors. From 1990 to the present, Wegman said, he’s watched as roughly 20,000 miles of oil and gas pipelines went into the ground. In the same time, he said, less than 300 miles of transmission line was built.
“We’re sitting on a giant mountain of wind,” he said. “(But) unless you have a way to get it to market, there’s nothing.”
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