March 20, 2012
California, Mexico

State regulators stall Mexico wind farm plans

Written by Morgan Lee, The San Diego Union-Tribune, www.utsandiego.com 20 March 2012

Plans for a large-scale wind farm in Mexico to supply electricity to San Diego County have been on hold as state regulators discuss whether utility customers would pay too much for the power.

Five years in the making, the Energia Sierra Juarez project would supply enough electricity to power about 65,000 homes. It would play a small part in helping San Diego Gas & Electric meet state mandates for renewable energy from sources such as wind, solar and geothermal plants.

Electricity retailers in California must provide one-third of their power from renewable sources by 2020 or face fines. The additional cost to ratepayers of that green energy is a complex equation, shrouded by confidentiality provisions designed to ensure competitive bidding.

But terms of the proposed 20-year power purchase agreement for Energia Sierra Juarez have been made public before approval under state laws governing negotiations between corporate affiliates – in this case SDG&E and Sempra U.S. Gas & Power, both subsidiaries of the San Diego-based holding company Sempra Energy.

SDG&E customers would pay an estimated $820 million over the life of the contract. At a public meeting in San Francisco, California Public Utilities Commissioner Mike Florio questioned whether that price was truly competitive, delaying a vote on the contract until this Thursday.

“It’s still higher than what we could do,” said Florio, who previously worked as lead attorney for a utility watchdog group. “If we’re going to be successful with our renewable energy initiative, we have to prove to the world not just that we can do it – but that we can do it with reasonable cost to consumers.”

The commission’s decision could have implications for the future of wind development in Baja California, a magnet for prospectors hoping to sell renewable energy to utility companies in California or Mexico’s government electricity monopoly.

Beyond its current proposal directly across the border, Sempra has leased enough property from communal land associations in Mexico to eventually install turbines along a hundred-mile stretch of windswept highlands atop the Sierra Juarez.

Shunning the initial contract proposal would go against the advice of Public Utilities Commission staff and a third-party contractor hired to evaluate the project. SDG&E and Sempra already lowered the contract price last year in response to a general decline in prices for renewable power.

SDG&E procures its energy on a “least cost, best fit” basis that takes into account factors beyond price, such as access to transmission and how power generation fits its hourly, seasonal and long-term energy needs.

In an email, SDG&E called the contract price consistent with other wind projects approved this quarter and “in alignment” with the past five power purchase agreements that SDG&E has executed.

Specifics of those contracts are not available to the public until at least three years after power production begins.

At $106.50 per megawatt hour, Energia Sierra Juarez would charge more than double the price of the most cost-efficient wind farms in the United States. Those are in Texas and the Midwest, according to Mark Bolinger, a research scientist at Lawrence Berkeley National Laboratory.

California wind energy prices, however, are considerably higher than the national average.

“It’s not out of the ballpark compared to contracts that have been approved in the past” in California, said Bolinger, co-author of the Department of Energy’s annual wind technology market report. “But what’s happened in the last year or two is wind turbine prices have come way down.”

That, Bolinger and other analysts agree, has pushed down prices for wind-generated electricity.

Members of the utilities commission provided conflicting assessments of the proposed Sierra Juarez wind farm’s cost effectiveness.

“If not approved, it would be replaced by projects with bid scores that are virtually identical,” said Michael Peevey, chairman of the commission. “There’s nothing to be gained by jettisoning this project.”

Unlike wind projects in the U.S., Sierra Juarez is not eligible for the federal production tax credit that has spurred rapid growth in the wind industry. Sempra U.S. Power & Gas is in discussions to develop the wind farm in collaboration with British-based energy giant BP.

The Sierra Juarez installation must clear several other regulatory hurdles before construction, including approval of a cross-border tie-in to transmission lines in California that requires a presidential permit from the Department of Energy.

Objections have been raised to that permit by labor unions in the United States, environmental groups on both sides of the border and California state legislators who say it would export potential U.S. jobs to Mexico.