July 19, 2015
Oklahoma, Tennessee, Texas

Reaching for the wind to power Memphis

Evanoff: Reaching for the wind to power Memphis | Ted Evanoff | The Commercial Appeal | Jul 18, 2015 | www.commercialappeal.com

In a few years a share of the electricity you use may come not from TVA, which makes all Memphis’ power, but from a windy patch of Oklahoma where Carroll Beaman’s forebears settled a century ago.

Beaman, 83, an oil driller in Amarillo, Texas, has gained control of 204,000 acres on the Oklahoma Panhandle for one purpose: Lease the land to wind developers.

Now well-heeled wind energy companies backed by Wall Street lenders are urging Tennessee Valley Authority to sign a deal.

Only a small slice of the total power in the TVA lines ever would come from Beaman’s homestead. But Tennessee Sen. Bob Corker has sounded a cautionary note about the notion of wind energy.

TVA, he warned, should not be “swayed by outside influence to over-invest in power sources like wind and solar that do not make sense in Tennessee.”

And wind energy has caught the attention of University of Tennessee environmental economics professor Robert Holladay.

“It is unspeakably expensive. I’m always amazed at how much the transportation capacity costs to build,” said Holladay, who suggests wind power could tick up Memphis electric rates.

If rising rates cause manufacturers to turn to cheap-power states such as Louisiana, Oklahoma and Texas, it might slow Memphis’ push to lure factories and train 30,000 new industrial workers.

Even without wind power, Holladay said, “Memphis has a lot going for it but cheap power is not one of them anymore.’’

Long an elusive dream, megawatts culled from the wind are real today. Throughout the nation, nearly 50,000 turbines generate electricity equal to the demand of 18 million homes, says the American Wind Energy Association.

California, Oklahoma and Texas contain about half the turbines and most of the rest stand in the Midwest and Great Plains rather than the Southeast, where TVA’s footprint and its low rates predominate and the wind stops too frequently for reliable energy on a mass scale. Although wind farms in Oklahoma and Texas alone could power most cities between Memphis and Atlanta, analysts say the high cost of getting the energy to the Southeast has impeded wind developers.

What has the wind industry courting TVA now is the lure of federal tax breaks, unusually low interest rates, Wall Street ambition and TVA itself.

Officials at the Knoxville agency are considering a study, called an integrated resources plan, which encourages stepping up use of wind power – not by a huge amount but enough to interest the energy developers. Utility planners consider wind power a viable alternative especially in the coming decades, and particularly if natural gas prices soar above their extraordinarily low levels.

“Our bet is utilities are going to want choices in the future. Right now they have effectively one choice, which is natural gas,’’ said Michael Skelly, president of Clean Line Energy Partners LLC, a Houston firm planning to engineer and build the electric-power line between Oklahoma and Memphis, the western-most big city on TVA’s seven-state grid.

Early plans call for installing $4 billion worth of wind turbines on and around Beaman’s site west of Guymon, Oklahoma, and running direct current more than 700 miles through a $2 billion copper line that would end in Shelby County. In Memphis, the city-county EDGE board has approved a property tax break for Clean Line’s proposed $259.8 million apparatus that would funnel the electricity into TVA for use across its seven-state region.

Right now, wind advocates have focused on Washington. Lawmakers will consider extending tax breaks for wind energy producers. Present incentives provide a subsidy of 2.3 cents for each kilowatt hour of power generated, and in turn can make the wholesale price competitive with conventional power plants, such as TVA’s Allen unit in Memphis. Of course, customers pay more to cover transmission and other costs. Power rates for all Tennessee factories averaged 5.6 cents per kWh in April, compared to the average industrial rate of 6.5 cents nationwide, the U.S. Energy Information Administration reports.

For the wind industry, the federal tax subsidy saves about $6.4 billion over a decade. Most of the savings, Beaman said, flow to investors organized into partnerships led by big Wall Street banks. The partnerships loan the wind developers the money needed to build the energy network.

“If Congress decides to reject this I can’t tell you what will happen,” said Beaman, a long-time ExxonMobil executive in Venezuela. “If they don’t approve it the economics are really going to be skinny.’’

Corker and Tennessee Sen. Lamar Alexander, a pair of Republicans, convened a public meeting with TVA officials in Knoxville back in May.

“Nothing is more important to me than Tennesseans’ standard of living and our state’s ability to attract high-quality jobs, and TVA’s ability to carry out its mission of providing low-cost, reliable power directly impacts that,” Corker said after the meeting. “Our discussion today focused on ensuring TVA is operating in the best interest of ratepayers and hardworking Tennesseans.”

TVA officials noted the senators’ views, an agency spokesman said. But it’s not clear yet if Corker’s message swayed the agency. TVA will decide this summer on a long-term mix of power sources ranging from nuclear power and natural gas, to coal, hydro, solar and wind.

Meanwhile, wind developers appear confident. Last week, Clean Line reported Dallas energy investor Bluescape Resources invested $50 million and took two seats on the Houston firm’s board. Bluescape traces to Dale Wilder, whose payout totaled $300 million in 2007, his last year heading TXU Corp., Texas’ largest utility.

Clean Line backers include Baghdad-born Selim Zilkha, a Houston billionaire renowned for buying oil tracts in the 1980s when prices plunged. He later formed wind developer Zilkha Renewable Energy and sold it for about $1 billion to the New York investment bank Goldman Sachs in 2005. The next year, Zilkha Renewable, renamed Horizon Wind Energy, was bought for $2.2 billion by Portugal’s largest utility, EDP-Energias de Portugal SA.

While Clean Line would construct the 700-mile transmission line, just who would own an Oklahoma wind farm is undecided. More than 10 big wind operators are in business. Most have asked TVA to pick one of them.

It comes down to whether TVA decides to step up its purchase of wind energy. Fracking has made natural gas abundant and cheap to burn in electric plants. Wind appears costly without tax breaks. But energy analysts figure gas prices eventually will rise. And long-term wind power contracts could lock in prices below the ultimate level gas reaches in a decade or more.

“Corker’s point, and we agree with it, is TVA should do what is best for its customers,” said Clean Line’s Skelly, a Harvard MBA who was president of Zilkha Renewable. “If TVA can go a better route by generating its own power, that’s what they should do. We hope TVA elects to buy (wind power). They are the logical customer. But it’s up to them, really.”