Wanted: A long-term, committed partner who likes windy ridge tops, a habitable global climate and price stability.
Some blame stuttering government incentive programs or low-cost competing energy sources like natural gas for stalling new wind energy development in recent years, but Pennsylvania’s wind industry points to a third disruptive factor: It is hard to find a customer willing to sign up to buy a wind farm’s worth of power for a decade or more.
Competitive electric markets in Pennsylvania and other deregulated states discourage long-term power purchase contracts. Yet those are the kind of commitments generally necessary to prove upfront that building a new wind farm makes sense.
Traditionally, utilities that wanted to increase the amount of renewable energy in their portfolios or that were looking to secure power not subject to fluctuating fuel costs committed to buying wind energy for decades. In the current competitive market, buyers will only commit to a year or maybe three.
“We really can’t get long-term contracts anymore,” said Jim Spencer, CEO of EverPower Wind Holdings in the Strip District which operates seven wind farms, four in Pennsylvania.
Five years ago, about 50 percent of EverPower’s installed capacity was under long-term contracts, but the last one it signed was in 2009.
Now new types of customers are emerging – corporations and other entities, like the District of Columbia, that want to secure large amounts of renewable power to meet their sustainability goals – although they do not yet require the volume of energy to match the traditional utility purchasers of the past.
“Our universe of buyers has changed drastically,” Mr. Spencer said. “We’re not talking to utilities anymore. We’re talking to the Amazons, the Googles, the Procter & Gambles – data companies with large loads (who) want price certainty.”
Those contracts span a minimum of 10 or 12 years, he said.
EverPower’s experience is reflected in the Pennsylvania wind industry more broadly.
The industry had a period of rapid growth, installing 1,340 megawatts of capacity in the state in little more than a decade. But Pennsylvania last brought a new wind farm on line in 2012 and no major new projects are under construction.
Ninety percent of the megawatts of wind power capacity installed in Pennsylvania so far has been developed with the security of a long-term power purchase agreement, whether with utilities or other types of buyers, said Peter Toomey, director of structured transactions at Evolution Markets, a White Plains, N.Y.-based energy brokerage firm, at a forum about the future of Pennsylvania wind power organized by the American Wind Energy Association in Harrisburg last week.
“At the end of the day, someone has to step up and do a long-term contract with the wind farm before they are going to attract financing,” Mr. Toomey said.
Getting wind back in the sails
Other speakers at the conference emphasized that the industry can not count on corporations buying up green energy to save the day and will have to push for policies and markets that encourage long-term deals.
“What is it going to take to get wind back in Pennsylvania? It is really a restoration of some long-term contracting market that goes beyond just the few corporate buyers that exist out there,” said Eric Thumma, director of institutional relations at Iberdrola Renewables, a Portland, Ore.-based subsidiary of Spanish energy giant Iberdrola S.A.
Industry leaders see opportunity after 2020, when states are likely to embrace new renewable energy sources to help them comply with federal requirements to reduce their power sector carbon emissions under the Obama administration’s Clean Power Plan.
The timing of that future boom will depend on legal challenges to the carbon-cutting plan and on states’ eagerness to take advantage of an incentive program in the rule that encourages early adoption of renewable power, among other variables.
Gov. Tom Wolf’s administration is in the middle of weeks of listening sessions across the state to hear advice before it begins to craft a Pennsylvania plan to comply with the carbon-cutting requirements. Mr. Wolf’s director of planning and policy John Hanger signaled at the conference that wind will play an important role in whatever strategy the state adopts.
“Wind is essential to addressing climate,” he said. “Wind is essential to keeping power affordable.”
Getting to 2020 and beyond won’t be easy, industry speakers said.
New projects started from scratch now will likely be ready just about the time that demand is expected to increase under the Clean Power Plan, but there is a gulf of uncertainty to bridge in the meantime.
“We want to avoid a valley of death before the 2020s market comeback,” Rob Gramlich, AWEA’s senior vice president for government and public affairs, said. “We’re trying to smooth out that transition.”
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