Wind vs. Natural Gas

Today's Wall St. Journal includes a very interesting article on the real-world competition between wind power and electricity generated from fossil fuels. At least in Texas, steadily increasing wind generation has apparently come mainly at the expense of natural gas, rather than displacing coal-fired power, as might have been anticipated by many wind advocates. That has implications for the effectiveness of renewable energy policy as a means of reducing greenhouse gas emissions, as well as for the utilities and independent power generators that are complaining that wind has been given overly-preferential treatment.

Texas makes an interesting laboratory for demonstrating the practical consequences of our shift towards renewable energy. ERCOT, the Texas grid, has little connectivity with neighboring grids; power generated within Texas must, for the most part, be used in Texas, while demand in Texas must be met mainly by generators within the state. That makes the relationship between wind and fossil fuel generation more transparent than it would be in another region with larger imports and exports. The resulting statistics on gas generation displaced by wind, as presented in the article, are unlikely to surprise those familiar with the technologies involved.

As I've pointed out periodically, wind power is unlikely to displace much coal, since most coal plants are mostly run in baseload mode--essentially 24x7--because that suits both their operating requirements and the grid's need for large quantities of predictable, low-cost power to handle routine loads. By contrast, wind turbines rely on the availability of wind blowing at speeds within a specified range. On average they put out about 30% of the full power for which they're rated, in patterns that vary from day to day and season to season. Gas offers much more flexibility than either coal or wind and is thus the supply most likely to be adjusted up or down to accommodate the output from wind when it's blowing or back-stop it when it's calm. From what I can tell from the article, the complaint from gas-based generating companies isn't that this is occurring, but that when wind generators come up short vs. their day-ahead commitments to the grid, the penalty falls on everyone else, not on the responsible wind farms. This constitutes a hidden subsidy, on top of the ongoing benefit of the federal Production Tax Credit (currently available as an alternative Investment Tax Credit and payable as an up-front cash grant) and the Renewable Energy Credits generated under the state's Renewable Portfolio Standard.

This competition has important implications for energy policy, and not just because backing out power from gas saves nearly 40% fewer greenhouse gas emissions than backing out coal power. It also exposes real, practical differences that go well beyond the typical incumbent vs. new entrant issues characterized in the article, by the head of the American Wind Energy Association. Because these distinctions are grounded in physics and engineering, it isn't just a question of whether the existing rules favor one otherwise equivalent technology over another, or whether wind farms are getting a free ride at the expense of other suppliers, but how to design a system that makes the best use of all these resources, including the atmospheric emissions sink. This goes to the heart of how we build a generating mix with increasing proportions of supply from technologies that are intrinsically different and less dependable than those we've relied on historically.

On one level, this is part of what the emerging smart grid is supposed to address, but it also presents a very real business problem that can't be solved by pretending that all electrons are equally valuable to the grid. The goal of greening our power supply must coexist with the goal of improving the capability of the entire grid to provide reliable, high-quality power for an economy that is increasingly dependent on electricity. If we want all power market participants to invest toward achieving that end, then we must find a way for wind and other renewables to shoulder their fair share of the burdens, rather than shifting them onto their direct competitors. That might require wind farms to contract for their own back-up coverage with gas generators, if they expect their commitments to be treated as equivalent to those from other suppliers. Or perhaps it makes the case for phasing out wind's production-based tax credits in favor of federal insurance to cover the penalties that result from its intermittent output under dispatching rules that don't favor any generating technology.

While some might dismiss the Texas situation as growing pains or whinging by those that have lost out to wind, I see further confirmation that the successful integration of new technologies into our energy mix requires more than just investment incentives and wishful thinking. If we want to capture the natural synergies between wind and gas--both of which have desirable attributes--then we must find ways to make them compatible as actual businesses, not just on paper as theoretical technologies.