Wind Energy Weekly #692, Vol 15, 8th April 1996

*********************************************************************

The following is the electronic edition of WIND ENERGY WEEKLY, Vol. 15, #692, 8 April 1996, published by the American Wind Energy Association. The full text of the WEEKLY is available in hardcopy form for $595/year and is recommended for those with a serious commercial interest in wind (the electronic edition contains only excerpts). A monthly hardcopy publication, the WINDLETTER, more suitable for those interested in residential wind systems is included with a $50/year individual membership in the Association. AWEA's goal is to promote wind energy as a clean and environmentally superior source of electricity. Anyone sharing this goal is invited to become a member--please help!. For more information on the Association, contact AWEA, 122 C Street, NW, 4th Floor, Washington, DC 20001, USA, phone (202) 383-2500, fax (202) 383-2505, email windmail@mcimail.com. Or visit our World Wide Web site at http://www.econet.org/awea.

ENERGY OUTLOOK

NYMEX opens trading of electricity futures contracts

ENERGY POLICY

IPALCO offers 'environmental' restructuring plan; AWEA dissents

TRADE NEWS

BWEA annual meeting to examine NFFO, deregulation impacts China factory churns out small turbines for Indonesia

RESTRUCTURING GOOD FOR ENVIRONMENT, UTILITY EXECUTIVE CONTENDS

Restructuring and greater competition in the utility industry will benefit the environment if it is handled correctly, according to Michael Banta of IPALCO Enterprises, Inc., a Midwestern investor-owned utility. But AWEA, while agreeing that environment-friendly restructuring is possible, said the IPALCO approach falls short of the mark.

In a paper entitled "The Environmental Benefits of a Workably Competitive Electricity Industry" which IPALCO released April 1, Banta takes aim at three undesirable features of most utility restructuring plans which he says "should be of grave concern to the environmental community:"

"[A]n alternative, prompt restructuring to allow national retail competition for all consumers, without these three elements can produce not only lower electricity prices, but also very substantial, tangible net benefits for the environment."

"Stranded cost protection" refers to an agreement under which utilities continue to receive subsidies in some form under restructuring to help them pay off sunk investment in high-cost nuclear and fossil-fired power plants. Stranded cost protection is harmful to the environment, Banta says, because it allows such plants to continue to operate even though their operating costs may be high: "Under the existing monopoly system, captive customers subsidize the high capital costs or high operating costs, or both of [nuclear] power plants through electricity prices that far exceed the current long-run marginal cost of producing power."

Without such subsidies, Banta argues, power from "existing non-viable nuclear power plants and inefficient fossil-fuel power plants . . . could be replaced not only by efficient coal and gas-fired plants, but also by renewable resource facilities . . .

" Banta also criticizes the "pancake" system for developing transmission charges, under which power that is transmitted from place to place is subject to separate rates from each utility jurisdiction it passes through. "[P]ancaked, distance-sensitive transmission rates for use of the national grid make renewable power very costly in remote markets," he says, adding, "An alternative plan providing for a uniform, non-distance-sensitive price for use of the transmission grid over wide areas of the nation would allow renewable resources greater access to wider markets.

"Unfortunately, most restructuring proposals, including the FERC Mega-NOPR, continue to call for pancaked . . . transmission pricing. For renewable power to reach its true potential, these unnecessary transmission pricing impediments to fair competition must be discarded."

Finally, Banta argues that a rapid phase-in of "national retail competition," in which all customers could select their power suppliers from anywhere in the U.S., will benefit the environment by allowing smaller residential and business customers to vote with their pocketbooks for "green power."

In a statement released April 2, AWEA Executive Director Randall Swisher, while commending IPALCO for "taking a hard look at the environmental consequences of utility restructuring and offering suggestions to reduce negative impacts," took issue with some of the specifics of its proposal.

"Mr. Banta's broad thesis is that if his policy recommendations are followed, restructuring and competition will benefit the environment, but that is not necessarily the case," Swisher said. "While it is possible for a competitive market to be structured in such a way that the environment is protected, IPALCO's proposal has not gone far enough."

Banta, Swisher said, "calls for the elimination of stranded cost payments, and notes that if this happens, expensive nuclear plants will be retired more quickly. But the U.S. Department of Energy already projects, in its ANNUAL ENERGY OUTLOOK 1996, that 'Between 1994 and 2015, [37,000 MW] of nuclear capacity are expected to be retired, resulting in a decline of 207 billion kWh per year, or 32 percent, from current nuclear generation. To compensate for the loss of baseload capacity and to meet rising demand, [230,000 MW] of new fossil-fueled capacity will be needed. The resulting increase in generation from fossil fuels will increase carbon emissions by 160 million tons, or 32 percent, over current levels.'

"This forecast already threatens to wreak havoc with the Clinton Administration's pledge to reduce carbon emissions to 1990 levels and stabilize them. In our view, the potential threat that restructuring poses to the environment cannot be dismissed so lightly."

AWEA's vision of an approach to restructuring that would maximize environmental benefits also differs from IPALCO's, Swisher said. "Where Mr. Banta talks of likely consumer demand for power from renewable sources ("green power") as a primary stimulus to renewable energy, AWEA believes it is necessary to ensure the development of a sustainable market for renewables by enacting a 'Renewables Portfolio Standard (RPS)' at the national and/or state levels.

"The RPS is needed because:

The RPS would require each seller of electric power within a given jurisdiction (e.g., a state) to obtain a minimum percentage of its power from renewable resources. The requirement would be tradeable, so that market forces could operate to achieve it as inexpensively and as efficiently as possible. Renewable energy producers would bid competitively to provide power.

Concluded Swisher, "The Renewables Portfolio Standard requires no complex, detailed effort to place a numerical value on the environmental and social benefits that renewable energy provides, nor does it require the use of Integrated Resource Planning or other command-and-control regulation. In our view, it is the most market-friendly approach that will ensure that the still youthful renewable energy industries are able to develop and compete effectively in the electric power marketplace of the future."

Further information on the RPS is available from AWEA's World Wide Web site at

http://www.igc.apc.org/awea/aweapol.html. The full text of AWEA's statement is located at http://www.igc.apc.org/awea/news/960402ipalco.html">

NYMEX ELECTRICITY FUTURES: THE NEW GAME IN TOWN

Trading in electricity futures began March 29 on the New York Mercantile Exchange (NYMEX) as "150 braying traders," in the vivid words of Reuters, gathered in the exchange's newest "pit" (trading area) to wheel and deal in power contracts.

Prudential Securities said it executed the first trade, which took place just seconds after the exchange officially opened at 10:30 a.m. The trade called for delivery in June at the California-Oregon Border (COB), one of two major switchpoints where delivery can be specified, at a price of $8.50/MWh (0.85 cents/kWh). Each contract is for delivery over one month of 736,000 kWh, or about the amount of power a thousand average homes would require.

Power marketers welcomed the advent of the nation's newest commodity, saying that a NYMEX market for electricity futures would help them get a better handle on the going price for power today and in the future (contracts can be dated for up to 18 months ahead). Although companies are already in the field buying and selling power for future delivery, information about pricing has not previously been widely available. One marketer told the HOUSTON CHRONICLE that up to now, he has typically gathered price information in telephone conversations with utilities and others in the business. From now on, prices for current and future contracts will be listed along with those of other commodities such as oil, orange juice, and the like.

In addition, the ability to trade contracts for future delivery will make it possible for traders to hedge transactions against future changes in the price of electric power. For example, a utility planning to sell power in the future, but fearing a price decline, could sell a futures contract now at the price it hopes to obtain. If the actual price of power goes down, it could then by the contract back at a lower price, and use the profit from the futures transaction to offset its loss on the power sale.

In another variation on the hedging theme, the Chronicle said, Houston Light & Power Co. might buy futures contracts for power during times of the year when the power it generates itself is less competitive with market prices. The utility currently is an active trader in futures for natural gas, a fuel which was deregulated several years ago.

Besides the COB delivery point, where transmission lines from California and the Pacific Northwest connect, contracts can specify delivery at Arizona's Palo Verde nuclear power plant switchyard, which connects the Southwest with the California grid. In the future, contracts are also expected to become available for delivery of power in the East Coast and Midcontinent markets. However, the commodity markets are likely to remain regional in nature, reflecting the physical nature of the national grid--although there are connections between the regional transmission systems, they are not large, and most power is distributed on a regional basis.

Most observers said they feel certain that electric power trading will become a viable business over the longer term. There was less certainty as to how active the market will be in the near future, while the utility industry remains in the early phases of deregulation.

CHINESE FIRM TO BUILD WIND GENERATORS FOR INDONESIA

China's Shangdu Husbandry Machines Factory will build 500 small wind turbines for shipment to Indonesia in a foreign aid program, Xinhua reported April 1. The factory is located in Huhhot in China's Inner Mongolia Autonomous Region, a hotbed of small turbine production where the top 10 manufacturers turn out some 40,000 machines annually, the report said.

Shangdu Husbandry Machines is reportedly the first company in China to build wind turbines, and its machines have been exported to more than 20 countries worldwide.


                              NEWS
              **************************************
              *             from the               *
              *  AMERICAN WIND ENERGY ASSOCIATION  *
              **************************************
For immediate release: July 31, 1996
Contact: Karl Gawell, (202) 383-2500

AWEA CHEERS SENATE AGREEMENT TO RESTORE $23.7 MILLION TO RENEWABLE ENERGY BUDGETS

The American Wind Energy Association (AWEA) today called an amendment to the Senate's Energy and Water Appropriations bill restoring funding to DOE's renewable energy programs a "positive step which will help ensure a healthy U.S. renewable energy industry."

The amendment was agreed to on Monday and adds $16.5 million to the wind energy program budget, which was originally slated for $15 million in funding for fiscal year 1997 by the Senate's Energy and Water Appropriations Subcommittee. The wind budget now stands at $31.5 million in the Senate and $28.5 million in the House. The program was funded at a level of $32.5 million in FY 1996.

The Senate amendment was sponsored by Sens. Jim Jeffords (R-Vt.), Bill Roth (R-Del.), Pat Leahy (D-Vt.), Frank Murkowski (R-Alaska), John Chafee (R-R.I.), Dale Bumpers (D-Ark.), and Tom Daschle (D-S.D.). It was passed by the Senate by unanimous agreement.

"We are extremely pleased with the support we have gotten from both Houses of Congress in the last two weeks," said Karl Gawell, AWEA's director of governmental affairs. "Considering that the House Subcommittee proposed to zero out the wind budget and terminate the program, we have come a long way."

"Support for the wind program is support for U.S. competitiveness in foreign markets, job creation, and a cleaner environment," said Gawell. "We are encouraged that Jim Jeffords, Bill Roth, and the other backers of this amendment realize these benefits, and we appreciate their strong leadership on this initiative."

The Energy and Water Appropriations bill will now go to a House-Senate conference committee, where the differences between the two versions of the bill will be hammered out. The conference committee will likely meet in August, and the final bill will be completed in September.

BACK TO *********************************************************************