DALLAS – After reaching a major milestone in wind power generation, Texas utilities expect to complete a $6.5 billion transmission system for the renewable energy source this year.
But as the infrastructure for sending wind power from remote Texas prairies to urban centers takes shape, questions persist over how long the sector can develop without government subsidies.
The wind industry survived a threat when Congress earlier this year extended wind energy tax credits in a bill to avert the “fiscal cliff.”
But some Texas state lawmakers took some shots at the big wind turbines during their 2013 session.
Lt. Gov. David Dewhurst proposed eliminating about $24 billion of local tax exemptions for renewable energy generators under House Bill 3390, a measure that extended local options for tax subsidies for new employers in the state. When the bill passed the last hurdle in the Senate, the wind industry’s tax credits were intact.
Dewhurst and Gov. Rick Perry have been strong backers of the wind industry in Texas in past years, before the hydraulic fracturing techniques released the current supply of natural gas and oil in the Barnett Shale region of north Texas and the Eagleford Shale of South Texas.
The production of natural gas has been so intense that the 2013 Legislature approved $450 million for construction and maintenance of roads in the oil and gas producing regions.
More than a thousand loaded trucks are needed to bring a single well into production, according to engineers. Along with a higher volume of traffic, traffic accidents in the region have risen sharply. In McMullen County, for example, accidents increased by 300% since 2008, according to the Texas Department of Transportation.
Until a new network of pipelines can be built to carry the Eagle Ford and Barnett shale to refineries, the producers will rely on roads and rail to transport the product.
Similarly, the wind producers in West Texas and the Panhandle region rely on the nearly completed Competitive Renewal Energy Zone transmission lines built under the supervision of the Texas Public Utilities Commission.
The PUC identified five CREZ regions supported with new transmission investment, largely from investor-owned utilities, regional co-ops and the publicly owned Lower Colorado River Authority that sells wholesale power.
Created by Senate Bill 7 in 1999, the CREZ required at least 2,000 megawatts of renewable energy production by 2009. Texas has far exceeded that goal with over 7,000 megawatts. In 2005, the Texas Legislature passed Senate Bill 20 which laid the groundwork to move wind energy from designated CREZ areas to urban areas of the state where renewable energy demand is growing.
Current plans call for raising the current wind generation capacity to nearly 20,000 megawatts by 2015, funded by more than $5 billion of transmission investment into Texas.
Max Yzaguirre, a former PUC chairman who runs his own consulting firm in Austin, told The Bond Buyer’s Public Utility Finance Conference in Houston this month that renewables will have to play “small ball – trying to hit some bunts” this year.
“I don’t see any game-changing strategy weaving its way through the federal government right now,” Yzaguirre said.
Texas windpower hit a major milestone last year, accounting for 25.9% of all electricity demand on Nov. 10, according to the Electric Reliability Council of Texas, which operates the state’s major utility grid.
The Wind Coalition industry group also reported that wind power topped 6,800 megawatts the entire day and completed a three-day run that saw wind power remain near or above 5,000 megawatts.
Critics of the wind industry note that state and federal subsidies and policies give the renewable resource an advantage over natural gas, even though gas-fired power plants must remain available when wind power is flowing through the transmission lines.
According to the conservative Texas Public Policy Foundation, the federal production tax credit amounts to $22 for every megawatt-hour of wind power put on the grid. During the three-day run when wind produced 5,000 megawatts, the subsidy amounted to at least $7.92 million, the foundation says.
TPPF researchers Bill Peacock and Josiah Neeley calculate wind’s federal production tax credit in Texas at $597 million. Using past figures and making projections for future years, the report comes up with more than $4 billion in wind subsidies for the 10-year period from 2006 to 2015.
Officials from the renewable industry acknowledge the claims and agree that subsidies are not a permanent fact of life.
“We recognize there is a tipping point where we stand on our own and be good Americans and try to be part of the solution on the debt and deficit problem,” Jimmy Glotfelty, co-founder of Clean Line Energy, a Houston company that develops transmission lines for wind-produced electricity said during a panel of the American Wind Energy Association conference held last December in Houston. Subsidies will be needed for a few more years, he said.
Wind energy boomed when oil and gas prices were soaring, hitting a record of $148 per barrel of oil in 2008. Among the strong supporters were former Texas governor and President George W. Bush.
Now, renewables are facing strong headwinds from low natural gas prices and an anti-government, anti-tax mood in the conservative Republican Party.
“The continuing decline in solar panel prices might help the solar industry deal with this problem, but the wind industry faces a tougher challenge,” said Standard & Poor’s analyst Terry Pratt in a report on the sector last year.
In a Moody’s report, senior analyst Toby Shea forecast a long haul for renewables, not to mention coal and nuclear energy.
“In the long run, low natural gas prices will undermine the new-entrant economics of nuclear, coal and renewable generation, and will provide more development opportunities for gas-fired generators,” Shea wrote.