Wind power for Dummies

Land-based or Offshore: The Value of Energy Credits.

Gary Stockbridge mentioned on the House of Delegates’ floor that some to the bids for land based energy were 50% lower than Bluewater Wind’s offshore. This would put their average cost around 5 cents per kilowatt hour. How does the electricity get from West Virginia to Delaware? How do we benefit from an environmentally friendly source of energy, miles away?

The answer to both lies in the Renewable Energy Credits, or more properly know as virtual wind by most knowledgeable sources. These are little slips of paper, sort of like stock certificates, that say they are worth 1 MW of renewable generated power. These are sold by a renewable utility, like wind, over and beyond the cost of their electricity. These are then purchased by the end user (you) at a cost above and beyond the market price of electricity. It, like a stock certificate, is a way of investing in a renewable energy company, of making sure it gets money it needs to survive.

The Bonneville Energy Foundation describes it better than I could:

“In a REC deal, the power from the new renewable energy facility is not physically delivered to the customer, but the environmental benefits created by the facility are attributed to that customer, directly offsetting the environmental impact of the customer’s conventional energy use.�? By purchasing RECs, you can support alternative energy even if your local energy provider has no sources of green energy. As more people offset their conventional energy use through these credits, more alternative energy sources will be developed to service them, and more dirty power will be replaced with renewables.”

If more people want a specific certificate, then its cost rises on the market place…..If fewer want it, it’s worth drops. But a renewable energy credit does little to reduce pollution. Perhaps over time, as a business grows and expands and hires more people, it may develop more energy sources, but on the current market, these credits act like a subsidy to the company that is generating green energy.

Power companies prefer this approach as opposed to direct competition, because it allows them to buy whatever source of power they want, then purchase credits, and charge the combined cost to you. It does little to save you money. It makes you feel good you donated to a good cause…..

Of course having a wind farm offshore of Delaware means we too would be contributing to the grid. It means Bluewater Wind would create its own REC’s that under the contract would go to Delmarva Power. But we would get the benefit from jobs, tourism, fishing off the reefs, and if most of the grid was in low demand, the occasional dip in NRG’s emissions.

When we are told that Bluewater Wind will sell power to Delmarva at 9.89 cents per kilowatt, that is what we get. When a broker of REC’s such as Wind Current agrees to sell Delmarva REC’s for a certain cash value, no Connectiv plant is idled. They continue to produce their pollutants as always, and we continue to breath them in. But by purchasing 100,000 MW of Credits designated as coming from wind, Delmarva can go before the state board and say “see, out of the 500,000 MW we purchased, we also bought 100,000 MW of REC’s meeting our mandate of 20%. Now we need to raise our rates to cover the 500,000 MW of power, and the 100,000 of REC’s we bought.

The actual benefit of this system is that were the wind-farm on its own, not cost viable, with an additional 100,000 worth of credits coming in, it could still continue pumping its electricity into the grid, thereby meaning that somewhere at that moment, coal would not have to burn in order to produce that amount….

Bluewater is different. Instead of paying a high price for gas fired electricity as well as a premium for renewable energy on top of that, we buy their energy directly. Delmarva only pays 9.89 cents for it. If gas prices drive costs of electricity to over 25 cents per kilowatt hour, we still pay that portion 9.89 cents per kilowatt hour until the end of the contract. If (for theoretical purposes) we were to assume that half our future energy comes from wind at 9.89 cents and the other half came from carbon at the sky high prices of 20.0 cents per kilowatt hour, then we would pay the average of both totals. Our cost would be 14.95 cents. Everyone else on Delmarva’s REC plan would pay 20 cents plus those REC purchases mandated by their legislatures. Were the cost to shoot up to 30 cents a kilowatt hour, and all other variables remained consistent, our price would nudge to 19.95 cents while our neighbors would be paying their 30 cents. By now most legislatures would have scrapped all mandates for renewable energies. Heavens, should the price ever jump to 50 cents, our cost would be 29.94 cents, a substantial savings.

This is why Delmarva is trying so hard to keep the wind farm from venturing into Delaware. (New Jersey? No problem.) This is why we, the citizens of Delaware, need this wind farm built here in Delaware if our state is to ever provide its citizens with cheaper power as well as good jobs.

Having Bluewater Wind off Delawares shore and under a signed legal contract with Delmarva, is a valid hedge against the high, high cost of power we know is just over the horizon. Every time the wind blows, our prices face downward pressure.

External Wind Options for Delaware

(Right click on image to see East Coast)

Here is a map showing FLP’s wind farms currently in operation. As you can see, there is not much. Those few REC’s will be sought after by every surrounding state. Considering the demand, it would make sense to have our own wind farm have its REC’s being sought after as well.

Among some of those providing bids to Delmarva the previously mentioned brokerage Wind Current out of Baltimore, admits it doesn’t have its wind farms built in Maryland and Virginia, and for now will use energy credits from West Virginia. Currently West Virginia has one 66MW wind farm operating out of Thomas. It has two more planned, pending approval, or about as far along as where Bluewater wind is in its process right now.

But wait…..Exelon has exclusive rights to the 66MW site in Thomas, West Virginia. How can Wind Current provide credits from FPL (Florida Power & Light) who has been locked into selling them to Exelon? How? It buys from Exelon and resells them to Delmarva, “at a cost…..at..a…cost.” This is the wave of the future for Delaware if we fail to go forward with our own source of renewable wind power.

There is much discussion on the validity of REC’s at all. At question is their virtual nature. Does purchasing a REC affect the amount of CO2 being dispensed? Right now no; over the long haul, maybe yes. But due to the fluidity of electrons, this method seems to be the only acceptable way of selling electricity generated by wind, to an entity hundreds of miles away. Whereas buying a Pennsylvania wind farms credits, may be cheaper than investing in an offshore wind farm, it does little to build another wind turbine. Investing in Delaware’s offshore project does just that. It builds a renewable source in a place where there was none before.

Additional problems surround the issuance of REC’s. There is no standard of what a REC actually is. There is no one denomination that is universally accepted. Instead, reminiscent to when this young nation struggled under the Articles of Confederation, and each state printed its own money, RECS differ from state to state. Some independent companies have evolved into the business of registering the REC’s, most notably Green-e out of San Francisco. Each REC is given a unique serial number which Green-e keeps on file and tracks to insure a certificate is not used twice.

And according to the US Dept of Energy’s Green Power Division, prices for RECs can fluctuate between $5 and $90 dollars per MW. (The medium is $20.)

Like Middle Eastern oil, as demand soars and supply falls behind, the price will rise…Not so if we build a off shore wind farm here at home.

Turn to Vail as an example. For years they touted building wind turbines on their main mountain. Instead they opted for REC’s because they were cheaper. No new turbines were built. No new green energy was generated. They paid for certificates from someone already generating at full capacity, who pocketed the change….They continue to use coal generated electricity to power their snow machines. The carbon power plants do not throttle down every time a REC is bought or sold. They do when wind power comes on to the grid…..

It should be clear that when we hear that onshore wind is cheaper, we need to ask hard questions: cheaper to whom, and how does it compensate for the loss of our local benefits if we decide to pass on a job producing, clean, and cheap energy source in our own backyard?……