Even as the cost of conventional electricity skyrockets, the market’s structure has prevented a San Diego-based producer of alternative power from fully taking advantage of the increased demand.
But that may change.
SeaWest WindPower, Inc. has neither been helped nor hindered by rising energy costs. SeaWest generates about 378 megawatts of electricity annually from about 2,500 wind turbines in California , and the wind turbines generate what Jan Paulin, president and chief executive officer of SeaWest, called “as-available” power.
Paulin hopes to apply to the Independent System Operator, California’s arbiter of electricity, to allow it to sell as-available electrical power. If the ISO agrees, the company can compete in the open marketplace, he said.
However, that process could take years, Paulin said.
With the way the market is structured now, SeaWest can’t take a risk in selling its power directly to the ISO. Under the current rules, once a company commits to providing a certain amount of electricity, it has to deliver on that promise.
But nobody can predict exactly when the wind is going to blow, Paulin said. If SeaWest were to promise electricity but the wind suddenly stopped, the company wouldn’t be able to deliver.
ISO Risks
If that were to happen, the ISO would have to make up the shortfall by buying power on the “spot market.” If the other source of electricity were to cost more than SeaWest’s price, SeaWest would have to pay the difference , effectively wiping out any potential profits, he said.
Only a larger utility can circumvent this problem because it has conventional backup. That leaves SeaWest with only two options.
SeaWest resells its electricity to other utilities, as spelled out in 30-year contracts signed in the 1980s , well before deregulation. However, the electricity is sold at a fixed price, so SeaWest doesn’t see any additional profit, he said.
SeaWest’s only other option is to build “wind farms” , areas where wind-driven electricity is generated , and sell the farms directly to utilities. This is a much smaller percentage of the company’s business; however, it may grow with time, Paulin said.
In the long run, deregulation will help companies like SeaWest. Previously, such companies had an adversarial relationship with the large utilities, which would purchase alternative energy only when the government mandated it through long-term contracts, he said.
But so far things haven’t changed much, due to the restrictions at the ISO, Paulin said.
Paulin doesn’t fault the current system. When the rules were drafted, nobody thought of the situation where an alternate energy provider could provide electricity only as it becomes available, he said.
ISO Changes Unlikely
If the ISO agrees to allow as-available providers to sell directly into the market without facing penalties, then wind power could be a viable alternative to conventional electricity, Paulin said.
Pat Dorinson, a spokesman for the ISO, said it was unlikely that as-available providers would be allowed into the network any time soon. The ISO’s job is to balance the electrical power load in the state and requires electricity generators to provide power when they say they will. If that power is not available as promised, that could strain the electrical load over the entire network.
Dave Roberts, assistant vice president of SeaWest, said these obstacles could be overcome.
One possibility is permitting as-available generators to average out their output over a week. A generator has no way of knowing how strongly the wind will blow at any given moment. But there’s a good statistical chance of meeting the promised output over a week, Roberts said.
Still, he concedes it’s an uphill battle. ISOs are regulated not by the state, but by the Federal Energy Regulatory Commission, and SeaWest may have to go to the federal government, Roberts said.
If SeaWest succeeds, this will help spur additional investment in wind power. Windpower is already a promising technology whose cost is declining to the point where it can compete with conventional electricity, he said.
Technology Improvements
That’s largely due to tax breaks, and recent improvements in the design of wind turbines. Further improvements in the future may create even more efficient wind turbines and reduce the cost still further, he said.
Michael Shames, executive director of the Utility Consumer Action Network, said he supports allowing as-available providers to sell electricity into California’s network. However, it would take years to work out solutions to make it feasible.
“Opening the market to incorporate them is a good thing. But it’s not an easy thing. Technically, it’s very complicated, and it may not be something that the ISO can do quickly, because it’s a lot more complex,” he said.
Consumers would benefit from this change. Currently, part of the problem contributing to high electric rates is that there are not enough generators. Any time new generators enter the market, the competitive market for electricity is increased, giving buyers more options, Shames said.
