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Cost of wind soaring

Shifting winds in the energy market will have Austin Energy paying significantly more for its next batch of bluster.

The cost of wind power in a new agreement to be negotiated is projected to be 46 percent more than the price in a similar contract struck just last year, according to Austin Energy.


The 20-year agreement with Res American Developments Inc. of Austin could be worth up to $685 million, if talks are successful. The City Council is set to give the go-ahead today to begin negotiations.

Despite the big price increase, some market watchers say Austin is getting a good deal given the volatility of natural gas prices and the increased demand for wind power.

"All energy prices have gone up, and wind is a pretty hot commodity right now," said Michael Sloan, a renewable energy consultant with Austin-based Virtus Energy. "There is more demand than there is supply right now."

If natural gas prices held steady, Sloan estimated that the fuel costs alone on a natural gas plant would be about $1 billion to produce an equivalent amount of power based on the output of comparable West Texas wind farms.

And the natural gas market has been anything but stable in recent years. A look at the average annual price for natural gas shows a 76 percent increase from 2001 to 2005.

"It still looks like it is a pretty good... more [truncated due to possible copyright]  

The cost of wind power in a new agreement to be negotiated is projected to be 46 percent more than the price in a similar contract struck just last year, according to Austin Energy.
 
 
The 20-year agreement with Res American Developments Inc. of Austin could be worth up to $685 million, if talks are successful. The City Council is set to give the go-ahead today to begin negotiations.
 
Despite the big price increase, some market watchers say Austin is getting a good deal given the volatility of natural gas prices and the increased demand for wind power.
 
"All energy prices have gone up, and wind is a pretty hot commodity right now," said Michael Sloan, a renewable energy consultant with Austin-based Virtus Energy. "There is more demand than there is supply right now."
 
If natural gas prices held steady, Sloan estimated that the fuel costs alone on a natural gas plant would be about $1 billion to produce an equivalent amount of power based on the output of comparable West Texas wind farms.
 
And the natural gas market has been anything but stable in recent years. A look at the average annual price for natural gas shows a 76 percent increase from 2001 to 2005.
 
"It still looks like it is a pretty good value," Sloan said of the wind deal.
 
Austin Energy is hedging its bets by locking in a long-term supply of wind, which is the most economical of the renewable sources, at a guaranteed price for the 20-year span of the contract, said Michael McCluskey, senior vice president for wholesale and retail markets.
 
If this deal goes forward, 11 percent of Austin's power will be derived from renewable sources, a significant step toward the city's goal of getting 20 percent of its power from renewable sources by 2020.
 
Power from the new 225 megawatt wind farm will begin flowing to Austin by the end of 2007. So new subscribers to GreenChoice, the program that allows customers to buy clean energy, will have to wait a while because the program is full.
 
McCluskey said GreenChoice customers could end up paying about 4.5 cents per kilowatt-hour, which is about 29 percent more than the present rate. Those customers who opt into the program will bear the cost of the increase.
 
If the past is any indicator, McCluskey does not expect the demand to slacken as the price increases. Customers have clamored to participate in GreenChoice each time the program has taken new subscriptions. This agreement will provide the fifth batch of wind power to Austin since 2001, when GreenChoice began.
 
Most recently, Austin Energy received about 5,000 entries in a drawing for the 1,400 remaining residential spots in the previous contract, which gives customers a 10-year fixed rate that is now slightly cheaper than the standard fuel charge.
 
A multitude of market forces are driving up the price of wind power, including a short supply of wind turbines and rising costs of the steel to make those turbines, Sloan said. And wind production is the easiest source to develop quickly as natural gas prices soar.
 
The uncertainty of the market has Austin Energy exploring other sources for the future, such as other renewables and coal gasification, which is being looked at as a cleaner way to use coal for power production. Austin Energy is looking to a $130 million agreement, also on today's council agenda, to buy energy beginning in 2008.
 
The agreement will provide some breathing room as the final units of Holly Power Plant close and Austin Energy determines what direction to take given changing market conditions, McCluskey said.
 
kalexander@statesman.com; 445-3618


Source: http://www.statesman.com/ne...

APR 6 2006
http://www.windaction.org/posts/2049-cost-of-wind-soaring
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