Wind energy under fire within ERCOT

While Texas continues to enjoy its top U.S. ranking for installed wind capacity, not all power generators operating within the Electric Reliability Council of Texas (ERCOT) are pleased with its growing prominence.

In the past year, several initiatives relating to grid interconnection and the operational performance of wind turbines have been pushed through ERCOT's regulatory channells in an effort to stunt the proliferation of wind development in the state. Such efforts, contend several developers contacted for this story, amount to desperate attempts to force costly workarounds and delay upon them.

And for the major developers in Texas, such as Iberdrola Renewables, Horizon Wind Energy and NextEra Energy Resources, the costs involved to gain ERCOT compliance could be staggering. How staggering? Try eight figures.

"It is not unreasonable to expect the cost for a major asset owner in Texas to be required to spend tens of millions of dollars for both the reactive-power and low-voltage ride-through issues:," explains Mark Bruce, an energy consultant. "The cost per unit will depend upon a variety of factors."

The issues will only intensify as more wind energy comes onto the ERCOT grid. At 9,410 MW, Texas ranks first in the U.S. in installed wind capacity. Wind represents 10% of ERCOT capacity and 5% of its generation, but even that small amount is beginning to impact the marketplace. With another 10,500 MW of wind expected on the system by 2013 - pushing wind to 20% of capacity and 15%. of electricity produced - the regulatory squabbles within ERCOT will, only grow more acute.

The stakeholder process

As is customary with system operators, priorities and issues within ERCOT are assigned to various groups for further study. Those groups report findings and recommendations to the Technical Advisory Committee (TAC), which wields tremendous influence. The TAC makes recommendations to the ERCOT board and sets the priorities for approved projects.

The TAC consists of representatives from each market segment, such as independent retail providers, independent generators, independent power marketers, municipally owned utilities, cooperatives, investor-owned utilities and consumers. Several wind participants suggest that some of these market participants are using procedural tactics in several areas to thwart wind development.

Reactive power

The Federal Energy Regulatory Commission (FERC) explains reactive power as follows: "Almost all bulk electric power is generated, transported and consumed in alternating current (AC) networks. Elements of AC systems supply (or produce) and consume (or absorb or lose) two kinds of power: real power and reactive. Real power accomplishes useful work (e.g., runs motors and lights lamps). Reactive power supports the voltages that must be controlled for system reliability."

In the past, wind was exempted from certain ERCOT rules, such as those governing reactive power and low-voltage ride-through (LVRT), because it was considered an intermittent resource. Therefore, wind power generators were not penalized by ERCOT for lacking reactive power or LVRT capability.

However, as more wind came onto the system, it caught the attention of several market participants, who began looking more closely at wind power and questioning how the market rules were being applied to wind energy. During a review in late spring and summer 2009, ERCOT determined that a large percentage of wind generators did not have sufficient reactive-power reserves to comply with ERCOT market rules. In September 2009, ERCOT reversed its course and attempted to force the reactive- power issue, giving owners and operators two ways to comply.

One way is for owners and operators to pay a "contribution in aid of construction" to a transmission service provider, which is a bilateral contract between the wind power generator and the transmission service provider to offset the costs borne by the transmission owner to provide compliance with the variable reactive-power requirement.

Another way is to retrofit existing equipment, which is a major source of contention among owners and operators of wind farms. Doing so, many developers say, would cost millions of dollars.

For example, Houston-based Horizon Wind Energy estimates that in order to comply with ERCOT's reactive-power standard, it would cost $12 million to retrofit the 400 MW Lone Star wind farm, according to Brian Hayes, the company's director of asset management.

Several developers and manufacturers have responded with written comments. The issue is now under appeal with the Public Utilities Commission of Texas, which is expected to rule on the issue this summer.

"What's troubling to wind developers is that ERCOT stakeholders have determined that we now need a new [directive], which applies retroactively to existing turbines," says Patrick Woodson, chief development officer at E.On Climate & Renewables.

According to ERCOT, wind generators may submit compliance proposals for review and approval by ERCOT, and ERCOT allows a year to bring substandard equipment into compliance. Existing generators have until Dec. 31 of this year to add necessary equipment in order to meet the reactive-power capability requirement that was established in 2004.

"If wind generation resources have a negative effect on grid reliability because they lack sufficient reactive-power reserves, then the ERCOT system must compensate for this, by bringing on conventional generation resources and/or having transmission devices that have reactive-power reserves," says Dottie Roark, an ERCOT spokesperson. "Those costs would have to be uplifted to the entire market."

Many turbine manufacturers have already begun reaching out to customers to ensure turbine compliance.

Low-voltage ride-through

Particularly galling to wind developers is the low-voltage ride-through (LVRT) issue, which wind developers claim they voluntarily brought to ERCOT and identified as an area of concern, explains E.On's Woodson.

In electricity supply and generation, LVRT deals with voltage variability on the grid when voltage is temporarily reduced due to a fault or load change on the grid.

LVRT was an attempt by the wind industry to harmonize the ERCOT standard with the FERC standard, explains Mark Soutter, market design manager at Austin, Texas-based Invenergy. Because the ERCOT footprint is contiguous within Texas, FERC has no jurisdiction over ERCOT.

"We offered LVRT up as an area of concern," Woodson says, "and before you knew it, there was talk of slapping a retrofitting standard to voltage ride-through:'

In October 2008, the TAC recommended approval of LVRT, including the requirement for existing wind farms to retrofit equipment if their interconnection agreements were completed after Nov. 1, 2008. Such a standard mandated that turbines endure a voltage ride-through of nine cycles (roughly 0.15 seconds) without tripping offline.

The ERCOT board rejected TAC's recommendation requiring retrofits and instead ruled that further study was needed. Preliminary reports have shown that there is no imminent danger for grid reliability and there are no factual grounds for retrofitting.

Pressure within ERCOT

"There's been a major rule change applied to wind generation within ERCOT every 60 days for the last two years," says Bruce, the former chairman of ERCOT's TAC. "The wind industry feels a little ganged-up on at times."

Of course, some feel that the issues with which the wind industry now finds itself grappling have less to do with market rules and more to do with politics. According to several wind participants, rival energy stakeholders, such as Houston-based Calpine, a natural-gas and thermal generation provider, have a vested interest in keeping wind development to a minimum.

Calpine, say wind industry sources, has floated several measures in an effort to thwart wind energy - and with good reason: Increased wind within ERCOT negatively impacts Calpine's bottom line.

Within ERCOT, natural gas sets the clearing price for market bids about 40% of the time. If more wind energy comes onto the system, it negatively impacts natural gas by establishing a lower clearing price and reducing the amount of time natural-gas units will run.

Increasingly, market clearing energy prices within ERCOT are beginning to have around-the-clock impacts. Natural-gas units are running less frequently, and when they are running, they are getting less revenue.

If Calpine, which derives 40% of its earnings from Texas generation, no longer sets the clearing price due to increased wind penetration, it hurts the company's revenues and profits.

According to a research report, "Texas Wind Generation," by Tudor Pickering Holt & Co., "A wind-driven reduction in power prices could mean a 15% to 20% hit to Calpine's earnings before interest, taxes, depreciation and amortization."

Several calls to Calpine requesting comment went unreturned.

"A lot of wind in a merchant market, such as ERCOT, is troublesome, because you have to restructure the market to make it work," explains Brandon Blossman, vice president of midstream research at Tudor Pickering Holt & Co., who says that currently, there is plenty of dispatchable generation. However, going forward, "it will become more of a problem when Texas needs to bring on incremental generating resources to meet demand:'

According to ERCOT documents, Calpine and other market participants are also behind a push to assign all the costs relating to ancillary services to wind generators. Ancillary service costs help ERCOT serve load reliably. ERCOT uses the day-ahead load forecast to develop an ancillary services plan and identifies the amount of ancillary services needed for each hour of the day. According to ERCOT, market participants serving load have an obligation to provide ancillary services based on their load ratio share.

Market participants fulfill ancillary service obligations by using their own resources or purchases from ERCOT at its day-ahead market clearing price for capacity. Ancillary services can entail such issues as regulation service, which is used to control the power output of generation resources in response to a change in system frequency. Ancillary services can also extend to nonspinning reserves, which ERCOT explains are provided through the use of the portion of offline generation capacity capable of being synchronized and ramped within 30 minutes.

Several market participants, such as those in the natural gas industry, encouraged the TAC to establish a working group - Wind Cost Allocation Task Force (WCATF) - to consider the allocation of ancillary service costs according to cost causation regarding wind generation resources, even though there is no proof that wind generation causes the grid incremental costs.

Wind developers say the WCATF decided to only consider methodologies to allocate costs to wind, not whether costs should be allocated in the first place.

In February 2009, the TAC considered the issue and informed ERCOT that "the costs of ancillary services are not directly assignable to individual entities, such as wind generators, because ancillary services are procured for the reliability of the entire network and not any single entity."

However, for the second time in a year, the, TAC instructed the Wholesale Market Subcommittee to investigate the ancillary services issue.

The issue was revived in the Fall of 2009 when a TAC subcommittee, on the heels of the narrow defeat of a Calpine-sponsored measure to subject wind generators to schedule deviation penalties, requested that TAC revive the issue of ancillary services cost allocation to wind generators. This time, however, the directive did not come from policy makers or ERCOT directors, it came from market participants themselves through the ERCOT committee process.

"The WCATF process stands as a textbook example of the danger inherent in a stakeholder-driven proces," Bruce says.

Other ERCOT stakeholders

To be fair, other ERCOT stakeholders say wind must be held accountable to the same standards as everyone else.

"It's time for wind energy to be held to the same standards as other generators within ERCOT," says Kevin Howell, president of NRG Texas, the second-largest power generator in the state. "We take our scheduling responsibilities very seriously."

NRG, which operates nuclear and coal plants, owns 345 MW of installed wind capacity in West Texas.

However, in cases where wind farms could not generate power as promised, other generators, such as NRG, were forced to continue to run their gas plants to cover for wind's shortfall. In fact, Howell points to two instances in the last 18 months in which wind power levels caused ERCOT to scramble to call in reserves to avoid rolling brownouts in the state.

According to Kent Saathoff, vice president of system planning and operations at ERCOT, the last significant wind event that required emergency measures during an unexpected drop in wind power occurred on Feb. 26, 2008.

"Since that time, ERCOT has implemented several wind forecasting tools and revised some operating procedures that have greatly improved our ability to manage the increased amount of wind on the grid," he says.

Just the same, Howell says, wind's intermittency caused an unstable situation on the grid. "Some of the smaller [wind] developers were getting a free ride, because they were considered an intermittent resource," he says. "We're all for intermittent resources. We just want them to play by the same rules as everyone else."

The wind industry, however, maintains that it has made legitimate concessions to be good market participants.

For, example, ERCOT contended that wind's high ramp rate caused hundreds of megawatts of energy to be dumped onto the grid within a matter of seconds, causing unsafe frequency spikes. In turn, ERCOT requested that ramp rate limits be established for wind generation. Such requests were more than reasonable, contends Woodson.

"If you can show where on the system our actions have caused disruption, we are more than willing to address the issues," he remarks.

"The wind industry has modified control systems, operational practices and made a number of fixes," Bruce says.

Others see the challenges put before wind energy in Texas as sure-fire signs of industry maturation.

"What the natural-gas companies cannot achieve with competition they are attempting to do by regulation," says Paul Sadler, executive director of the Wind Coalition, a regional partner of the American Wind Energy Association. "When you start hurting the competition because of cost or price, they start fighting you on different fronts."

And according to Sadler, once price started becoming an issue, efforts began to make it harder for wind to compete.

"If you start hanging more costs on wind through the regulatory scheme, you change the playing field," he says. A tactic such as this is shrewd, "because the media doesn't cover it, and the public never sees it. The real issue [of competition] never sees the light of day."

In many respects, what's happening could be precedent setting for the industry at large.

"We are gaining experience every day, and we understand that other system operators around the country look to ERCOT for guidance," Bruce says. "That places added importance that we get these issues right. Unfortunately, wind is a minority participant at the table."