I’ve spent a portion of the past decade engaged in various efforts to encourage development of alternative energy resources in Arkansas, motivated by two factors – a belief that climate change is real and must be addressed and a desire to position Arkansas to capture a big chunk of the trillions of dollars that will be spent solving this problem.
As the director of the Arkansas Economic Development Commission, I helped to attract companies that manufacture components for alternative energy generation, supported the development of new Arkansas companies that grew out of university research in alternative energy and helped to develop pilot programs designed to attract investment into alternative energy in Arkansas.
I continue to follow developments in the sector because I remain convinced that there are fortunes to be made in alternative energy, right here in Arkansas.
So last summer, when utility giant American Electric Power (AEP) announced its intention to purchase the “largest single-site wind project in the United States,” currently under construction in Oklahoma, I took note and found a lot to like in the deal as described.
According to AEP, the Wind Catcher Energy Connection project will include 800 turbines spread across 300,000 acres in the Oklahoma Panhandle as well as approximately 360-miles of dedicated transmission line connecting the wind farm to a new substation near Tulsa, where the electricity will be fed into the grid.
The construction phase of the project will support the creation of 4,000 direct jobs and 4,400 indirect jobs in addition to 80 permanent, full-time operations jobs – primarily in Oklahoma. The facility will create 2000-megawatts of electric power. The total cost is estimated to be $4.5 billion, which will be shared by AEP subsidiaries Southwestern Electric Power Company (SWEPCO) and the Public Service Company of Oklahoma (PSO). When complete, SWEPCO will own 70% of the project and its output and PSO will own 30%. This is consistent with a growing trend that is seeing large utilities purchase generation facilities, including them in their rate base, rather than purchasing power from a third party that owns and operates the generation facility.
Finally, AEP says that with speedy approvals from state regulators in Arkansas, Oklahoma, Texas and Louisiana the project will be eligible for Production Tax Credits from the federal government, which are being phased out, but if captured in their entirety by the project will significantly reduce the cost of the power produced at the facility. In fact, AEP argues, the PTC phase-out is so significant that it created the impetus for the project in the first place, and regulators just need to focus on the savings and approve this transaction on an accelerated timeline.
And that’s where things start to go wrong for me.
I liked 800 expensive windmills with some parts made in Arkansas, and I like cheap, clean electricity. But the more I read and analyzed the reality of the project, the more I came to understand that it is possible to like all of those things and still dislike the project.
Here’s why: The savings are estimated, but the costs are real. If built, it is possible that Wind Catcher would produce some savings for PSO and SWEPCO’s customers over the next twenty years, but the $7 billion referenced by AEP is based, in part, on a lot of unknowns and unrealistic predictions, particularly about the cost of natural gas. If the Arkansas Public Service Commission approves SWEPCO’s request for cost allocation, Arkansas’s share of the cost of Wind Catcher is $607 million. That’s assuming no cost overruns or delays in building the largest single-site wind farm in the country.
After Wind Catcher is built, PSO and SWEPCO plan to continue operating all of their existing generation, including Arkansas’s two coal-fired plants at Fulton and Gentry. SWEPCO and PSO will sell the excess power on the open market, more profitably than it can sell power to its regulated customers. Bringing this wind power into their portfolio will lower their overall cost of power, giving the company margin and leverage. This is smart business, particularly in an industry that has problems satisfying Wall Street’s demands for explosive growth but making your customers gamble with their money seems wrong.
If SWEPCO wants to build its merchant businesses, it should foot the bill. If it wants to get serious about renewables, it needs to include Arkansas-based solar in its planning. Unsubsidized large-scale solar that can serve thousands of customers is starting to beat wind, gas and coal at current prices and is surging past wind in new installations in the United States.
Arkansas is ripe for solar development, particularly because we lag behind neighboring states and most of the rest of the U.S. development of our solar resource. And, while Arkansas does not have enough wind volume to generate utility-scale electricity, it does have more than enough sunshine to support utility-scale solar, and we have an investor class that has proven willing to bring large projects forward.
This is not an Arkansas vs. Oklahoma or a wind vs. solar debate. It is all about what is best for Arkansas, and Wind Catcher is not the best option for us. Why import wind from Oklahoma when we should be building our own solar generation that will provide jobs and revenue for communities here in Arkansas?
If AEP wants Arkansans to support the expansion of its renewable portfolio as well as its push into the merchant marketplace, it needs to invest in Arkansas resources.
Mr. Tennille is the spokesperson for Renewable Arkansas, a non-profit project of Americans for Affordable Energy. He served as director of the Arkansas Economic Development Commission from 2011-2014.