David Biddle

Until the end of the 1990s, wind farms were mostly considered one of the more extravagant examples of renewable energy available. Besides the fact that they presented a land use challenge, these alternatives to traditional power production also require siting in sometimes hard to find areas with average wind speeds of at least 12 mph. There were also problems with bird safety and the phenomenon of wind noise – a form of noise pollution. In addition, until the early 1990s, wind power was often relatively inefficient due to turbine technology challenges and the distance power must be transmitted in order to get to the ultimate end user. Compared to hydropower, biomass and even photovoltaic solar electricity, large-scale wind energy systems have sometimes been used by critics of renewable energy as a good example of how unwieldy alternative energy projects can be.

But things have changed. Gradual technology efficiency gains for blades, towers and turbines — coupled with the “unbundling” of utility systems — have helped boost potential of the wind power industry. Additionally, financial support from the federal government for R&D, demonstration projects and the wind energy Production Tax Credit (PTC) has made it possible for upstart wind companies and utilities to position themselves as viable sources of clean power for the 21st century. In fact, wind generated electricity is now comparable in price to electricity generated by natural gas, making it the least expensive of all nonhydro renewables.

Although wind energy advocates admit that the total generating capacity of all wind farms is roughly 2,500 megawatts (MW) — about the equivalent of two large nuclear power plants (less than one percent of the total national electricity demand) — they claim that wind power has the potential to supply a significant portion of the nation’s electricity.
Compared to conventional fossil fuel plants, wind power is virtually nonpolluting, eliminating greenhouse gas emissions and displacing sulfur dioxide, which causes acid rain. In support of this form of clean energy, a program launched by the United States Department of Energy (DOE) called Wind Powering America has set a goal of achieving five percent of the nation’s electricity generation from wind by 2020.

Advocates like the American Wind Energy Association (AWEA) feel that DOE’s goals are very likely to be surpassed as the utility industry deregulates and the need to reduce greenhouse gas emissions increases. They also point to the opportunity to create new high-tech jobs as well as the creation of income generating opportunities in rural applications where farmers are able to lease land for wind energy projects. According to the AWEA, the typical turbine brings in as much as $2,000 a year in lease payments for the land it occupies. And because taller and more efficiently spaced wind towers are now the norm, advocates claim that only about five percent of the land occupied by wind farms cannot be used for other productive purposes.

TESTING FOR SUSTAINABLE GROWTH

Over the last decade, wind energy has grown faster than any other renewable energy industry in the world, with an average annual growth rate of over 20 percent. (Recent studies show that the computer industry is growing at the rate of 15 percent a year.) Some of this growth is a result of relatively large projects financed by utility companies with the support of the United States Department of Energy (see “Wind Power Farms Pick Up Speed,” November/December, 1998, In Business), but some of it is also occurring on a smaller scale, especially over the last several years with the push by government to link development of renewable resources with utility deregulation. Adopted in eight states, the Renewables Portfolio Standard (RPS) provides tradable renewable energy credits for power producers. It is designed to be a flexible, market-driven way to ensure continuing investment in clean energy as the utility industry moves toward more deregulation.
Spurred on in part then by the intent of RPS, small-scale, demonstration wind projects are beginning to pop up in a number of states, including North Dakota, Minnesota, Iowa, Kansas, Alaska, Georgia, Michigan, Wisconsin and Wyoming. The intent of these small projects is to test the operating parameters of sites so as to grow them into sustainable, profit-making enterprises.

PENNSYLVANIA WIND ENERGY

One of the more promising examples of a small-scale wind power application can be found in Pennsylvania, one of the first states to deregulate the utility industry. In conjunction with a major regional utility company, startup venture Community Energy, Inc. and the environmental nonprofit Clean Air Council have teamed up to build a two-turbine demonstration project in the Pocono Mountains several hours north of Philadelphia.

The project got its start several thousand miles away in Colorado, where the Land and Water Fund of the Rockies, an environmental project of the LAW Fund, began a program called the Grassroots Campaign for Wind Power to promote the purchase of wind power in the state. With over 11,000 residential buyers and 200 businesses, what is now known as Colorado Wind Power is successful even without utility deregulation. Land and Water Fund activists mounted their grassroots campaign in spite of the fact that the electricity they were selling was more expensive than conventional power. With this high level of success, they began to wonder what might happen in a deregulated market like Pennsylvania’s where electricity costs have been historically very high.

Approaching the Philadelphia area environmental group Clean Air Council, the Land and Water Fund has helped form Pennsylvania Wind Energy (PWE). In essence, PWE is a strategic partnership among the Land and Water Fund, Clean Air Council, Conectiv Energy (once a major regulated utility), and Energy Unlimited, Inc. With the help of the Land and Water Fund, Clean Air Council has spun off a marketing company called Community Energy to handle customer acquisitions and contracting; Conectiv handles the electricity distribution and power delivery portion of the mix, and Energy Unlimited built and operates the small wind farm in the Humboldt Industrial Park in Hazelton, PA.

According to Brent Alderfer, president of Community Energy, the project has started out small, with two demonstration turbines capable of generating 65 kW each — 200,000 kWh a year — enough power to provide roughly 30 homes with electricity for a year. This may be a small amount of energy, but as Bob Markee of Energy Unlimited says, “It’s a pilot program set up in order to test wind patterns at the site and to evaluate operating conditions.” If all goes well, PWE expects to expand dramatically over the next year. The system went online on December 31, 1999. But Alderfer says PWE is already in the process of adding two more turbines expected to go online this summer so that it can meet the demand for its wind product. He says, “Because we are putting a sharp business pencil to this program, redirecting utility costs and helping people save money, and then adding environmental responsibility to the package, Pennsylvania Wind Energy is a success.”

Community Energy currently sells blocks of power specifically to small businesses — mostly retail establishments — which often use ten times the energy that homes do. Companies can choose the number of blocks they buy. At about 2 1/2 cents more than the cheapest power, companies are able to balance the desire for clean energy with energy savings.

In evaluating a potential customer’s energy needs, Community Energy is first able to offer Conectiv’s conventional electricity supply priced significantly lower than the local Southeastern Pennsylvania standard utility rate — meaning a direct savings on energy regardless of the source of power supply. It also asks if the business is interested in putting some of that savings into wind power. Because of competing energy prices, it is possible for a business to purchase wind blocks for a part of its electric supply and still pay less overall. In some cases, notes Alderfer, Community Energy is able to provide customers as much as 60 percent of their electricity needs through wind and still save them money.

Selling wind power in blocks of 400 kWh per month, the first 42 blocks sold out almost immediately. The biggest customer, Philadelphia’s Sheraton-Rittenhouse, a premier “green hotel,” has placed an order for 20,000 kWh a month. The addition of two more turbines is already in the works to support the success of the project.

Put simply, customers buy into the Conectiv supply but don’t pay extra for wind power until the electricity they have invested in comes on line. “The customer orders wind power directly,” points out Andrew Altman, deputy director of the Clean Air Council. “They know their money is for building and supporting wind. So do the people financing the project. The old way of huge power purchase agreements is dead.”

WINDS OF CHANGE?

Clean Air Council, long an opponent of smoke stack utilities and incinerators, is one of the oldest environmental groups in the Philadelphia region. PWE and its spinoff Community Energy represent a touchstone opportunity to shift the entire advocacy process. Whereas over the last few decades environmental groups have been put in the position of pushing for the enforcement of regulations, this project is an opportunity for an environmental group to work with business and utilities to establish sustainable alternatives to the polluting power plants they oppose.

Altman says that “for environmental organizations, one benefit that can come from deregulation, that would make deregulation a success in environmentalists’ eyes, is this opportunity to develop new renewable energy sources. That’s why this is so exciting. It’s a new way to finance, market and build new renewables.” Altman stresses the term new.

On a broader scale, the marketing techniques of Clean Air’s spinoff company are akin to the standard canvassing approach of environmental organizations. Rather than developing the scattershot mass mail and advertising approach of corporate America, Community Energy’s marketing method is to deploy canvassers in a door-to-door campaign in business districts throughout the Philadelphia-area.

Alderfer concedes that the scale of this project so far makes such a marketing technique relatively easy, but as the company moves forward over the next year, his plan is to increase the number of canvassers to 40. He points out that so far Community Energy has only canvassed a small portion of the Philadelphia area and that it expects to expand into the Pittsburgh market as well as New Jersey, where deregulation is just kicking in. To meet the anticipated demand, PWE is planning to dramatically expand its power production over the course of the next year. It is looking to site a much larger wind turbine system capable of generating up to 15-20 MW of power — more than 100 times the power of the existing system.

Alderfer admits that the project as it stands now is not in the black financially. He says a small profit margin has been built into every account, but points out that PWE is still in a start-up mode. Industry experts indicate that projects do not start becoming profitable until they are at least 5 MW in size. And investors are not usually happy until systems have reached the 10-15 MW scale. Growth to the next level where the company has signed on its next 15 MW of power demand will thus move it closer to the goal of sustainability for the long haul.

Alderfer is putting the finishing touches on a formal business plan and is talking to environmental investment funds about another $5 million in capital. Guiding his efforts is the success of the Land and Water Fund project in Colorado, which claims several hundred businesses as customers for capacity similar to this next phase of growth for Pennsylvania Wind Energy. According to the Land and Water Fund, approximately one-third of the businesses it has contacted elect to sign up for wind energy. And both Alderfer and Altman point out that new competition spurred on by utility deregulation should increase people’s desire to invest in Community Energy’s wind energy product.

Asked whether PWE has any concerns about a long-term relationship with its partner utilities, Altman emphasizes the positive nature of the relationship. He also points to a new solar schools project the Clean Air Council is working on with Conectiv. The utility and nonprofit are working as allies to sign 25 schools up to a special photovoltaic solar project where in exchange for signing energy contracts, schools receive — free of charge — photovoltaic panels to supplement their energy systems. According to Clean Air’s executive director, Joseph Minott, “Pollution-free solar panels on school rooftops bring the power of learning to students. This project provides one more reason to shop around for an electricity suppler. It allows schools to save money over the existing utility rate while protecting the environment, a perfect lesson to teach students.”

Addressing the concern about a longer term drifting away of customers once the first wave of contracting is over, Altman notes that PWE is building customer turnover into its business plan. But he emphatically adds: “People and companies don’t buy wind products for the savings, they buy wind because they know it’s a clean source of energy.”

Although it has the first project in place, PWE is not the only company in the state investing in wind power. GreenMountain.com is completing work on an eight-turbine, 10 MW wind farm at an abandoned strip mine in western Pennsylvania. The company expects to be generating power by April 22, 2000 — Earth Day. If all goes well, it intends to scale the project up to as much as 25 MW.

REAL CHANGE IN THE AIR

Whether or not wind power companies and utilities are able to move the country to the five percent goal set by the DOE, it is clear that this industry is just now getting out of the starting block. By all accounts, turbine and blade technologies continue to improve at startling rates and utility deregulation is still in its infancy. This as yet small project in Pennsylvania and the one it’s modeled after in Colorado — offer supporters of clean renewable energy a great deal of hope for the future. The marriage of utility companies, businesses and environmental groups should not be taken lightly. It is perhaps a declaration of the fact that there is real change in the air.

David Biddle (Dbiddle@aol.com) is research director with Philadelphia Self-Reliant and a contributing editor to In Business.