Nuclear industry withers in U.S. as wind pummels prices

Prices Below Zero

Wind power has two advantages. Green energy laws in many states require utilities to buy wind energy under long-term contracts as part of their clean-energy goals and take that power even when they don’t need it. Wind farms also receive a federal tax credit of $22 for every megawatt-hour generated.

Thus, even when there is no demand for the power they produce, operators keep turbines spinning, sending their surplus to the grid because the tax credit assures them a profit.

On gusty days in the five states with the most wind power - - Texas, California, Iowa, Illinois and Oregon -- this can flood power grids, causing prices to drop below zero during times when demand is light. Wholesale electricity during off-peak hours in Illinois has sold for an average price of $23.39 per megawatt hour since Jan. 1, after hitting a record low of -$41.08 on Oct. 11, the least since the Midwest Independent Transmission System Operator Inc. began sharing real-time pricing in 2005.

‘Negative Prices’

Meanwhile, nuclear and coal plants must continue running even as this “negative pricing” dynamic forces them to pay grid operators to take the power they produce.

“It is becoming more pronounced as more wind is coming on,” Christopher Crane, chief executive officer of Chicago- based Exelon Corp., said in a phone interview.

If the push to “over-develop” subsidized wind continues, “there is a very high probability that existing safe, reliable nuclear plants will no longer be competitive and will have to be retired early,” according to Crane.

More development seems a certainty. Wind power got another boost when Congress, as part of January’s deficit deal, extended the production tax credit through Dec. 31, amending current law so that projects begun this year will receive the 10-year tax break regardless of when they come online.

Defending Wind

While few new projects are expected to be built out this year due to developers’ mad dash at the end of 2012, “we think 2014 will pick up again,” said Rob Gramlich, interim CEO of the American Wind Energy Association, a trade group.

Gramlich doubts wind power is the chief reason that spot- market power producers like Exelon are suffering a profit drain. “Low prices are due to a lot of things, mostly shale gas,” he said. “But to some extent wind does reduce power prices and that’s a good thing for homes and businesses.”

Natural gas is fuel for a growing number of U.S. power plants because of its cost advantage and new environmental rules for coal. Wind is gaining as turbine costs plummet -- they are down one-third since 2010 -- and technology gains make windmills economical in states with lower average wind speeds.

Google Inc. is investing $1 billion in wind and solar projects and Warren Buffett’s MidAmerican Energy Holdings, Iowa’s largest utility owner, owns 6% of U.S. wind-energy capacity and has invested about $13 billion in renewable energy.

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