What the State of Kansas and the Utilities Should Do to Promote Wind Energy

“What the State of Kansas and the Utilities Should Do to Promote Wind Energy”

A speech by Bill Griffith at the Wind Energy Conference, July 24, 2000

For more information, use this link: www.pinnaclet.com/kswind

Thank you, Mr. Holmes. I hope everyone in the audience is enjoying themselves at the conference and I certainly would like to thank the people who organized this conference for the truly great job they have done.

“My portion of the program is “What the State of Kansas can do to promote wind energy.”

I would like to break that down into utility-size projects and distributed generation, or smaller turbines for homes, schools, and businesses. I will speak first on the utility- scale projects.

While we are focusing on what the state of Kansas can do we must factor in potential variables from the federal level. There are two that bear watching closely.

The first one is the Kyoto Protocol. This agreement reached between nations of the world is designed to reduce greenhouse emissions and begin reversing (hopefully) global warming. If the U.S. Senate ratifies this treaty it will have important ramifications in Kansas.

Regions that depend heavily on coal will be hardest hit. Kansas, of course, is a large purchaser of coal and uses it as its primary energy source. Under the terms of the Kyoto Protocol the price of coal will rise 153% to 800%. The increase at the residential level will be up to 36 dollars per month according to the Energy Information Agency. Small businesses can be expected to absorb the same type of increases if they are in a region that depends heavily on coal.

Our state is hooked like an addict and is mainlining coal from the western states and like the junkie we are in an unhealthy position. If the U.S. government decides we have to have a carbon tax some scenarios suggest that coal plants may become too expensive to run as a baseload plant. This reinforces the idea we need a variety of resources for our power needs.

The other major factor looming out on the horizon is the ongoing deregulation of the electric industry. There are several bills in Congress now and we have seen utilities preparing for this prospect by shearing costs such as deep-sixing demand side management programs.

Carbon prices are expected to go up as well under deregulation. Natural gas is projected to go up.7% year thru 2020 without the implementation of a carbon tax or deregulation. It has also been the subject of wild price swings recently. How many in this room think the price of natural gas will be lower in five years? Ten years?

Wind energy, by contrast, is expected to drop from $ 1000 per kW to $ 600 per kW by 2020.

Restructuring brings uncertainty concerning future demand needs. If utilities from outside the state can come in and potentially entice customers away how can you accurately figure future demand? Doesn’t make since to build a huge plant saddled in debt if this is the wave of the future does it? I wouldn’t want to be handed the job of forecasting my company’s future market with competition out there, especially since the power companies have not been trained in the ways of good ol’ cutthroat capitalism.

So what is one to do? Let’s examine the attributes of wind: Wind is an excellent energy choice to add to the resource mix in Kansas.

Kansas is the third windiest state so we have plenty of fuel. And its free. No price hikes there. This minimizes the overall fuel-price risks hanging over our heads.

A wind farm can be installed in segments as needed with short constructions lead time so power companies can respond quickly to changing circumstances.

The wind farm brings increased revenues to local governments and landowners. A Union of Concerned Scientists study estimates the return on land at 30 to 100% and the land can still be farmed! Can you imagine the boon to some of our struggling farmers and cash-strapped counties? It’s interesting to see what some of the farmers in Iowa and Minnesota are making on these leases.

With this in mind let’s gaze into our crystal ball courtesy again of the Energy Information Agency:

Kansas has a projected summer demand this year of 13,461 megawatts of electricity and has a capacity of 15,465 megawatts plus three new coal-fired plants coming on line with an additional 1,309 megawatts. By the year 2009 the demand is projected to increase to 17,168 megawatts. Where should we find the required power plus a little extra for a margin of error? Wind of course. I propose the state of Kansas require 500 MW of wind power by the year 2009. It will meet the projected needs, increase our resource mix, help rural Kansas and help ensure smaller price increases. If deregulation or the Kyoto Accords are implemented we will certainly need to add more megawatts of wind in order to stabilize our energy costs. I call on the governor and the legislature to study the examples set by other states and to go into action on this issue. A small amount of foresight now will save a great deal of finger pointing in the near future.

Let’s move over to the distributed generation arena and see what we can do there. The main problem is the upfront costs associated with a wind turbine system. There are two tools we can use to assist folks who would like to join the wind revolution. The first thing we need to have in Kansas is net billing or net metering as it is often called. Net metering is a key component that needs to be in place in order to make wind energy a viable option for farms, schools, businesses, and homeowners in Kansas.

By definition net metering is where the meter runs backwards when the producer generates more electricity than is needed at that particular time. The standard home utility meter works forwards and backwards and is conducive to net metering. The excess generation can either be just put back in the grid at no compensation to the producer such as in Iowa, it can be sold back to the utility at the avoided cost of fuel, or it can be sold back to the utility at the retail cost as it is done in Wisconsin. States handle this excess generation in different manners.

As of now over 30 states have enacted some form of net metering. In the next couple of years I’m sure we will see even more states enact this reform.

This is certainly one area that brings out frustration in folks with wind turbines in our state. Kansas has the LARGEST discrepancy in the price the utilities charge and the price they will pay for generated electricity of all the 50 states. Let’s look at some examples: Larry Spiva of Claflin is charged 9.5 cents per kilowatt hour by KGE when he is purchasing electricity yet is only allowed to sell it back at 2 cents per kilowatt hour. Certainly a bargain for KGE and an ongoing frustration for Mr. Spiva.

Paul Burmeister of Burr Oak has had a wind turbine since the early 80’s and Bob Courtney of the Olathe School system is looking into putting up a wind turbine at one of their athletic complexes. Bob told me the complex uses about 55,000 dollars annually for electricity. Without net metering his bill will probably still be around 40,000 dollars. With net metering it could drop to around zero. In four to five years the district could save a quarter million dollars or so on just one complex with a turbine and net metering. Think of the possibilities of schools across the state and how they could re-direct those funds into other valuable directions. Check out what Spirit Lake School is doing in Iowa right now.

Some utilities have required extra safety features or costly insurance in order to bring a wind turbine online. These costs drive up the initial investment and make wind turbine ownership less appealing. What makes this scenario even more frustrating is there are over 5,000 small wind turbines in operation, logging over 300 million operational hours with no liability claims or lineman injuries from inter-connected systems. Any safety concerns can be disposed of rather quickly as a red herring.

The state of Kansas should enact a net billing law that gives the right to interconnect under standardized requirements, protect producers from liability insurance barriers, and other unreasonable disincentives and encourages prospective wind producers to invest in turbines that fit their particular needs.

Of course, another disincentive is the price of a wind system. While it certainly pays for itself over time, the initial cost can be prohibitive for many individuals and businesses.

Some of you may recall Kansas has a tax credit for renewable energy some years back. Many of the wind and solar systems we have came from this era. I propose a state tax credit for renewable energy systems of 45% of the purchase price with accelerated depreciation and allowing the credit to be spread over five years.

I spoke with Mike Bergey of Bergey Wind and he suggested that 45% would be a good target to aim for in order to make wind energy viable in the distributed market. Let’s look at an example of a business or farm that pays $500 per month in electric costs and has a $2000 tax bill annually to the state.

$500 x 12 = $6,000 annually in electric bills. Annual tax bill of $2000. Total annual costs are $8000.

A $30,000 wind turbine with a tax credit of 45% would give a total credit of $13,500.

Let’s say the depreciation schedule is 30-20-20-15-15. The first year the purchaser would have $4,050 tax credit so they would pay no taxes. With net metering the electric bill could very well be zero or they may get money back from the utility, but we will say that they net out for the sake of our example. So, the first year they save $2,000 in taxes and $6,000 in electric bills and put $8,000 in black ink instead of red ink.

The second and third year saves $2,700 in taxes and of course, there is again a $6,000 savings in electricity, so again a total savings of $8,000 each of those two years. The fourth and fifth year there is a $2025 tax savings and the $6,000 in electric savings, so again a net savings of $8,000. After five years the total savings is $40,000, the wind turbine can be paid off fairly quickly and the electric bill will be minimal, nonexistent, or better yet our folks will receive a check back from their utility for being a producer of electricity. Now that’s exciting!

Obviously this is a hypothetical case and each scenario is different. But this two-pronged strategy of net metering and a tax credit can give the economic boost that is needed to make wind an affordable option for the distributed power market. Imagine the economic boost this can give struggling farms and businesses that have seemingly scoured every dark nook and cranny for extra savings and now realize the electricity they are using for their search is actually the light at the end of the tunnel.

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