Wholesale power prices, while at levels that make many energy investments uneconomical today, will be improved by the time Clean Line Energy‘s Rock Island transmission project comes online in 2016 or 2017, CEO Michael Skelly told TransmissionHub.
“Power is really cheap so that means that in terms of new investments, building things and putting them in the ground is harder to rationalize today than [it was] a few years ago,” Skelly said, adding that this applies not just to transmission, but to the natural gas, coal and nuclear generation industries. “At today’s power prices, there’s not a lot of options that make any sense.”
But that won’t always be the case, he said. Wholesale power prices will rise over the coming years as compliance with federal policies changes the nation’s generation mix, and as renewable costs decrease with technology improvements.
“There will be a shift away from coal because of cheap natural gas and high costs for [retrofitting coal plants],” Skelly said. “If you want to retrofit a coal plant, that’s difficult to justify, so the coal equation is going to change.”
Wholesale power prices vary regionally, but have hovered on average at around $30/MWh so far in 2012. Rock Island will be economical at $45/MWh, Skelly confirmed.
Rock Island is a 500-mile, 600-kV HVDC transmission line that originates in Central Illinois and terminates in Northwest Iowa. The company is developing the line to transport wind energy from the “wind belt” of the United States to markets east.
“The other thing we’re optimistic about is improvements in renewable energy technology,” Skelly said. “In the U.S. we’ll see about 12,000 MW of new wind energy and a lot of those contracts are getting signed at $30/MWh, so that’s pretty cheap electricity and at those prices, it’s worth making infrastructure investments to move it around.”
One reason wind is less expensive than it has been in the past is in large part because of technology advances, including bigger rotors, smaller towers and better control algorithms. The supply chain for components has also shifted from the European market to a more global market, Skelly said.
“Now you have projects getting built in the U.S., Canada, Europe, Asia, South America, Africa, Australia, so you’ve got a whole world of demand which is pushing for faster, better, cheaper, and that’s showing up in improved technology in wind generation at a lower cost,” he said.
Another factor supporting his outlook on rising wholesale prices is federal support for a diverse national generation fleet, Skelly said. Both republicans and democrats have a “pretty strong” interest for a cleaner energy mix, he said.