The Monongahela Power and Potomac Edison subsidiaries of FirstEnergy (NYSE: FE) should hold a competitive solicitation for regional wind and other renewable energy resources through long-term purchase power agreements (15-20 years) in order to ascertain pricing information.
That was a contention made by the Mid-Atlantic Renewable Energy Coalition (MAREC) in May 2 testimony filed at the West Virginia Public Service Commission as part of a review of the 2015 integrated resource plan (IRP) of these utilities.
The companies should consider numerous contracting structures, including financial contracts for differences to maximize wind energy’s cost-effectiveness, the coalition said. The companies are part of a large regional power pool. One of the major advantages of this power pool is that the companies’ customers can benefit from financial hedges which do not require physical energy delivery, it added. As such, wind energy projects do not necessarily have to be located in the companies’ service territory to provide the benefit of low-cost, long-term, fixed cost power.
Moreover, the coalition added, the solicitation could also lead to additional wind energy projects being developed in West Virginia as the state has a good resource and proximity to the load has some advantages like the possibility of lower transmission costs and economic development benefits to the state. A competitive solicitation could also be conditioned on the companies only accepting bids or proposals that are deemed cost-effective.
MAREC is a nonprofit corporation, which was formed to help enhance the opportunities for renewable energy development primarily in the region where PJM Interconnection operates. MAREC’s membership consists of wind developers, wind turbine manufacturers, service companies, nonprofit organizations and a transmission company.
MAREC noted that West Virginia has 583 MW of installed wind capacity already in operation in the state.
The coalition took issue with wind cost estimates in the 2015 IRP. The IRP shows wind as having the highest cost of energy of all sources. The IRP stated that the estimated cost of wind capacity is $228 MWh. “While this number was extraordinarily out of line with all available data, we note that the Companies subsequently through data request responses admitted its wind capacity projection to be a mistake and the correct projection should have been $124 MWh,” the coalition wrote. “Although this number is literally half the number the Companies specified in their IRP, this number too is grossly overstated and should not he acceptable for purposes of this plan.
“As Staff rightly points out the other large electric utility IRP being considered by the Commission at this time is [Appalachian Power Co.], which projected wind energy capacity at $63-$73 per MWh. We note that the APCo numbers excluded the impact of the federal Production Tax Credit (“PTC”), which would significantly reduce their projections even further as the PTC was extended by Congress at the end of 2015. For years 2015 and 2016, the PTC would be a credit for 100% of the PTC value and then would he reduced to 80% of the value in 2017, 60% in 2018 and finally 40% in 2019 before being phased out in 2020. These credits would be passed through to consumers in any sort of competitive procurement process.
“Even the APCo numbers are on the high side. A recent analysis from the consulting group Lazard found that, on a levelized basis, wind has the lowest cost of energy for either conventional or alternative sources of electricity.”
The coalition added: “Data compiled by Lawrence Berkeley National Laboratory for the Department of Energy (“LBNL”) in the 2014 Annual Wind Technologies Market Report, which was released in 2015, show that the national average price for wind purchase contracts signed in 2014 was $23.43/MWh, less than 1/5th the corrected cost assumed by the Companies. The average wind price in the Great Lakes region, which includes several states in the PJM interstate grid operator footprint in which the Companies are also market participants, was $34.31/MWh in 2014. The Great Lakes region is the geographically closest region to West Virginia for which the 2014 Annual Wind Technologies Market Report had sufficient data to report a regional average price.”