To compare the economics of banked energy versus unbanked wind energy, let’s see what firming wind energy would cost. Currently, the market is charging about $20/MWh to bank wind energy. So, if we purchase the wind energy for $75/MWh and then add $15/MWh to firm it and $20/MWh to bank it, we’re looking at $110/MWh as the total cost of wind energy. However, banked wind energy is more like solar power in that it is renewable energy that can be received on-peak. In fact, banked wind energy’s dispatchability makes it more valuable than solar because its capacity is much firmer.
Banked wind energy can be used on-peak; during the hottest summer days, it is worth $80/MWh to $300/MWh. Even taking into account the $30/MWh cost of a REC, buying wind at $110/MWh would be beneficial to most utility bottom lines.
Contractually, the acquisition of wind energy will change drastically due to the benefits of banking. Some utilities, like Southern California Edison (SCE), are willing to pay a premium for power delivered on-peak but much less for off-peak energy. For example, if SCE secures a wind deal for $100/MWh, the utility’s pro forma contract structures payments so they average $100/MWh over the year but are $328/MWh during the summer peak and $65/MWh during off-peak periods and winter months. The acceptance of energy banking by state energy regulators will enable contracts to be restructured to eliminate premium payments.
Connect the plants
Because they are powered by an intermittent resource, wind farms have an average capacity factor that rarely exceeds 40%. This has three negative and related consequences:
- Much of the transmission capacity built to deliver wind power to grids is underutilized.
- Transmission must be overbuilt to deliver wind-generated electricity.
- The cost of transmitting wind power is two to three times that of transmitting the production of conventional power plants.
However, if the wind energy is banked, it can be transmitted as a firm resource, allowing all of its transmission capacity to be leveraged. Assuming a $7/MWh cost for transmission and the usual wind power capacity factor of 33%, banking wind energy and transmitting it later (raising the capacity factor to 100%) would produce a potential transmission savings of $14/MWh.
However, banking wind energy does pose some challenges to transmitting it. Wind farms are usually sited in remote areas where the wind is strongest, so hundreds of miles of transmission lines are typically needed to bring their output to load centers. While firm transmission is an increasingly scarce commodity, transmitting wind energy in real time has been less problematic because wind speeds are usually higher during off-peak periods. At those times, transmission capacity is readily available, although mostly as non-firm, day-ahead scheduling. Banking wind energy for on-peak consumption requires that on-peak transmission be available to move it to load centers. Since on-peak transmission is harder to come by, other steps must be taken.
Members of the REC trading camp would suggest that a utility do the following: Buy the wind energy at one location, spin off its RECs, and sell the wind energy as “brown energy” locally. The utility can then combine the RECs with brown energy at a second location that has better transmission access. Many in the camp believe that this legislative “sleight of hand” can help address the need for green energy by making the shortage of on-peak transmission moot. State regulators may impose some restrictions on how the trick is accomplished. For example, the California Energy Commission’s guidebook stipulates that the control area operator doing the firming and banking must be part of the Western Electricity Coordinating Council (WECC).
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