WSJ: Blown Away: Wind Power Makes Electricty Cheaper in Texas

From The Wall Street Journal
by Keith Johnson

Is the rapid growth of wind power in Texas actually making electricity cheaper?

At home on the range
Yes, says Bernstein Research in a recent report, “Will Wind Power Blow Texas Generators Away?,” a follow-up to their own prior effort. The idea is that wind power is steadily replacing more expensive forms of power generation, essentially natural gas.

The more wind power there is—and Texas is the sixth-biggest wind power country in the world–the less need there is to turn to gas-fired turbines to cover the last bit of demand. Bernstein figures this trend will only accelerate in the next few years:

[A]t hours of relatively low power demand, it will no longer be necessary to dispatch high cost gas fired generators to meet the prevailing load; rather, the system’s wind, nuclear and coal fired power plants will be sufficient to meet demand. As power prices are set by the variable cost of operation of the last unit dispatched, wind can have a material impact on the price of power.

Granted, that’s at times of low power demand. Wind power works best when it’s not much needed—at night. During the day, when electricity demand is highest, wind power is much less productive. That’s doubly true in the summer months, when wind power’s output is the lowest.

What’s that mean for power production in Texas? For starters, consumption of natural gas will probably fall further, Bernstein says: “The growth of wind power in ERCOT over the next three years will markedly lower the consumption of gas and coal by conventional generators.” With a natural-gas supply glut already looming, that would probably push natural-gas prices down even further.

And wind power’s growth will hurt certain utilities, Bernstein estimates: Energy Future Holdings (formerly TXU), NRG Energy and PNM Resources are “most at risk” of falling margins in their traditional generation business.

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