Wind Development in Texas: History and Future Growth

Wind Development in Texas:

History and Future Growth

November 9, 2011!

Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc. 1005 Congress, Suite 600 • Austin, TX 78701 • phone 512-474-6725 • fax 512-474-9670 • www.aect.net

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AECT Principles!

• AECT is an advocacy group composed of member companies committed to:

- Ensuring a modern, reliable infrastructure for the supply & delivery of electricity.

- Supporting efficient competitive markets that are fair to customers and market participants.

- Supporting consistent and predictable oversight and regulation that will promote investment and ensure the stability of Texas’ electric industry.

- Promoting an economically strong and environmentally healthy future for Texas, including conservation and efficient use of available resources.

• AECT member companies remain dedicated to providing Texas customers with reliable service and are committed to the highest standards of integrity.

The Association of Electric Companies of Texas, Inc. (AECT) is a trade organization of investor-owned electric companies in Texas. Organized in 1978, AECT provides a forum for member company representatives to exchange information about public policy, and to communicate with government officials and the public. For more information, visit www.aect.net.

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U.S. Divided into Eight!Reliability Regions!

•  Electric systems in Texas are located within four separate reliability regions: - Texas Reliability Entity (TRE), which oversees participants in the Electric Reliability Council of Texas (ERCOT); - SERC Reliability Corporation; - Southwest Power Pool (SPP); and - Western Electricity Coordinating Council (WECC).

•  The eight reliability regions in the continental U.S. are subject to the oversight and enforcement authority of the North American Electric Reliability Corporation (NERC), which is subject to the Federal Energy Regulatory Commission’s (FERC) oversight. NERC is responsible for developing standards to ensure and improve reliability for delivery of electricity on the bulk power system.

FERC

NERC

(ERCOT)

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AECT Member Companies!Within ERCOT!

Generation Companies

Transmission and Distribution Utilities

Retail Electric Providers

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AECT Companies!Outside of ERCOT!

Western Electricity Coordinating Council (WECC)

Southwest Power Pool (SPP)

SERC Reliability Corporation

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ERCOT: Separate companies provide retail, transmission & distribution and generation services!

•  In competitive markets, consumers have multiple retail electric providers (REPs) and service plans to choose from.

•  Wholesale and retail prices are set by competitive market forces, while the PUC sets transmission and distribution rates.

Power Flow Financial Flow

Regulated

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ERCOT: Separate companies provide retail, transmission & distribution and generation services!

•  Because wholesale electric prices are set by the competitive market, the risks associated with the cost of construction, operations and maintenance of a generation plant are borne entirely by the generator and its investors, not by end-use customers.

Power Flow Financial Flow

Regulated

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Outside ERCOT: A single company provides retail, transmission & distribution and generation services in each area!

•  In fully regulated markets, the PUC sets retail rates charged to end-use customers.

•  Each of these service areas is part of multi-state electric grids, with differing regulations. In many cases, vertically integrated utilities purchase wholesale power from certain unregulated entities.

Power Flow Financial Flow

Regulated

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•  New power plants in these regions can be built by both regulated entities and certain unregulated entities or qualifying facilities.

•  Regulated utility power plants, however, must be approved by the PUC after a rigorous review of need and siting.

Outside ERCOT: A single company provides retail, transmission & distribution and generation services in each area!

Power Flow Financial Flow

Regulated

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Wind-Powered Generation

Cost of Construction and Fuels + No fuel cost. -  Limited ability to replace other generation to satisfy reserve margins. -  Imposes other costs on the system, such as increased ancillary service

requirements, backup capacity and the need for transmission lines to reach rural wind farms.

Type of Generation + Wind is plentiful in certain parts of Texas. -  Wind blows intermittently, making it a less reliable power

source.

Environmental Issues + No air emissions. -  Can affect migratory birds. - Concerns about aesthetic impact.

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Texas Generation Mix Compared to U.S. Average!

Note: Numbers may not add up to 100% due to rounding. Source: EIA (2009 Data)

Sum

mer

Cap

acity

(MW

) En

ergy

(MW

h) Texas U.S. Average

Natural Gas

Coal

Nuclear

Renewable (Mostly Hydro)

Other (Mostly Petroleum)

39.1%

30.7%

9.9%

12.4%

7.7%

Nuclear

Natural Gas

Coal

Renewable (Mostly Hydro)

Other (Mostly Petroleum)

23.3%

44.5%

20.2%

10.1% 0.9%

Coal

Nuclear

Natural Gas

Petroleum

47.6%

35.0%

10.5% 0.4%

Coal

Natural Gas

Nuclear

Renewable (Mostly Wind)

64.9%

19.7%

4.8% 9.9%

0.2%

Petroleum

Renewable (Mostly Wind)

5.6%

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Renewable Development:!Legislative and Regulatory Steps

•  The Texas Legislature mandated steady increases in renewable power in TX76RSB 7 (1999) and TX791RSB 20 (2005). –  Starting Line: 880 MW in 1999 –  Old Goal 1: 2,880 MW by 2009 (Achieved by 2007) –  New Goal 1: 5,880 MW by 2015 –  New Target 1: 10,000 MW by 2025 –  New Target 2: 500 MW non-wind renewable generation

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Renewable Development:!Legislative and Regulatory Steps

•  TX791SB 20 (2005) also required PUC to: –  designate Competitive Renewable Energy Zones (CREZs) in areas

in which renewable energy resources and suitable land areas are sufficient to develop generating capacity from renewable technologies;

–  develop a plan to construct necessary transmission capacity in a manner that is most beneficial and cost effective to customers; and

–  take into account transmission constraints, the need for generation and the level of financial commitment by generators when defining CREZs.

•  PUC adopted Substantive Rule 25.174 in December 2006, which creates framework for determining CREZs.

•  Texas currently has 10,135 MW of installed renewable generation capacity (March 2011).

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Map of Adopted!Competitive Renewable Energy Zones!

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Texas Has the Most Installed !Wind Energy Capacity

Source: American Wind Energy Association, Through Q3 2011

23% of the nation’s installed wind generation capacity is located in Texas.

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Wind Filling Energy Needs in ERCOT

ERCOT Overview

The ERCOT market covers roughly 85% of Texas overall power usage

Record peak demand: 68,379 MW• Occurred on August 3, 2011

Total installed wind capacity of 9,500 MW

• 33,921 MW of new wind capacity generation requestscapacity generation requests under review

Wind generation record: 7,400 MW• Representing 15.2% of loadRepresenting 15.2% of load• Occurred on October 7, 2011 at 3:06 pm

2Nov. 7, 2011 Texas Renewable Energy Industries Association

Source: ERCOT, “ERCOT Successes and Challenges,” Presentation to the Texas Renewable Energy Industries Association, November 7, 2011

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Wind Filling Energy Needs in ERCOT

Summer 2011 – A Record-breaking Year

New Peak Demand Record: 68 379 megawatts August 3 2011New Peak Demand Record: 68,379 megawatts, August 3, 2011- 4 percent increase over 2010 record

The 2010 peak demand – 65,776 MW, Aug. 23, 2010 – was broken 3 consecutive days:- Aug. 1 66,867 MW

A 2 67 929 MW- Aug. 2 67,929 MW- Aug. 3 68,379 MW

New Weekend Record: 65,159 MW, Sunday August 28y g- 5 percent increase over 2010 previous record – 62,320 MW

ERCOT Monthly Records since May 2011September 63 184 MW (Sept 2); beats previous record of 59 524 MW by 6 1 percentSeptember – 63,184 MW (Sept. 2); beats previous record of 59,524 MW by 6.1 percentJuly – 65,195 MW; beats previous record of 63,400 MW (July 13, 2009) by 7.8 percentJune – 63,102 MW; beats previous record of 62,278 MW (June 25, 2009) by 3.8 percentMay – 57,356 MW ; beats previous record of 56,344 MW (May 23, 2008) by 4.8 percent

3Nov. 7, 2011 Texas Renewable Energy Industries Association

Source: ERCOT, “ERCOT Successes and Challenges,” Presentation to the Texas Renewable Energy Industries Association, November 7, 2011

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Federal Production Tax Credit!Set to Expire!

•  The federal production tax credit (PT) began with the Energy Policy Act in 1992. –  PTC is a 10-year inflation-adjusted tax credit that started at 1.5¢/

kWh –  Credit based on amount of electricity produced.

•  Wind PTC set to expire on December 31, 2012

•  Legislation has been filed to extend the tax credit.

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Federal Production Tax Credit!Strongly Influences Investment!

Source: American Wind Energy Association

Wind Investment by Year Wind PTC Allowed to Expire in 2000, 2002 and 2004

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