Activity within the northwest transmission system this season has sparked widespread debate, culminating in complaints against the Bonneville Power Administration‘s decision to curtail wind production. This week, the BPA and others issued responses to the wind-industry’s complaint.

The heaviest spring runoff from the Columbia River Basin since 1997 caused a surge in hydroelectric generation in May that overwhelmed regional demand. There was no agreement among industries as to how to handle the issue.

The BPA, which controls about three-quarters of the regional transmission system, curtailed wind production during off-peak hours starting in mid-May. The curtailments ended on July 10 and, barring an “unexpected event,” will not resume, according to BPA spokesman Michael Milstein.

“We were glad to see it was a limited impact on wind,” Milstein said of the approximately 6 percent reductions in scheduled wind production. “We know there was an impact in the end, but conditions are such now that it looks like there will be more flexibility in the hydro system, and demand has been increasing somewhat as well.”

But a coalition of five companies filed a complaint against the BPA on June 13.

“BPA has unilaterally broken (its) wind energy contracts,” said Jan Johnson, spokeswoman for Iberdrola Renewables. “They are using their monopoly control to break contracts and seize transmission rights for their own economic interests.”

Johnson contends that because the BPA replaced renewable wind with hydropower, which is not considered renewable, some of Iberdrola’s customers may not meet their renewable portfolio standards.

“We already paid for our transmission rights,” she said. “BPA seized them so they could send their hydropower to our customers. Will customers continue to purchase wind power from the northwest if they don’t know if they’re definitely going to get it?”

The wind coalition’s complaint was filed with the Federal Energy Regulatory Commission, and charged the BPA with violating the Federal Power Act by requiring wind farms to shut down operations. The group includes Iberdrola, PacifiCorp, Horizon Wind Energy, Invenergy Wind North America and NextEra Energy Resources.

The BPA on Tuesday responded to the complaint with a 554-page document that interested parties are still combing through. Ultimately, the response calls for the complaint to be dismissed. The BPA also defends its Environmental Redispatch policy, which is the strategy that allows the administration to replace scheduled generation, such as wind, with federal hydropower under certain system conditions.

For wind companies, however, the policy amounts to discrimination. “Curtailing one generation source in favor of another is discriminatory behavior,” said Paul Vogel, vice president of communication and public affairs at PacifiCorp.

Vogel said PacifiCorp’s complaint is not based on the financial impacts of the curtailment – wind is a relatively small part of PacifiCorp’s energy holdings – but on the principle of the matter.

“For us it’s an issue of being able to count on and rely upon contracts and making the system work the way it needs to,” he said.

The BPA maintains that because of its various legal responsibilities, wind curtailments were necessary for the reliability of the transmission system and to reduce harm to endangered species.

In its response, BPA argues that sending more water through dam spillways would increase dissolved gases that could harm the aquatic ecosystem, particularly salmon, trout and whitefish.

Five salmon advocates on Tuesday filed their support of the wind industry’s complaint, though, arguing that there is no scientific support for BPA’s claim. The organizations include Save Our Wild Salmon, Idaho Rivers United, American Rivers, the Pacific Coast Federation of Fishermen’s Associations, and the Institute for Fisheries Resources.

Also, the Oregon Public Utility Commission on Tuesday filed a statement supporting the complaint against the BPA.

“We believe they have picked on wind generators, and the customers we represent, including Portland General Electric and PacifiCorp, are being hurt by these policies,” said Bob Valdez, the OPUC’s public information officer. “Rather than BPA’s unilateral approach, we think they should be exploring other options to find the cheapest way to deal with this issue.”

The BPA last year began public discussions about too much generation, Milstein said. “We weren’t sure when, but we figured there would be a high runoff year and we would encounter these sorts of demands on the system,” he said.

Milstein outlined a couple of proposals the BPA is considering to better manage the situation in the future. Upgrading the pumped storage project at the Grand Coulee Dam in Washington is one way the BPA could handle grid fluctuations caused by wind.

Grand Coulee already has a pumped storage system, which uses excess power to pump water uphill from a low reservoir to a high reservoir during periods of less demand. Then, when demand is greater, the system runs the water back down to the lower dam, generating power as it flows. Milstein says the facility is getting old and the BPA is working with the Bureau of Reclamation to see whether an upgrade would be useful in high runoff situations.

The BPA also is looking into ways to create demand during periods when energy needs are usually much lower, specifically between midnight and 5 a.m., which were the hours of the wind curtailments. Milstein cited a pilot project with a large farm near Richland that has switched its irrigation pumping to work at night rather than during the day.

Iberdrola and many others in the wind industry are calling for negative pricing, which would require the BPA to pay the wind companies for the time that generators are shut down, thereby replacing the production tax credits and renewable energy credits that they would have received from the government.

The BPA’s response to the FERC complaint provides arguments against paying negative prices, however.

Regardless of the ultimate result of the complaint, concerns about integrating renewable energy into the transmission system will continue to be an issue.

“The FERC complaint will decide some very important issues,” Vogel said, “but we’re all in this region together and producing for the northwest. We need to work together to find solutions so that we don’t find ourselves here again.”

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Portland city officials will travel to Spain this week to visit the parent company of Iberdrola Renewables to tout the importance of keeping the wind farm group’s U.S. headquarters in Portland.

Portland Mayor Sam Adams and Portland Development Commission Chair Scott Andrews will meet with Xabier Veteri, CEO of Iberdrola Renovables, at its headquarters near Madrid on Thursday. They return Saturday.

“It’s always nice to be wanted,” said Jan Johnson, a spokeswoman for Iberdrola Renewables, when asked how her company feels about the trip.

Iberdrola Renewables employs about 375 people in Portland at its facility at 1125 N.W. Couch Street, and about 850 people across the United States, Johnson said.

The trip is in response to rumors that have circulated that the company might move its headquarters elsewhere – since the company has grown rapidly and continues to need new space, Andrews said.

“There are some rumors to that effect,” Andrews said. “We think it would be timely for us to visit the folks making the decisions face to face and make sure all their questions are answered.”

The company is looking to expand its space, and its current lease expires in 2013, Johnson added.

“We’ve been weighing numerous options to meet our various needs,” Johnson said. “We’ve had a lot of growth over the past 10 years.”

But when asked directly if the company was looking at moving its headquarters to another state, Johnson declined to answer.

“I’m not really in a position to discuss it,” Johnson said.

Andrews and Adams have paired up for other quick economic development trips in the past, Andrews added.

“We work well together as a team, and this company is well worth the effort,” he said.

Still, emphasizing their case to Spanish officials could be difficult in at least one area – Andrews doesn’t speak a lick of Spanish, he said.

“Not a bit – I should bring my sons, they’re fluent,” Andrews said with a laugh. “My understanding though is that the company is very cosmopolitan and the language issue shouldn’t be a problem.”

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When Northwest winds aren’t blowing, the energy grid compensates automatically by tapping into hydropower sources operated by the Bonneville Power Administration. But the federal agency says it is pushing the limits of how much backup power it can provide.

The BPA is required by the state of Oregon to reserve 1,000 megawatts of hydropower to back up alternative energy sources that have variable power outputs. The agency provides backup hydropower to 3,000 megawatts of wind energy in the Northwest. The backup power is necessary to prevent utility customers from being left in the dark.

But with more than two dozen new Oregon or Washington wind farms under construction or in the permitting stage, the BPA may soon be compromising the reliability of its hydropower facilities, said Doug Johnson, a spokesman for the agency. The BPA expects that by 2012 its capacity will fall short of the required reserve amount.

“The more wind that comes onto the grid, the harder it becomes to balance those resources with our hydropower,” Johnson said. “We’re required to provide balancing services when (the wind farms’) output isn’t consistent. And more developers are asking to have their resources connected each year.”

One possible solution the BPA is looking into is called customer supplied generation, in which wind developers supply their own backup resources. Wind developer Iberdrola Renewables recently struck an agreement with the BPA to provide its own backup resources for its 1,100 megawatts of Northwest wind power.

Iberdrola will use power from a 600 megawatt natural-gas facility it owns near Klamath Falls as well as from out-of-state resources owned by energy company TransAlta and the Grant County Public Utility District. More states may be looking to customer supplied generation in the future, according to Kevin Devlin, vice president of commercial operations for Iberdrola. The BPA’s capacity to provide backup resources is smaller than the capacity of state agencies, he said.

“Other balancing areas are much larger and can absorb more wind more easily,” Devlin said. “Over time, this will become an issue everywhere, not just in the Northwest.”

While customer supplied generation seems like a simple answer to a complex problem, not many alternative energy developers have access to the backup resources that Iberdrola does, Devlin said. Iberdrola is the second largest wind power operator in the U.S.: It has a 24-hour energy trading floor, where it can buy backup power and sell its own power, as well as a national control center for monitoring all of its U.S. wind projects. Until more developers acquire similar resources, customer supplied generation will be limited.

“Our company has a long history of procuring transmission as well as access to other electric capacity,” Devlin said. “I don’t think many other companies are in the same situation.”

The BPA should be wary of striking too many of these independent arrangements in the first place, according to John Audley, deputy director of the Renewable Northwest Project. He said that too many parties managing the grid in a small geographic area could hurt its reliability. The BPA should continue to explore other ways that it can provide balancing resources without fragmenting operation of the Northwest’s power grid, Audley said.

“(The deal with Iberdrola) is a great project and we hope it’s successful,” Audley said. “But having one expansive system like BPA’s is still the best way to go. We don’t want to lose sight of that.”

The BPA is working with other utilities and wind project owners to develop better ways to predict winds. Contracting with third-party power suppliers also is being explored, but a pilot project to create criteria for such an arrangement is on hold.

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Wind developer Iberdrola Renewables has requested the Oregon Department of Energy add 102 megawatts of turbines to its planned Helix Wind Power Facility north of Helix in Umatilla County.

Meteorological tests revealed better wind in the area than the developer anticipated, according to Iberdrola spokeswoman Jan Johnson. The developer has secured 13,207 additional acres of land near its proposed wind facility site. The expansion would increase the 100 megawatt project to 201 megawatts.

If approved by Oregon’s DOE, the site amendment would allow as many as to 134 wind turbines to be built on the 13,207-acre addition to the project site. In addition, Iberdrola could build 33 additional miles of collector lines and 31 additional miles of private access roads. The DOE is taking public comment on the amendment until Sept. 24.

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Wind energy development has been a lucrative business for several developers in Oregon. But companies only make money when wind is generating electricity.

Biomass, on the other hand, is a reliable renewable. And Iberdrola Renewables is looking to build on past success by developing a new biomass plant in Lake County, in Central Oregon.

According to Iberdrola representative Jan Johnson, biomass projects are attractive to wind companies because they can produce electricity, and income, when the wind doesn’t blow.

“Most renewables are intermittent,” Johnson said. “You can’t produce electricity when the sun doesn’t shine and the wind doesn’t blow. Biomass is a firm renewable, which makes it more valuable than others.”

In August 2009, Iberdrola completed its first biomass facility: a $90 million, 55-megawatt biomass cogeneration plant in Tacoma, Wash., for Simpson Tacoma Kraft Co.’s pulp and paper mill. Johnson said Iberdrola was so pleased with the success of the project that it immediately began seeking out new biomass opportunities.

Portland wind developer EverPower has explored a few biomass opportunities, but David McClain, the firm’s senior director of development, said it can be risky business.

“Biomass fuels are very susceptible to inflation,” McClain said. “If you’re using wood for fuel, and the wood starts to have a higher value as a product like particle board, there may not be as much fuel available in the future to produce electricity.”

Also, the cost of delivering the wood or other fuel source to a biomass facility can become costly when oil prices are on the rise, McClain said.

But in Lake County, forests need thinning and the timber industry is hurting. That leaves the door open for a consistent supply of fuel for a nearby biomass facility. The plan is for Iberdrola to partner with the Collins Cos. and build the biomass plant near a mill. The new plant is expected to generate 25 megawatts of electricity and employ 18 people.

The project has been in development since 2003, when researchers studied the potential of biomass in Lake County.

“We have such a strong relationship with our forests here,” said Jim Wall, director of the Lake County Resources Initiative, a project partner. “We need infrastructure to take care of waste from thinning the forest. The forest needs to be thinned so we can get back to natural fire events and a healthy forest.”

Iberdrola is meeting with Lake County residents to educate them about the project. The company is seeking out customers to purchase the power, and amassing a range of permits to get the project under construction by summer 2011.

While the community outreach and power purchase agreements are familiar to Iberdrola, Johnson said biomass does present unique permitting challenges.

“There are no air emissions from a wind farm, but there are from biomass,” Johnson said. “The Lakeview project won’t significantly affect air quality, but those permits are still required from the Oregon Department of Environmental Quality. We’re working hard to be completely compliant. We don’t ever assume anything is going to be easy.”

McClain is still seeking out potential biomass development opportunities for EverPower, and Johnson said her company is doing the same.

“Wind is our bread and butter, but we continue to look at other biomass projects,” Johnson said. “The Simpson project was a tremendous success. We wouldn’t be going for another biomass project if we weren’t happy with the previous one.”

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Business Energy Tax Credit changes

Previously:
• Tax credit for wind and other renewable energy resource generation projects was 50 percent of eligible project costs filed over five years.
• Tax credit for renewable energy resource equipment manufacturing facilities was 50 percent of eligible facility costs claimed over five years.
• Pass-through option rate for all projects is 9.85 percent.

Now:
• Limits credits for wind projects greater than 10 megawatts to $3.5 million in 2010, $2.5 million in 2011, and $1.5 million in 2012. Renewable energy program pre-certification costs capped at $300 million for projects from 2009 to 2011 and capped at $150 million for projects from 2011 to 2012.
• Manufacturing tax credit extended to sunset on Jan. 1, 2014, and renewable energy and conservation tax credit extended until July 1, 2012.
• Pass-through rate for partners taking a five-year, 50 percent renewable energy tax credit is 7.16 percent for public, tribal or manufacturing projects, and 4.29 percent for all other projects.

When chief development officer Chris Taylor and his business partners decided to start their own wind energy development company last year, they looked across the country for wind friendly states before choosing to site their headquarters in Portland.

“We looked at all of the places vying for the title of renewable energy capital,” Taylor said. “The two big pieces that drew us to Oregon were the state’s renewable energy portfolio standard and the Business Energy Tax Credit.”

But with changes to reduce the amount of tax credits for large-scale wind energy projects set to pass the Senate later this week, wind companies like Element Power are concerned about getting their projects off the ground, as well as keeping Oregon competitive as a destination for wind development.

“This bill is better than the bill passed by the Legislature last session,” said John Audley, deputy director of the Renewable Northwest Project. “We urge the Senate to pass it un-amended. But the simple fact of the matter is these revisions will have a negative impact on wind in Oregon. And projects are not going to get built.”

In the past, developers of Oregon wind projects could earn tax credits for 50 percent of eligible project costs. That cash savings allowed Oregon wind developers to offer lower electricity prices to utilities, which made Oregon wind projects more attractive than those in other states, according to Elon Hasson, project manager at Horizon Wind Energy.

But if HB 3680 passes, the tax credit in 2010 would be reduced to $3.5 million for wind projects greater than 10 megawatts. The credit would decrease to $2.5 million in 2011, and $1.5 million in 2012.

Project managers such as Hasson are concerned that their projects, like Horizon’s Antelope Ridge Wind Power project in Union County, will be less desirable to buyers if they are offered at higher prices.

“BETC allowed for lower prices to utilities,” Hasson said. “Without that extra financing available, our ability to price our product at the best price will be adversely affected. We’ll be offering projects to buyers at a higher price.”

In the meantime, other states, such as Washington, are extending tax exemptions for wind projects. As a result, Hasson says, projects could be built elsewhere. Washington has a sales and use tax exemption that reimburses developers for sales tax paid on machinery and equipment used to create wind energy. Wind developers, until June 30, 2011, can exempt 100 percent of sales tax paid for wind project machinery and equipment. From July 1, 2011 through June 30, 2013 the exemption drops to 75 percent.

Though Oregon has an advantage because it doesn’t have a sales tax, its property taxes are much higher in the rural areas where wind projects often are located, according to Taylor.

“Property tax rates in rural counties in Washington tend to be lower,” Taylor said. “If you develop a wind farm in California, where there are higher power prices, you don’t have to pay to deliver it from Oregon. I worry that more projects will get built in another state rather than here.”

Jan Johnson, communications director for Iberdrola Renewables, said changes to BETC could potentially impact the company’s plans to construct new wind projects in Oregon. Though it has no plans to leave the state yet, Johnson said the company will have to see what the Legislature and the next governor decide to do when the BETC program comes up for renewal in 2012.

“The company is still working through its development plans for 2011 through 2012,” Johnson said. “We will have to weigh the smaller tax credit to determine if it makes Oregon investments less viable than opportunities in other states.”

Another concern for wind companies, according to Taylor, is the nearness of the sunset date for wind energy tax credits. Element Power has initiated several wind and solar projects since it opened its doors last year, but is not at a stage where it can start building.

“As a developer, we go out, find sites and negotiate with utilities to sell power,” Taylor said. “Building these projects takes a lot of lead time. Having a sunset further into the future is what will spur more projects. People have to believe there will be sufficient economics to support their projects as they get built.”

And as Oregon’s tax credits sunset, other states with superior wind activity and development incentives could easily surpass Oregon for wind development, according to Hasson. Oregon is sixth in the nation for wind energy it has developed, but Hasson doesn’t expect the state to climb the rankings in coming years.

“This won’t destroy wind energy in Oregon but we will drop from our leading role,” Hasson said. “The rest of the country is catching up to where Oregon was five years ago. There will have to be other things the state does to stay competitive without BETC.”

The Senate Finance and Revenue Committee will hold a work session on at 1 p.m. on Friday.

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When three Eastern Oregon wind farms got big federal grants last week, the news brought a debate that has been simmering at the state level to a boil.

Because wind farms are expensive, wind power company officials say, they need all the help they can get. But some say the recent grants serve as a high-profile reminder that Oregon doesn’t need to spend more to woo wind farms.

“Oregon is far more generous than other states,” in terms of renewable energy credits, said Jody Wiser, chairwoman of Tax Fairness Oregon. “And it’s not driving more building in Oregon; it’s just giving money away.”

Jan Johnson of Iberdrola Renewables said the company has taken advantage of Oregon’s credits, and is investing more money in wind farms here, such as the Star Point project. The federal grant shifted money that had been awarded as production credits over several years to a cash payment up front.

The payment reimburses the company for about 30 percent of the cost to build the Hay Canyon and Pebble Springs wind farms, Johnson said. “It doesn’t cover everything, but it does give a direct infusion of cash we can put into construction under way.

“We’re using this now to fund those additional projects.”

Oregon offers $10 million credits to wind power producers, with a provision that can provide an additional $1 million. An effort to scale back that credit passed the Legislature but was vetoed by Gov. Ted Kulongoski last month.

Big wind power companies might leave Oregon for windier states if the tax breaks disappeared, Wiser said. That wouldn’t bother her.

“If they have the site and the transmission lines, they can and should,” Wiser said. “That’s a prudent business decision and, for all of us, that is the right thing to do.”

Of course, that doesn’t mean Oregon should lessen its demand for clean energy, she said.

But Oregon’s renewable portfolio standard, also upheld with a governor’s veto, requires the purchase of renewable energy. Increasing the percentage requirement for renewable energy in utilities’ mix will drive production more efficiently than wind farm credits, Wiser said.

“Wind is by far the cheapest source of renewable energy, so that’s what the electric companies are going to buy.”

Big wind farms often serve customers across state lines. Two of the three Oregon wind farms awarded grants last week, Hay Canyon and Horizon Wind Energy‘s Wheat Field Wind Farm, have agreements with Snohomish County Public Utility District in Washington. The third, Pebble Springs, sends its electricity to Southern California.

There’s nothing wrong with that, said Charles Sheketoff, executive director of the Oregon Center for Public Policy. “The point of the (American Recovery and Reinvestment Act) was to have (federal) government dollars invested in the infrastructure of America,” he said. “That’s appropriate.”

“The issue is, are these facilities that also get (state tax credits), property-tax breaks?” Sheketoff said. “How much does it cost to subsidize these?”

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