Drennen on Wind Energy in NY – Hobart and William Smith Colleges \
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Drennen on Wind Energy in NY

An article in the Rochester Business Journal discusses billionaire Thomas Golisano’s decision to back away from wind power, basing the decision on predictions that the business would not be profitable given current wholesale electricity prices. Thomas Drennen, professor of economics, was interviewed for the article and believes the demand may be down now, but it isn’t a permanent situation.

“Right now, there is really overcapacity; this won’t last,” Drennen is quoted. “Eventually, electricity demand will pick up and prices will increase.

“So while it makes sense for Golisano to pause now, given the low prices, I don’t think it means the end of wind power in New York.”

The article also notes Drennen “calculates that it costs roughly $70 a megawatt-hour to produce wind power in New York. Even with federal credits of $19 a megawatt-hour, that means wind is in the $51 range, which is above the average state wholesale price this year, he said.”

The full article follows.


Wind energy firms still see market in upstate
Proponents expect the price of electricity to rebound in N.Y.

Andrea Deckert • August 27, 2010

Although low prices for wholesale electricity led to billionaire Thomas Golisano’s decision to put the brakes on his wind company, other locals involved in the industry say wind power still will generate substantial financial and environmental benefits.

Officials from Empire State Wind Energy LLC said last month that the Oneida-based firm would cease operations because leaders believed the venture would not be profitable. The main reason was the low price of wholesale electricity, which as plummeted since last year.

“Wind power is right for New York,” said Kevin Schulte, CEO of Sustainable Energy Developments Inc. in Ontario, Wayne County, a developer of decentralized wind energy projects throughout the northeastern United States.

He contends that wind power will be growing venture here, noting that New York ranks eighth nationally in wind capacity.

There has been a downturn in the industry for the past 24 months due to national drops in electricity prices, Schulte said. But there is still interest in pursuing wind projects because those prices are more than likely to rebound and even exceed past prices, he said.

Pricing will become more attractive as government develops more incentives to level the playing field for alternative energy options, he added.

The New York Independent System Operator reported this year that the state’s average wholesale electric energy price for 2009 was the lowest in 10 years. NYISO operates the state’s bulk electricity grid and administers its wholesale electricity markets.

The annual average price of wholesale electric energy in the state was $48.63 per megawatt-hour in 2009. That was below the previous low of $49.90 in 2002 and 49 percent below the 2008 average of $95.31, NYISO reported.

The declining wholesale electricity prices in 2009 largely were attributable to reduced power consumption and reductions in the cost of natural gas, NYISO said.

For July, the average cost of wholesale electricity was $60.12 a megawatt-hour, up from $51 a year aog, NYISO date show. At midweek, the wholesale price for electricity was roughly $43.59 a megawatt -hour.

Schulte said he met with Golisano a few years ago to discuss wind power.
“What I took from (the meeting) was that Golisano expected his return on investment was going to be significantly higher than it actually would be,” Schulte said.

David Still, a partner and investor in Empire State Wind Energy, said in late July that the company was mothballing the wind venture indefinitely.

The firm had been looking to develop wind farms in the area since it began in 2006. It had said it would build only projects acceptable to host communities and return most of its profits through taxes, payments in lieu of taxes and fixed-cost energy sales.

In addition to the drop in wholesale electricity prices, Empire State Wind leaders pointed to an NYISO report on wind generation released in June that showed challenges for upstate wind projects, including upgrades that would be needed in transmission systems to keep a portion of the wind captured from being unusable.
New federal policies that allow electric companies outside the region to build transmission lines here are likely to create more pricing pressures, they said.

Thomas Drennen, associate professor of economics at Hobart and William Smith Colleges in Geneva, said the global recession has caused demand for industrial and commercial electricity in the state to fall. He has spoken with the plant manager of a wind farm who said he was having a hard time operating his plant because the prices were so low.

“Right now, there is really overcapacity; this won’t last,” Drennen said. “Eventually, electricity demand will pick up and prices will increase.

“So while it makes sense for Golisano to pause now, given the low prices, I don’t think it means the end of wind power in New York.”

Drennen, who is considered an expert in environmental matters, calculates that it costs roughly $70 a megawatt-hour to produce wind power in New York. Even with federal credits of $19 a megawatt-hour, that means wind is in the $51 range, which is above the average state wholesale price this year, he said.

Like Schulte, Drennen said a growing market for green tax credits will further improve the financial feasibility of the plants.

Greater Rochester Enterprise Inc. said the only active wind farms in the nine-county region are in Wyoming County. James Pierce, president of the Wyoming County Business Center, said there are three wind farms in Wyoming County totaling nearly 240 turbines. Two farms are owned by Noble Environmental Power LLC of Connecticut; the third is owned by Illinois-based Invenergy LLC.
Thomas Swank, Noble’s chief commercial officer, said that to help manage the revenue fluctuation caused by price volatility in the energy markets, each of Noble’s New York wind parks has entered into financial swaps that insulate the projects from these market price movements.

William Schmitz, president of Rochester-based WindTamer Corp., said his company does not work on wind farms but is seeing profitable applications for its units in small projects. The company is working on projects all over the country, but roughly half of its work is in the region, he said.

“Of course, it’s all based on the wind profile of the location and how much someone is paying per kilowatt-hour,” Schmitz said.