Another victim of the price drop: Texas renewable energy - Odessa American

When the West Texas wind blows, 96 turbines at the Notrees Windpower farm churn to produce electricity that at full capacity can power up to 46,000 homes.

That shows no signs of stopping, even though lately the plant faces dropping electricity prices.

The same price drop that pummeled oil and gas activity also threatens investments in future renewable energy projects, even as electricity consumers enjoy cheaper rates.

Chiefly, industry insiders say that is because of the drop in natural gas prices that accompanied the oil plummet.

The natural gas price drop was not as severe as with crude, but prices remain less than 25 percent of where they were in November. That means cheaper electricity from natural gas generation plants and greater competition for renewable resources.

Renewable resources like wind farms do not have fuel expenses once they are built, so the cost of running them remains relatively static, said Stuart Gibson, who manages the Notrees wind farm. But a drop in natural-gas prices allows gas-powered electricity plants to offer cheaper rates.

“A renewable resource doesn’t really see that,” Gibson said. “The price just goes down.”

That is true as well for solar energy producers, another growing sector in West Texas.

Oil and natural-gas prices do not track as closely as they once did due to the tremendous natural-gas supply that grew through the late aughts. But there is still a relationship, and Permian Basin producers who drill for oil also typically produce natural gas.

“The larger supply is a picture of oversupply,” said Ross Wyeno, a senior natural-gas analyst with Bentek Energy in Denver. “So you have oversupply in both your oil markets and your gas markets. Gas prices aren’t just down because oil came down. Gas prices are down because we have a lot of gas.”

Natural-gas prices declined steadily last year, but dropped about 30 percent since November, during the same period that oil prices plummeted.

The Henry Hub benchmark natural-gas price was about $4 per million British Thermal Units in November. Today, it’s $2.83.

As natural gas prices dropped, the grid-operating Electric Reliability Council of Texas began dispatching more natural gas generation into the electricity supply to reduce consumer costs.

The drop of wholesale electricity prices corresponded with the nine-month oil price slide.

“The way that the ERCOT market works, it’s very responsive to immediate market conditions,” said Colin Meehan, government affairs director for First Solar, which brought the 22-megawatt Barilla Solar Project online in September.

ERCOT’s hub average price for electricity dropped from $41.86 per megawatt hour in June, when oil and gas drilling was at its peak to $35.76 in November, when production nosedived.

An early report from ERCOT showed that average hub price dropped to $25.37 per megawatt hour in February.

“Monthly averages did begin dropping at the same time gas prices did,” said Robbie Searcy, a spokeswoman for ERCOT.

In the meantime, the grid keeps using existing renewable infrastructure, so farms like Notrees keep producing as much as they can.

“The price of wind is fixed for eternity,” said Jeff Clark, director of The Wind Coalition based in Austin. “We don’t have the same volatility for prices in our projects. But certainly when prices for oil and gas return to more robust levels, that will certainly make wind more competitive.”

Clark described “a lot of anxiety over fossil fuel prices” in the short-term.

Cheap natural gas prices are expected to continue as production grows. Nationally, natural gas production grew by about 6 billion cubic feet per day in the last year, according to Bentek, which projects that growth to continue. Supplies are particularly stout in Texas.

And experts say the anxiety about cheap natural gas generation is likely to curb new renewable projects, at least in the short term, considering other factors such as uncertainty over state and federal incentives.

Wind in Texas relies on a subsidy known as the production tax credit, or PTC, which offers 2.3 cents per kilowatt hour during a 10-year period.

The actual generation cost of a new project is about $50 per megawatt hour, and the PTC covers about $23 per megawatt hour â€" almost half of a project’s cost, according to a study a year ago by Ian Partridge, a post-doctoral fellow at the University of Texas Energy Institute who researches independently about the industry in Texas.

In recent years, the PTC remained in a state of limbo because of distaste for the incentives in Congress among legislators who believe wind producers should become more competitive on their own.

Even Rep. Mike Conaway, who favors extending the PTC as essential to his booming wind-production district and other areas in the country, said he favors renewing the credit but phasing it out in years to come.

Another concern for renewable producers is that West Texas also saw a massive generation build-up in recent years as part of the state’s roughly $7 billion Competitive Renewable Energy Zones project. The CREZ added thousands of miles of high-capacity lines that essentially eliminated adequate transmission as an issue for wind and solar producers.

But the CREZ spurred so many projects, primarily wind, that it created short-term concerns of electricity gluts.

Yet renewable energy companies continue to consider West Texas projects. Duke Energy, for example, which owns the Notrees wind farm, is reviewing “a few options” for new generation projects, Gibson said, who declined to discuss their potential size because of the early state.

Duke Energy has 300 megawatts of wind generation slated to come online during the next year, mostly in South Texas. The company also owns a 60-megawatt wind farm in Howard County.

“If prices are lower in the state due to lower gas prices, then as a generator that means lower revenues,” Gibson said. “It doesn’t mean it’s not profitable. It just means it’s less profitable, and we’ll consider putting those investments in other regions of the country where prices might be a little bit more favorable.”

Demand for renewable energy continues to grow. Just this week the City of Georgetown in Central Texas announced plans to entirely abandon fossil-fuel based electricity and rely instead solely on wind and solar energy.

The city’s 25-year deal with the renewable energy company SunEdison also called for a new solar farm somewhere to meet the demand.

ERCOT keeps a running list of announced projects that include several West Texas projects, such as another 140-megawatt solar farm in Pecos expected later this year and a 211-megawatt wind farm due about the same time in Glasscock County, to name a few.

First Solars’ Barilla plant illustrated another display of confidence. The company built it last year without securing a long-term contract.

But some companies will likely defer large investments, said Ray Perryman, the Odessa economist who runs the Perryman Group.

“There is no greater deterrent to renewables than cheap fossil fuels,” Perryman said. “In general, lower fossil fuel prices reduce the attractiveness of alternative energy investments.”

Wind energy, the most abundant West Texas renewable, is typically the most vulnerable to low natural gas prices, Perryman said.

But he said they are unlikely to be eliminated as demand for power remains strong and grid infrastructure enables West Texas renewable energy producers to get their electricity to the state’s big metro areas.

Wind energy represents a growing portion of the state’s overall power supply â€" now more than an average 10 percent. The share of solar electric capacity is far smaller about 330 megawatts by the end of last year, according to a recent report from the Solar Energy Industries Association trade group. But that represented a 45 percent increase during the year, with 2015 to add 260-megawatts of capacity.

First Solars’ Meehan said the company’s view of the Texas market has yet to change dramatically.

Natural gas prices might be the major factor in considering a new renewable energy project.

But he warned against relying too much on them for what are long-term investments, citing as an example the sky-high gas prices of 2008 that quickly fell.

“Natural gas prices vary widely over the course of a single year,” Meehan said. “One of the big questions, sort of, is how long this low price environment is going to last.”

Contact Corey Paul on Twitter @OAcrude on Facebook at OA Corey Paul or call 432-333-7768.