Cost-Saving State Law Endangers Growth of Wind Industry

Wind farms near Dwight, Ill. Jose More/Chicago News Cooperative

Chicago is the nation’s wind industry economic hub, home to about 80 wind companies from corporate headquarters to turbine component factories. Illinois has ample farmland well-suited for wind farms, and a law mandating that the state get at least 18 percent of its electricity from wind power by 2025.

But the byzantine process by which an obscure state agency decides where that wind power comes from has stalled development of new wind farms and threatens to curtail Illinois’s wind generation for years to come, experts said. A number of companies have new farms sited, permitted and ready to be constructed, but a complicated bidding process playing out through December could determine whether any of them are actually built.

Companies say they are caught in a vise. In order to get bank financing to build a wind farm, companies usually need a promise from the Illinois Power Agency — a long-term power purchase agreement — that their electricity will actually be bought for years to come. But the power agency so far has not made guarantees that would facilitate new wind farm construction since it is required to buy electricity from the cheapest sources that will satisfy wind-power mandates.

Wind-power developers fear that unless the governor, the Illinois Commerce Commission or the state legislature takes action to revamp the state’s renewable-energy procurement process, few or no long-term contracts for new wind farms will be awarded and the state will fulfill its renewable-energy requirement largely by buying credits from wind farms in Texas and other states.

The Illinois Power Agency was created by a 2007 state statute intended to ensure that power giants ComEd and Ameren buy electricity from generating companies that give ratepayers the best deal. Purchases are made on the basis of price, and those costs are passed to consumers without mark-up by the utilities. Hence the agency decides where ComEd and Ameren buy their electricity, including the purchase of renewable energy necessary to meet the state’s renewable portfolio standard.

Since the power agency’s mission is to get the cheapest power possible, it tends to buy wind power on the spot market or through short-term contracts.

In years past, when power prices were relatively high and the economy was humming, many so-called merchant wind farms, which produce power that is generally sold on the spot market, were built in Illinois, operating without long-term contracts.

But now electricity prices are low, and since the economic crisis, credit from banks remains tight. As a result, financial institutions are reluctant to finance a new wind farm unless the developer has a long-term power purchase agreement.

The American Wind Energy Association ranked Illinois seventh nationwide in installed wind capacity for 2009, and 14th for wind potential, meaning it is actually out-performing many other states.

Kevin Borgia, executive director of the Illinois Wind Energy Association, said Illinois had more than 1,800 megawatts of wind capacity, putting it in the top five states nationwide. But that rating could slip if new wind farms do not get financing.

The Illinois Power Agency has committed to procuring up to two million megawatt hours of renewable energy for ComEd and Ameren for the next 20 years. In August, it released the terms for 20-year power purchase contracts. Developers were dissatisfied with the terms, so the agency held a series of stakeholder workshops, and on Nov. 8 it released a revised contract, which wind developers say is still far from ideal. Owners of existing and proposed wind farms, in and out of state, have until Dec. 9 to submit final bids.

The power agency will recommend to the Illinois Commerce Commission which bids to accept, and the final contracts will probably be signed by Dec. 20.

The contracts will guarantee the agency’s power purchases, which could prompt construction of new wind farms. But many fear that the contracts will go to existing merchant wind farms, instead of financing new ones.

Stefan Noe, president of Midwest Wind Energy, said his company would most likely not even submit a bid for the Walnut Ridge wind farm it hopes to build 120 miles from Chicago, since it does not think the project is feasible under the power agency’s terms.

Because the agency seeks the lowest price, some in the industry believe that existing farms can be more competitive because they do not have the high capital costs that future farm developers take into account.

“This is disappointing to us, given the shovel-ready nature of Walnut Ridge and the significant development dollars that our company has invested in the project to date,” Mr. Noe said.

This month a wind farm known as Top Crop II went online in Grundy County. The project was begun before the economic crisis and before developers needed long-term contracts to construct wind farms, said Tanuj Deora, government affairs director for Horizon Wind Energy, which owns Top Crop II. In the current economic and regulatory climate, Mr. Deora said, a project like Top Crop, which can power 54,000 homes, would most likely not be built.

A Houston company, Horizon, is ready to build a wind farm near Bloomington that would power 138,000 homes, but it probably needs a long-term contract to secure financing.

Mr. Deora said a failure to invest in new wind farms could lead to higher electricity rates, especially if stricter air quality laws, public opposition and aging equipment mean the closing of coal plants that now provide the majority of the state’s energy.

“The reality is if we don’t have long-term contracts, we won’t get new resources built,” Mr. Deora said.

Howard Learner, a professor of environmental law at Northwestern University, said this was a make-or-break moment for wind power in Illinois.

“There’s been recognition by everyone involved of the need for long-term contracts for new wind farms to support jobs in the state and also reduce pollution here,” Mr. Learner said.

Mr. Learner is also executive director of the Environmental Law and Policy Center, which released a study this month showing that Illinois is home to more than 100 wind-related companies employing more than 15,000 people.

Mr. Borgia, of the Illinois Wind Energy Association, said the Illinois Power Agency’s contracting structure was created to protect ratepayers in the bulk purchase of electricity from all sources, not to deal specifically with renewable energy or to facilitate new wind development.

Hence, wind experts say, Illinois’s wind procurement process is exceptionally complicated and inefficient.

“The contract wasn’t designed for this process,” Mr. Borgia said. “It’s like using a water-slide contract to commission a wind farm. You could do that, but why would you? Why wouldn’t you use a wind farm contract?”