“This is an important step toward resolving a Northwest issue in a way that works for the Northwest,” said BPA Administrator Steve Wright. “We’re focused on seeking solutions based on regional input that maintain reliability, protect fish and support renewable energy while equitably sharing costs.”
The risk of electricity oversupply depends on runoff conditions and BPA expects reductions in wind generation will be unnecessary in about one of every three years.
Reducing hydroelectric generation during high flows sends more water through dam spillways, increasing dissolved gas levels that can harm fish. To control gas levels, BPA maximizes hydroelectric generation in such circumstances and offers the output at low cost or for free to coal, natural gas and other thermal power plants, as well as to wind generators. Thermal plants then typically shut down and save fuel costs.
However, most wind energy producers continue operating because their revenue from production tax credits, renewable energy credits and contracts depends on continued wind generation.
Under the new proposal, BPA would first work with the U.S. Army Corps of Engineers and Bureau of Reclamation to manage federal hydroelectric generation and spill water up to dissolved gas limits. BPA would then offer low-cost or free hydropower to replace the output of thermal and other power plants, with the expectation that many would voluntarily reduce their generation to save fuel costs. If electricity supply still exceeds demand, BPA would then reduce the output of remaining generation within its system, including wind energy, in order of least cost. BPA would compensate the affected generation for lost revenues, including renewable energy credits and production tax credits, subject to audit.
On average BPA expects to compensate wind producers about $12 million per year for lost revenues related to reduced electricity generation, although the total could range from nothing to more than $50 million in extreme conditions.
The Northwest River Forecast Center’s runoff projection for January to July 2012 is currently 85 percent of average. Lower runoff reduces the likelihood of an oversupply of electricity this spring, but conditions can change rapidly.
Under the proposal, BPA would cover costs of curtailing wind generation this spring from its transmission reserve account until a rate can be established to recover the costs. The agency would initiate a new rate case in which it would propose dividing compensation costs roughly equally between users of BPA’s Federal Base System and wind energy operators within BPA’s system.
For more information, go to www.bpa.gov/go/oversupply.