**Testimony of Mike Sloan**

**Managing Consultant**

**The Wind Coalition**

before the House Select Committee on

Energy Independence and Global Warming

Hearing on \"Renewable Electricity Standards: Lighting the Way\"

**September 20, 2007**

My name is Mike Sloan, Managing Consultant of The Wind Coalition
(\"Coalition\"). I am appearing today to provide information about how a
Renewable Electricity Standard (RES) and related development policies
have fostered a robust wind industry in Texas. The Wind Coalition is an
association of 25 companies, trade associations, and environmental and
consumer groups that promote the use of the abundant wind energy
resources of the South Central United States in Texas, Oklahoma, Kansas,
New Mexico, Arkansas, Missouri and Louisiana.

**[Overview]{.smallcaps}**

Wind power is a cost-effective and readily available technology for zero
emission and zero water consumption electricity generation, capable of
being added rapidly to contribute meaningfully to state and national
electric needs. Wind power is broadly recognized as among the most
important near-term elements of the climate solution. The Texas
experience offers several observations applicable to consideration of a
national RES:

    1)  Wind power is ready to play a significant role in meeting
America's energy needs;\
\
    2)  Stable policy support is essential for renewable energy to
succeed;

    3)  Transmission infrastructure can and must be built to meet State
or Federal RES.

The success of the Texas wind industry is a leading example of how
government leadership combined with well-conceived policies can
effectively catalyze clean energy development. This wind power success
story is even more remarkable coming from Texas, which is not
traditionally considered among the vanguard of environmental policy.

**[Status of Wind Power -- A Significant Texas Energy
Industry]{.smallcaps}**

Prior to November 1995 -- less than twelve years ago -- there were no
commercial wind projects operating in Texas. At that time, Texas used
less renewable energy on a percentage basis than any other state in the
nation. A focused effort by Texas policy-makers to stimulate renewable
energy development through a RES has proven very effective. During 2006,
Texas passed California to become the nation\'s #1 producer of wind
energy. Bolstered by a proactive transmission policy that will ensure
transmission infrastructure is developed to the state\'s best renewable
resource areas -- a policy known as \"Competitive Renewable Energy
Zones\" (CREZ) -- interest in Texas wind development has skyrocketed.
During 2007, Texas is expected to add approximately 2,000 MW of wind
capacity -- an investment of more than \$3 billion -- that represents
more than half of anticipated wind power installations in the U.S. for
the year.

In a measure of *current* interest in wind power, information from the
Electric Reliability Council of Texas (ERCOT; the grid operator for the
majority of Texas) suggests capacity additions of wind power will exceed
the *combined* capacity additions of all other types of power plants
(coal, gas, nuclear, etc.) during 2006 and again in 2007.

In a measure of *future* interest in wind power, as measured by ERCOT\'s
total generation interconnection request activity, there is presently
greater investor interest in building new wind power facilities than in
building any other type of power plant. In-service wind plus all wind
generation interconnection activity in Texas total more than 40,000 MW.

Clearly, wind power is not awaiting a technology breakthrough. Based on
current incentives and regulations prevailing in the energy sector, wind
power is competitive today in many states and can be developed quickly
relative to other types of power plants. Wind power is ready to play a
significant role in meeting America's energy needs.

> **Texas Wind Industry Vital Statistics**
>
> (Based on ERCOT data for 9/15/07; Southwest Power Pool (SPP) data for
> 8/15/07)
>
> **Wind Power Now \"In-Service\" Statewide: 4,525 MW** *(includes not
> yet complete projects under construction that are delivering power to
> the grid today).*
>
> **New Interconnection Agreements for Wind Power** *(most of these
> projects are likely to go into service during the next year or two).*
>
> ERCOT Grid (serves most of Texas): **2,629 MW**
>
> SPP Grid (Texas Panhandle): **1,045 MW** *(720 MW of which are*
>
> *suspended due to a lack of transmission and access to buyers)*
>
> **Wind Interconnection Requests for 2007- 2010:** *(only a modest
> fraction of these current totals are likely to be installed, due in
> part to transmission shortages)*
>
> ERCOT Grid: **26,897 MW Wind** *(all non-wind = 21,316 MW)*
>
> SPP Grid: **4,496 MW Wind**
>
> **CREZ Transmission:** The Public Utility Commission of Texas is
> expected to designate 8 areas as wind zones (CREZ) and authorize
> transmission plans sufficient to support aggregate wind capacity
> within Texas of at least 10,000 MW up to approximately 26,000 MW.
>
> For reference, Texas\' Peak Electric Load is approximately 72,000 MW
> and growing, motivating a need for a variety of new power plants.

**[Stable Policy Support helped foster Texas\' Robust Wind
Industry]{.smallcaps}**

Texas has achieved success with wind power through a package of
effective state policies that complement available federal policies in
delivering significant results. These policies include: 1) Education
through Deliberative Polls 2) An effective market catalyst through a
Renewable Electricity Standard (RES), 3) Renewable Energy Credits (REC),
4) Competitive Renewable Energy Zones (CREZ), 5) Appropriate producer
incentives such as the federal Production Tax Credit (PTC) and state
property tax abatements. Texas\' success is a credit to visionary state
policy makers and regulators and the broad cooperation of consumer,
environmental and energy industry stakeholders.

**1) Education: Texas Deliberative Polls^TM^, 1996-1998.** These
utility-conducted polls showed Texas electric customers overwhelmingly
wanted cleaner energy resources. The poll results were helpful to Texas
legislators, utilities and other stakeholders in developing support for
a RES mechanism requiring a minimum level of renewable energy use.

*Utility Customer Deliberative Poll Results for 8 Utilities in Texas*

[First Choice Preference among residential customers (assuming cost is
same)]{.underline}

49% prefer Renewables (Solar, Wind, Biomass)

31% prefer Reduce Need (Energy Efficiency)

14% prefer Fossil (Gas, Coal)

> 5% prefer Buy & Transport from others

**2) Effective Market Catalyst: Renewable Energy Standard (RES),**
**1999 & 2005.** Texas goal for renewable energy is a leading example of
a Renewable Electricity Standard that: (a) promotes the
[use]{.underline} of renewable energy (b) Sets [minimum
levels]{.underline} of renewable energy use for sellers of electricity
and (c) established [penalties]{.underline} for insufficient use of
renewables. The RES has proven to be an exceptional catalyst, going from
legislative concept to \$1 billion worth of on-the-ground renewable
energy production facilities in less than 3 years. The early success of
the program led to an expansion of the RES in 2005.

February 1999 -- RES is legislative concept

May 1999 -- Texas legislature passed SB7, which included RES

December 1999 -- RES implementation rules completed

January 2000 -- utilities begin solicitations for renewable energy

December 2001 -- 912 MW of new wind projects in service in Texas.

**3) Flexible Mechanism to Stimulate Voluntary Market: Renewable Energy
Credits.** The currency for authenticating compliance with the RES is
Renewable Energy Credits (RECs), which represent 1 Megawatt-hour of
generation from a qualified renewable energy generator. RECs have become
a convenient and accepted method of validating voluntary purchases of
renewable energy as well. Voluntary renewable energy markets drive
[additional demand]{.underline} beyond the Texas RES and have resulted
in Texas becoming a leader in voluntary green power sales.

**4) Ensure Transmission Infrastructure: Competitive Renewable Energy
Zones.** CREZ is a proactive policy to provide transmission to the best
renewable energy areas, playing an essential role in facilitating the
renewable energy market. The basic steps of any proactive transmission
development process are:

> ![](media/image1.jpeg){width="2.870138888888889in"
> height="2.73125in"}1) Identify the Best Resource Zones
>
> 2\) Develop a Transmission Master Plan
>
> 3\) Begin Building Transmission to Zones

The Public Utility Commission of Texas (PUCT) is in the midst of a
contested case to establish CREZ. An interim final order is due this
week. A map identifying the approximate areas that have been verbally
designated by the PUCT as CREZ are identified in the map. Additional
analyses are now underway to optimize transmission plans to accomodate
wind power from these CREZ at levels between 10,000 MW up to
approximately 26,000 MW and to evaluate integrating high levels of wind
power into the ERCOT system. A final decision on CREZ and specific
transmission lines is expected approximately March 2008.

**5) Incentives: Federal Production Tax Credit (PTC) and State Property
Taxes**

Wind power has higher up-front costs than most conventional power plant
alternatives, thus presenting a higher hurdle for investors to justify.
Prudent incentives to promote investment in new technologies are often
needed, and in the case of Texas, such incentives have proven effective.

The Federal Production Tax Credit (PTC) has played a critical role in
the effectiveness of the Texas RES. Examination of the history of
Texas\' wind development indicate an extreme boom-bust cycle directly
tied to the availability of the PTC. Even for Texas, the most attractive
wind development market in the country, the years following PTC
expiration in 1999 and 2001 resulted in statewide wind installations of
*zero MW*. In contrast, during the last 3 years, during which the PTC
has been in effect continuously since September 2004, installations have
grown steadily. A full value, long-term federal PTC extension is a
natural compliment to an effective National or State RES .

Texas does not have personal income taxes which results in a relatively
large property tax burden relative to other states. Due to wind\'s high
up front cost, wind power has a relatively higher property tax burden
per unit of energy produced compared to conventional power plants. The
availability of Texas\' economic development program offering partial
property tax abatements has coincided with Texas\' recent steady growth
in wind installations.

**[Transmission Infrastructure Must Be Built to Meet RES]{.smallcaps}**

Even with a well-functioning RES, Texas has encountered significant
problems in growing its wind power installations due to prevailing
transmission shortages. While wind can be developed quickly,
transmission lines take much longer to develop. The Texas CREZ process
is expected to be an effective solution to break through this classic
\"chicken-and-egg\" problem. This problem threatens virtually all of the
nation\'s premier wind resource regions.

Other states are beginning to evaluate the possible use of the CREZ
transmission planning tool, including Colorado and California.
Fortunately, grid planners are also responding to the widely recognized
shortage of infrastructure by conducting planning studies to accomodate
moving large levels of wind power from the best wind production areas to
consuming regions. It is imperative that transmission infrastructure be
planned in parallel with a national RES, to enable the two-way transfer
of a diversity of renewable energy resources, such as wind from the
plains, geothermal from the west, solar from the southwest, and
bioenergy from the southeast.

**[Texas RES -- Some Lessons Learned]{.smallcaps}**

**1) RES expedited market action on renewable energy.** Prior to
electric industry restructuring, Texas had nine investor-owned utilities
in the electric sector. The results of the first compliance year of the
Texas RES (2002) yield a remarkable finding: that utilities with a RES
obligation bought far more renewable energy *voluntarily* than those
that did not have any RES obligation.

[Renewable energy purchases by Texas\' incumbent investor-owned
electricity providers]{.underline}

6 Companies with [No RES]{.underline} requirement in 2002 procured [1
MW]{.underline} of renewables

3 Companies with an [RES requirement]{.underline} in 2002 purchased
approximately 310 MW as required and voluntarily purchased an
[additional 300 MW]{.underline} of renewables beyond their RES
obligations.

**2) RES has produced more benefits than costs.** Since 2001, wholesale
wind power prices within Texas have been competitive with wholesale
market prices. Some electric utilities in Texas, including Xcel Energy
and Austin Energy, have reported that certain wind power contracts have
enabled them to lower the bills of their retail customers. In a more
general sense, the \"cost-effectiveness\" of wind power is a difficult
question to answer. This is not due to the costs associated with wind --
which are reasonably predictable even decades into the future -- but
rather, due to high uncertainties for future environmental compliance
and fuel costs associated with competing energy technologies. For the
Texas wholesale market, perhaps the most significant substantiation of
the cost-effectiveness of wind derives from the willingness of investors
to risk billions of their own capital on new wind power projects.

As part of the CREZ process, ERCOT conducted extensive analysis of
various transmission plans. Brendan Kirby of Oak Ridge National
Laboratory analyzed ERCOT\'s assessment and offered several conclusions
regarding the cost and benefit of wind power:

-   In all cases, fuel cost reductions stemming from increased wind
    power installations exceed the cost of CREZ transmission lines;

-   Existing wind power saved Texas consumers \$476 million in 2006;

-   5,250 MW of new wind in Texas (the largest scenario evaluated by
    ERCOT) reduce wholesale customer payments to generators by \$1.278
    billion per year.

-   5,250 MW of new wind installations in Texas would reduce statewide
    emissions of carbon dioxide, nitrous oxide and sulfur dioxide by
    3-5%.

Texas is currently contemplating scenarios that are up to 4 times larger
than this 5,250 MW level, suggesting billions in potential electric cost
savings and relative emission reductions levels that could exceed 15%.

**3) Texas RES has delivered Substantial Economic Development
Benefits.**

Illustrative of abundant economic development benefits associated with
Texas\' RES are:

-   Thousands of direct new jobs created in manufacturing, development,
    construction and maintenance of wind projects;

-   Sizable boost in indirect jobs, especially in rural communities;

-   Several communities have built new schools with revenues from wind
    projects;

-   Texas Tech University has created a new PhD program in wind energy;

-   New wind manufacturers and operations have moved to Texas;

-   Millions in royalty payments to landowners

**[Conclusion]{.smallcaps}**

The Texas experience shows that renewable energy can be added into the
system quickly and cost effectively. Stable, well-conceived policies
have played a major role in stimulating the Texas wind market and
delivering significant benefits for Texas\' environment and its
ratepayers.

Thank you.

Mike Sloan

Managing Consultant

The Wind Coalition

906.5 Congress Avenue

Austin, Texas 78701

512-476-9899