Alternative Energy Watch: Too Much Water, Too Much Gas, Too Much Wind; US Sets Profit Mark for Offshore Power Transmission Line; Nevada Solar Project Gets Federal Loan Guarantee (GOOG, UTX)

Today’s alt energy news focuses on wind generation shutdowns in the US and Scotland. The US Department of Energy has approved a $737 million loan guarantee for construction of a 110-megawatt solar thermal plant in Nevada, and the US Federal Energy Regulatory Commission has approved a 12.59% return on equity for a power transmission project offshore the US Atlantic coast.

We noted earlier this month that the Bonneville Power Administration (BPA) that high water conditions in the Columbia River drainage could lead to the shutdown of wind generation in the region.  The threatened shutdowns have now come to pass.

High runoff in the Columbia and Snake Rivers have filled the BPA dams to bursting. The BPA is prohibited by EPA regulations from opening the dams’ spillways because that increases nitrogen levels in the water that will kill the river’s fish. So the hydro-turbines have to run more, generating more electricity which fills the region’s grid capacity. Because the grid is maxed out with hydro-generated power, the BPA has no choice but to stop accepting wind-generated power.

For wind-farm operators, this results in a loss of revenue because BPA only pays for energy it receives. This state of affairs will continue until the grid is expanded to accommodate wind generation.

In Scotland, a similar problem occurred in April. Six of its wind farms were paid about $485,000 to shut down generation for two days because the electricity grid did not have capacity available to take the power.

Unlike the situation in the US Northwest, Scotland’s grid operator is required to pay for the shutdowns. The grid operator paid almost $1.5 million to the six wind farms for a few hours when the grid could not accept the electricity. In some cases the payments were 20 times higher than the value of the electricity if it could have been put on the grid. Consumers will ultimately pay for the grid operator’s largess.

Lack of access to the grid isn’t the only problem that wind generation faces. The low cost of natural gas in the US also affects the willingness of developers to build new wind farms. The US added 10,000 megawatts of wind generation capacity in 2009, and that could drop to as little as 5,000 megawatts of new capacity by 2012.

The blame is laid at the feet of shale gas, which is keeping the cost of natural gas low. Costs for wind turbines have been falling to the point where the cost of building a new wind farm matches up very closely with the cost of a new natural gas-fired plant. State renewable portfolio standards also help push wind generation development, but uncertainty over tax credits and lower demand for electricity as a result of a slow US economy more than make up for the positives.

The expansion of wind generation in the US has reached the point where continued development is just as likely to depend on grid capacity as on demand for electricity. Of course new gas- or coal-fired plants also require expanded grid capacity as demand grows, but those plants can be built anywhere and the cost of grid connections is keep lower. Wind and solar plants are typically far from grid connections, and the cost of building the transmission lines is not usually a part of the wind developer’s project.

Long distance transmission lines and grid connection expansion are the red-headed stepchildren of the electric power industry. This is perhaps an even bigger issue than the intermittency of wind and solar generation.

One of the unusual suspects working on grid connections is Google, Inc. (NASDAQ: GOOG), which owns about 42% of the $5 billion Atlantic Wind Connection project to construct an underwater transmission line along the Atlantic Coast of the US.  The project’s developer has just received a rate-of-return decision from the FERC for 12.95%, which was less than the 13.58% the company sought. The approval is conditional on the Atlantic Wind’s inclusion in an expansion plan by the regional grid operator. A permit from the US Department of the Interior is still pending to build the line on the sea floor. There are still plenty of other hoops to jump through before the grid expansion is complete — now expected in 2021.

Finally, a privately held solar thermal maker, SolarReserve, has received a $737 million loan guarantee to build a solar thermal plant in Nevada. The company is a joint venture between a division of United Technologies Corp. (NYSE: UTX) and private equity firm US Renewables Group.

What makes this project unique is its use of a molten salt heat storage technique that stores heat provided by the sun during the day to generate electricity at night. Overcoming the intermittency of solar generation could be a major step in developing more utility-scale solar installations.

Paul Ausick