Kansas Wind Energy’s Economic Benefits: Part 2

Energy policy issues are notoriously complex.  Seemingly small changes in a state’s energy policy can lead to wide-ranging and often unintended political, economic, and environmental consequences.  In an effort to facilitate thoughtful policy discussions about these issues in the state of Kansas, several attorneys from the Polsinelli Shughart energy practice group, Alan Claus Anderson, Britton Gibson and myself, have partnered with Dr. Scott W. White of the Kansas Energy Information Network to draft a report that relies on empirical evidence gathered from the nineteen wind farms currently in operation or under construction in the state of Kansas to estimate the true economic impact of these projects.  The text below is part of this larger report, which is available at http://www.polsinelli.com//files//upload/StudyKansasWind.pdf

In Part 1 of this series, we discussed Kansas’ unique wind resource.  Today, we will provide a brief history of Kansas wind energy generation.  Additional sections of this report will follow in subsequent posts.

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A Brief History of Kansas Wind Energy

The substantial growth inKansas’ wind energy capacity in 2012 has been the culmination of more than a decade of hard work byKansas’ citizens, utilities and electrical cooperatives, local, county and state officials, and third-party participants. 

Although Kansas has long been known for the winds sweeping across its prairielands, it was not until 1999 that Westar Energy (then Western Resources) took the first steps into utility-scale wind power with the installation of two 600 kW Vestas wind turbines near the Jeffrey Energy Center in Pottawatomie County, north of St. Marys, Kansas.  In 2001, Westar’s Jeffrey Energy Center project was followed by the state’s first large scale wind farm, the Gray County Wind Project built near the town of Montezuma by NextEra Energy Resources (then FPL Energy). Containing 170 Vestas 600 kW turbines with a total installed capacity of 112 MW, the Gray County Wind Project is still operating today.

Since those early successes, at least one project has come online in Kansas every year since 2008, (see Table 1), and the period from 2011-2012 has seen a boom that will nearly double the state’s installed wind capacity (see Table 2).

Though there were a number of early wind projects inKansas, Table 1 above illustrates that there was a significant increase in project development beginning in 2008 and 2009.  A lot of this growth is the result of steady improvements in wind generation technology and increasing access to new areas of the state due to the expansion of transmission infrastructure (as will be discussed in a future post).  This is also the period when theKansasstate legislature adopted the state’s Renewable Portfolio Standard (“RPS”), a policy implemented to diversify the state’s electricity generation mix by adding more renewable generation.

Prior to 2009, demand for wind energy in Kansaswas driven by voluntary measures. Some utilities, like Empire District Electric (“Empire”), began purchasing wind energy due, in part, to high natural gas prices and a high percentage of natural gas baseload generation, which wind-powered generation could offset. Empire believed that the addition of wind power to their system was a way to “decrease exposure to natural gas, provide a hedge against any future global warming legislation” and to help them provide their customers “lower, more stable prices.”  Empire noted that the energy purchased from wind farms allowed them to decrease the amount and percentage of electricity generated by natural gas, and thus decrease their exposure to fuel price volatility. Similarly, the Kansas City Board of Public utilities saw wind power as “a hedge against high market purchase prices” and estimated their 20-year power purchase agreement for wind power would save the utility $3 million during the first decade.  Ultimately, some utilities decided to participate in the voluntary RPS that then-Governor Kathleen Sebelius had proposed, while others foresaw the potential for a future, mandatory, RPS.

Since 2009, demand for renewable energy in Kansasby public utilities has been driven by the RPS, as passed by the Kansas Legislature in May 2009 through Senate Substitute bill for H. 2369 and incorporated by Kansas Statutes Annotated (K.S.A.) 66-1256 through 66-1262. Under the RPS, every regulated public utility in the state is required to own or purchase renewable generation, such that the nameplate capacity of the renewable generation owned or purchased by the utility satisfies the following minimum threshold percentages of the utility’s average three-year annual peak retail sales:  

  • 10 percent for 2011 through 2015
  • 15 percent for 2016 through 2019
  • 20 percent for 2020 and beyond

Importantly, for renewable capacity generated in Kansas, utilities are awarded an additional 10 percent credit toward their requirements, thus incentivizing utilities to keep the renewable projects, and the economic benefits that they create, within the state. Additionally, a key provision of the RPS language was a one percent cap on the rate impact of compliance.[v]  Under this guideline, the Kansas Corporation Commission (“KCC”) is permitted to exempt any utility that can demonstrate that compliance with the RPS would cause retail rates to increase by one percent or more.  This effectively ensures that, to the extent that there is a cost associated with developing renewable generation opportunities as compared to traditional fuel sources, the rate impact for retail customers will be minimal.

Since 2010, the KCC has prepared and submitted an annual report to the Legislature that details each utility’s progress toward fulfilling its RPS requirements, including forecasts for its renewable energy generation over the next 20 years. The most recent data for each of the six affected utilities are summarized in the following Table 3.

As the chart above illustrates, all Kansas utilities currently have enough renewable generation in their portfolios to satisfy the RPS through 2015, with most possessing far more renewable generation than is required.  Additionally, most Kansas utilities currently have more than enough renewable generation in their portfolios to satisfy the 15 percent threshold that will take effect from 2016 through 2019, with only a small amount of additional renewable generation required for Westar and Midwest.

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If you have any questions or comments about the Kansas wind industry, please feel free to leave a comment below or contact me directly at lhagedorn@polsinelli.com or (913)234-7416.