Responding to New Directives

Issue 3 and Volume 113.

By Dave Fiorelli, President and CEO, Tenaska Business Development Group

When Tenaska Solar LLC announced in December its equity investment in Soltage LLC for expanding the development of solar-generated electricity, surprise seemed to register among power producers, their vendors and traditional investment groups. Why would the Tenaska employee-owners invest in photovoltaic (PV) solar systems? Tenaska traditionally has specialized in conventional generation development and energy marketing.

Several reasons are encouraging us to venture into renewables: a sense that diversifying resources is prudent, the growing effectiveness of wind and solar generation and recognition that federal lawmakers are almost certain to mandate renewable portfolio standards and carbon reductions.

In terms of effectiveness, solar generation correlates well with typical peak electricity demand and PV solar generation can be placed at the consumer’s location, reducing stress on the electric transmission and distribution system. Further, it can be installed where other renewable options are not practical.

Wind as a power source is also proving itself. Tenaska supports the wind industry through Tenaska Power Services Co. (TPS), which manages 2,834 MW of wind power in Texas, about one-third of the state’s wind generation market. Tenaska employee-owners also have invested in wind generation. Elkhorn Ridge Wind LLC in Nebraska consists of 27 wind turbines totaling just under 80 MW of capacity.

President Obama’s energy team, the new Congress and state legislatures have signalled their support for government and community partnerships to encourage renewable energy, which they believe will have a positive impact on the environment and global warming, despite the high current cost relative to fossil-fueled generation.

Americans have become more familiar with renewable energy terms such as solar, wind, hydropower, biofuels, biomass and geothermal. They want to foster clean air with reduced emissions on our freeways and from other sources, including power generating plants. Many believe an important part of the answer is in renewable energy. Independent power producers can respond to consumer demands by developing efficient and more cost-effective technologies that diversify and broaden the energy resources available to our country, including renewables, clean coal and efficient use of natural gas.

Tenaska is taking a diversified approach to future energy production investment. As the industry changes to meet transitioning needs, many uncertainties exist: costs of available fuels; future government mandates, including restrictions on carbon emissions; demand that reflects potential conservation mandates and a recessionary economy; and levels of government renewable and clean coal incentives. By pursuing resource diversity—conventional gas generation, clean coal, solar thermal, solar photovoltaic and wind—Tenaska is helping meet the country’s energy needs from multiple sources of supply.

As part of its diversification of resources, Tenaska also is focused on developing environmentally responsible advanced power projects, including facilities that use low-cost abundant coal while greatly reducing the release of carbon dioxide (CO2) and other emissions.

The Taylorville Energy Center being developed by Tenaska in Illinois is among the first of the new integrated gasification combined-cycle (IGCC) plants advancing toward construction. The hybrid IGCC technology to be used greatly reduces emissions compared to conventional coal plants and will be equipped with CO2 capture technology. It can be expected to operate as cleanly as natural gas.

Also, Tenaska’s proposed Trailblazer Energy Center in Texas is expected to be the first commercially-sized, conventional coal-fueled power plant in the world to capture and provide for geologic storage of CO2. Up to 90 percent of the CO2 produced would be captured, dehydrated, compressed and delivered via pipeline to West Texas oil fields for use in enhanced oil recovery projects.

While adding renewable resources often is characterized as a simple process, they can present significant challenges. Resources are often located far from major cities and require significant investment in new transmission facilities to move the electricity to end users. The ultimate success in making major transmission additions is unclear. In Texas, the Public Utility Commission has approved a plan to add almost 18,500 MW of transmission from West Texas wind farms to the urban centers at a cost of almost $5 billion. InfrastruX, owned by the Tenaska Power Fund, is a leading transmission builder in Texas and is actively pursuing a major portion of this project work. Completion of the Texas transmission build-out is expected to take four to five years.

Development and investment opportunities are plentiful in both wind and solar and both have benefited from government incentives. Continued and consistent incentives are necessary to promote the ongoing development of renewable resources. Certainly, this is true because of the high cost of renewables compared to fossil generation and the challenges of marketing intermittent capacity. However, consistent incentives also will help entrants to the market more accurately estimate the cost of development, thereby encouraging stable and steady growth in a greener world.