Utilities across the U.S. are taking advantage of record-breaking wind output this winter while the international oil market again sends natural gas prices spiraling into uncertainty.

Wind won’t create the $1 billion it saved PJM Inteconnection (PJM) customers in just two days during last winter’s Polar Vortex, but it is helping keep power prices down, according the American Wind Energy Association (AWEA) Director of Research Michael Goggin.

Record and near-record wind outputs have been logged since Christmas across the country and the fact that power prices remain near normal is much due to that production, according to Goggin, co-author of the just-released "Wind Energy Saves Consumers Money During The Polar Vortex." 

Numbers in the paper are conclusive. Utilities in the PJM, a regional transmission organization (RTO) serving 60 million people in 13 Midwestern and Mid-Atlantic states and the District of Columbia, saved their customers $15 per person during last year’s cold because wind energy-generated electricity PJM's cost of power 27%.

This year’s lower prices are also in part due, market watchers agree, to the plunging price of natural gas. Its NYMEX and Henry Hub prices are now below $3 per million British Thermal Units (mmBTUs), down from over $6 per mmBTUs early last spring. The drop is the result of weakening international demand, which is collateral damage in the war between U.S. and MidEast oil producers.

While the current low gas prices have certainly contributed to lower electricity bills this year, it's clear wind is playing a role as well, although the applicable price data has not been reported yet for the beginning of 2015. Last year’s sudden freeze demonstrated that no resource has the major price impact potential of wind because of its high capacity and zero fuel cost, Goggin explained. “The cost of wind is free and that is guaranteed up front for the life of the project.” 

Last week's generation records

Wind records this winter came, like last year, during the coldest moments, just when consumers needed the power to stay warm and keep the lights on.

On Jan. 8, the MidContinent Independent System Operator (MISO) broke its previous record — set only two days before — by obtaining approximately 11,835 MW from wind energy, over 10% of its roughly 84,000 MW load at that moment for all or part of 15 states and Manitoba.

On Jan. 7, the Southwest Power Pool (SPP), which covers 9 states in the Mid-South and Plains regions, reached an all-time high wind production of 7,625 MW, over 20% of load.

PJM’s wind energy production during the recent cold snap Jan. 7-9, at over 5,000 MW, is likely to be at or near the record high output seen in 2014, though Goggin said the final numbers are not yet in.

On Christmas day, the Electric Reliability Council of Texas (ERCOT) recorded a record-breaking wind output of 10,957 MW.

“Power demand and prices have been high throughout PJM and MISO this week due to the extreme cold, so having wind generation steady at near-record levels throughout this period has greatly assisted grid operators and kept power prices low,” Goggin reported Jan. 10.

How wind energy keeps power prices down

The paper explains 6 ways wind benefits system operators and utility customers which are “particularly pronounced when electricity markets are facing shortages and price spikes.”

1. Wind cuts the cost of producing electricity because zero-fuel cost production directly displaces the output of the most expensive and least efficient power plants on the system.

2. Wind flattens the impact of electricity price spikes by allowing demand to be met first by zero-fuel-cost generation and then by conventional generation with lower fuel costs. This reduces the overall electricity market clearing price.

3. Wind energy reduces pollution, eliminating public health costs and the need for other pollution control measures.

4. Wind energy hedges against fuel price volatility by providing a guaranteed, fixed price over its 20 year or 25 year contract term. That reduces the impact of price fluctuations from other, more price-volatile generation sources.  

5. That fixed price becomes lower in real terms over time while the overall price trend in other generation sources tends be upward.

6. By decreasing demand for natural gas, wind reduces upward price pressure from it in both electricity generation and heating.

Wind savings last winter and ongoing impacts

The first two benefits explain how wind created $1 billion in savings on Jan. 6-7, 2014, and are illustrated by a graph in the paper. If PJM had not had wind, it would have had to run more expensive power plants, Goggin explained.

“In some hours there were as many as 140,000 megawatts of power being sold. During demand and price spike events, if the cost of those megawatt-hours is hundreds of dollars, the reduction becomes a very large number very fast,” Goggin said. “In some single hours, the savings were over $100 million.”

The actual cost of all wholesale PJM power delivered on Jan. 6-7, 2014, was $2,727,058,389, Goggin detailed. “Our analysis found that it would have been $1,008,545,863 higher without wind. So wind reduced the cost by 27%.”

The same thing plays out every day, Goggin added. Whenever wind energy-generated electricity is used, the most expensive power plants on the system are displaced.

The other benefits enumerated play a role over the longer term, as shown in another of the paper’s charts:

The Polar Vortex revealed the PJM system’s fuel price uncertainty. “Gas prices went up by dozens of times more than what they normally are,” Goggin said. “Over the long term, there is also uncertainty about gas prices. Nobody knows what the gas price will be in a week or 5 years. There is a cost to consumers for that.”

Lawrence Berkeley National Labs research cited in the paper shows 2011, 2012, and 2013 wind power purchase agreements’ fixed nominal prices declining in real terms over the contract periods. That is contrasted with the projected increasing price of a new natural gas plant’s generation.

“When building or choosing a power plant today, it is also crucial to think about the cost over the life of the plant and the plant’s contract,” Goggin said. “In that, wind energy is the clear winner.”

One of the big lessons from the report is that having a diverse mix of resources on the power system is valuable and often in ways you can’t anticipate,” Goggin said. “Having diversity really paid off last year. In some cases, wind meant the difference between keeping the lights on and not and, in other cases, it meant being able to not run very expensive power plants.”

And, Goggin added, “the fact that power prices during the recent cold period have been more normal than in similar circumstances last year is an indication that there were lessons learned.”