Thursday, February 28, 2008

The Answer Is Blowing in the Wind... Until it Stops

Those of us trying to scratch out a living in the equities market try to stay aware of many things. Just a few of those are oil prices, the value of the dollar, and the relationship between the two. Last Saturday there was an interesting article in the New York Times which I eventually saw this morning. (Let's just say the NYT website isn't on my short list of "must reads.") This article talks about the growth of wind farms in Texas and quotes T. Boone Pickens at some length. When Boone talks about energy it makes good sense to listen.

So, the short version is that windpower is growing and the most likely sites for wind farms are in the mid-section of the US. While some project a contribution to the national grid of 20% a la The Netherlands, the more likely high side is 5-7%. That's substantial given that Texas now generates the most windpower electricity in the US currently but it isn't anywhere near 7% of the state's demand. Meaning, there's going to be a lot of investment there in the next decade or more.

Then along comes Tuesday evening, Feb 26th in Texas. At 6:41PM local time they had a Stage 2 power emergency. It seems that at the same time they had a 14% surge in electric demand due to cold weather they also had the wind die down. In an instant the windfarms in question went from 1,700 megawatts of production to 300 megawatts. Apparently they didn't experience a power failure but they did come dangerously close to having demand overtake supply.

We usually think of wind-generated electricity as something on the margins. But the events of Tuesday showed a vulnerability with wind power that I had not considered. With other power sources when demand jumps we just increase the number of turbines spinning in the hydro plant or the amount of fuel being used be it coal, nat gas, nuclear, or incinerated garbage. But how do you make up 20% of your supply in an instant if the wind stops blowing?