Northern Michigan's Boone PickensLansing Not On Track Yet for Renewable Energy
By Keith Schneider
Apollo News Service
The broad ridges south of McBain, snow-covered in winter, cloaked in hay and corn and beans in summer, are adding a couple more permanent fixtures to the scenic landscape. A Traverse City company named Heritage Sustainable Energy is erecting a pair of 350-foot tall windmills capable of generating 2.5 megawatts each, or enough electricity to power roughly 700 homes.
The German-manufactured Fuhrlander machines, among the largest constructed anywhere in the world, are intended to be the first phase of a $330 million project to build 60 windmills on 12,000 acres outside McBain. The mammoth industrial undertaking is led by Martin Lagina, a 52-year-old petroleum engineer who made a fortune in the 1990s drilling for natural gas in northern Michigan. Now, like Texas oilman T. Boone Pickens, who's caused a summer sensation by calling for a national investment in clean energy production, Lagina sees the value in producing electricity from wind. His project could put the 14,400 residents of Missaukee County at the leading edge of the clean energy economy that is reluctantly unfolding in Michigan.
Whether Lagina and Heritage Sustainable Energy can actually build 58 more windmills at the Stony Corners project, though, is not at all clear, say authorities in finance and renewable energy. The impediments to success lie like shards of glass in the project's path.
Lawmakers in Michigan have been unable to reach agreement on legislation to require utilities to purchase electricity generated from renewable sources of energy, and thereby establish a steady market; 26 other states have established such "renewable portfolio standards," and their alternative energy markets are growing. Meanwhile Congress has not renewed the federal renewable energy investment and production tax credits, which clean energy developers say are crucial to the industry's success. Lawmakers in both chambers can not agree on how the credits will be financed.
Moreover, the cost of wind energy turbines, towers, and other components is soaring. And investment capital is becoming more difficult to acquire as United States financial markets are roiled by the home mortgage crisis and mounting foreclosures.
But there is one market advantage to generating electricity from wind that is becoming much clearer in Michigan. Its cost. Lagina, who focused in the 1990s on developing northern Michigan's natural gas reserves and sold his company for more than $62 million, asserts that if he receives 11 cents a kilowatt/hour for the power generated by his wind turbines, the project will be a financial success. "In today's numbers that's what it will take," he said in an interview. "We think that is very competitive with coal or any other energy source."
Indeed, while lawmakers in Lansing argue about whether to establish a formal market for renewable energy, and while homeowners and businesses contend with ever-rising bills for electricity, nearly all of it in Michigan generated from coal-fired power plants, energy generated from wind has quietly and steadily gotten cost-competitive with energy generated from coal and almost every other fuel source. By next year, say energy economists, it will be more competitive.
Wind Saves Money, Makes Money
How come? The cost of concrete, copper, steel, and other commodities used in constructing big power plants is rising more than 10 percent annually. In September, Consumers Energy, the state's largest utility, filed papers with the Michigan Public Service Commission that predicted its proposed new 800-megawatt coal-fired power plant in Bay City would cost over $2.4 billion, twice what the company told the PSC it would cost in 2006.
A second reason: The presidential candidates of both major parties have promised to act on global warming and policy analysts in Washington say that Congress could approve new regulations to limit emissions of carbon dioxide from power plants. Developing equipment and techniques to do so could add $1 billion of more to the cost of new coal-powered plants, say engineers.
A third reason: Coal prices, which reached over $85 a ton earlier this year in West Virginia, have more than doubled since 2001, when they averaged $35 a ton, according to the Energy Information Administration, a unit of the federal Department of Energy. The price of coal also is tied to the rising price of oil because it is mined and shipped using fuel-consuming equipment.
In September, when construction, fuel, and transportation costs were considerably lower than they are today, Consumers Energy told the Michigan Public Service Commission that the cost of producing electricity from its proposed Bay City plant would be 10.3 cents per kilowatt hour, or just fractions of a penny less than the price Lagina says he needs from the market to be profitable.
"Look, we're faced with some of the same cost increases as the utilities who want to build new coal-fired plants," said Lagina, who is investing $15 million to construct the first two windmills and connect them to transmission lines. "We use steel, and copper, and concrete too. The price of a turbine is up 50 percent since 2004. But our advantage is that once the windmill is up the costs are fixed. Wind is free. There are no other impacts. No pollution. The problem with coal is its hard to measure all the true costs. What will be the cost of regulating mercury or carbon dioxide? What will be the fuel costs? Coal powered plants are highly dependent on the price of oil because it takes great big machines to dig coal out of the ground, process it, and put it on trains and ships. That's why wind is cost-competitive and will be more so as we go along."
State Assistance Helps
Still, said Lagina, wind energy could use help from the state to ensure a market for power generated from new windmills. Legislation is pending in Lansing that would require utilities to produce 10 percent of their energy from renewable sources by 2015. Such legislation, if it passes, assures investors of a ready market for wind energy, as similar renewable portfolio standards have done in 26 other states.
In addition, the market guarantee is likely to prompt renewable energy manufacturers to settle in Michigan. Democratic Governor Edward Rendell, of Pennsylvania, told a conference of union, business, and environmental leaders in Pittsburgh in March that 3,500 new jobs have developed in his state's clean energy industrial sector since 2004. That was the year that Pennsylvania approved a renewable portfolio standard, otherwise known as a "RPS.".
"This is one thing that just makes me ill," said Lagina. "The towers for the two units we're installing are being made in Canada. I can't believe that I have to got to Canada for these towers, which cost close to $1 million each. If the state would enact a RPS, that equipment would be built here, along with the gear boxes, electrical components, bearings, turbines. Lots of things Michigan would be good at making."
A Turn For The Better?
The question Michigan faces is how high electricity prices will reach. Some of the oldest coal-burning power plants in the nation operate in Michigan, and the cost of running them is rising due to sharp increases in the price of fuel, equipment, and transportation. The average 10 cents per kilowatt hour that homeowners pay has been climbing steadily since last year and will rise at an even faster rate in 2009, say utility industry economists and regulators. Utilities have proposed eight new coal-fired plants in Michigan, and the state energy plan says at least one is needed. Public opposition is mounting to building any new coal-fueled electricial plant in the state.
The inevitable rise in electricity prices, and public discontent, could be considerably less if Michigan aggressively pursues an energy strategy that combines energy conservation with renewable energy production. "From my perspective, the way this thing is playing out, the numbers look pretty good at this point for wind," said Lagina.
Keith Schneider, a nationally known writer and producer, is the director of communications at the Apollo Alliance. Reach him at email@example.com