Fortnightly Magazine - May 2010

For decades now, wind turbines have been generating electricity more cheaply than most other (non-hydro) renewable energy technologies. In particular, wind has maintained a comfortable lead over solar energy in the price-per-kWh race. That’s destined to change.

Cost of capital is often a contentious issue in utility ratemaking. This is due, in part, to the inexact nature of the tools available to financial analysts and the considerable room for divergent opinions on key inputs to cost-of-capital estimation. Perhaps for this very reason, and to achieve regulatory efficiency, Canadian regulators widely adopted a formulaic approach to setting return on equity (ROE). However, an unusual degree of rancor has evolved north of the border as allowed ROEs in Canada, once at parity, have fallen near 200-basis points below their U.S. peers.

Advancements in forecasting have improved the reliability of day-ahead and hour-ahead estimates of wind generation. Wind never will behave like a base-load power plant. But as system operators integrate wind forecasts into their planning and market processes, they’re transforming intermittent wind energy into a variable but reliable resource.

Despite state efforts to follow the European model of state-mandated feed-in tariffs to promote renewable power, these actions won’t pass Constitutional muster. The Supremacy Clause makes a formidable legal barrier to states’ FIT policies.