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From: Tom Gray <tomgray@igc.org>

POWER MARKETERS SEE PROBLEMS,
OPPORTUNITIES IN RESTRUCTURING

     Wind energy faces some major uncertainties in the near
future due to deregulation of the utility industry, two
specialists in power marketing told members of the National Wind
Coordinating Committee (NWCC) January 17 in Denver, Colo.

     Larry Kellerman, President of Citizens Lehman Power of
Golden, Colo., and Billy Owens, Vice President of LG&E Power
Marketing Inc. of Costa Mesa, Calif., said wind faces challenges
since it is not the lowest cost source of energy in a market that
is increasingly driven solely by cost concerns.

     "We've been used to seeing prices in the $20/MWh to $30/MWh
[2 cents/kWh to 3 cents/kWh] range," Owens said.  "Now they're
down to $15/MWh [1.5 cents/kWh].  You can buy all the energy you
want for between $14/MWh and $16/MWh.  There's no sense of when
we will hit bottom, prices are just continuing to drop.  In the
winter months in the Northeast, people are selling on peak for
$11/MWh."

     Even natural gas, generally regarded as the cheapest option
for new capacity, is not competitive in some instances, Owens
said: "1995 was a wet year, and now people think the same may be
true for 1996 and 1997.  Water [hydropower] controls the price,
not gas.

     "Electricity is now a commodity, it's no longer just a
service . . . The prime product is low-cost electricity, not
equipment or projects.  This is an important shift--it used to be
that the idea was to build a project, and the price of the power
wasn't such an important issue."

     The fact that wind offers geographic and fuel diversity,
Owens said, is a plus, particularly for existing wind projects,
whose cost of production is relatively low.

     Kellerman offered several themes in his presentation:

(1) The entire utility industry is restructuring.  "Existing
projects, specifically wind, must also restructure or face an
uncertain and unpleasant future. . . . The fact that you have a
power purchase agreement does not make you immune [to
restructuring], it puts you in the gunsights of those targeting
lower costs."  A power marketing firm like Citizens Lehman may be
able to help a wind producer and utility renegotiate a power
purchase agreement, he said, because it has access to lower-cost
financing than an independent producer and can therefore provide
investors with a better rate of return, even with a lower payment
for power.

(2) Recognize that wind must be packaged with other products or
services to provide value to customers.  "Power that is generated
by a limited set of unit-contingent facilities cannot meet
customers' needs.  Even a gas-fired project with over 90%
availability cannot provide [power on] the terms that many
customers require."  Power marketers, he said, can accept power
from wind and other sources and package it in a way that is
saleable.  "We can blend the higher near-term cost of renewables
with the lower cost of fossil, or with the higher future costs of
fossil."

(3) Understand who your market is.  "Today, and likely for some
time into the future, that market is largely defined by the
electric utility sector, not by end users."  While some in the
wind industry believe it will be possible to obtain higher prices
by selling directly to retail customers, Kellerman said, "there
are no mechanics in place that would provide for a flow of
reliable power to customers without the provision of a variety of
system backup and support services."  When the cost of such
services is accounted for, he said, the premium that might be
realized from selling to end users is likely to be small.

(4) Those who try to go it alone will fail.  Building good
"strategic relationships" with other firms in the electric power
business will be necessary as the industry consolidates.

(5) Think ahead.  "Anyone in this industry needs to think two
steps ahead of where the market is today to thrive in tomorrow's
market."  Many companies in the electric power sector, he said,
are "trying to fight yesterday's wars" on issues such as PURPA
[the Public Utility Regulatory Policies Act of 1978] or state
set-asides.

_______________________________________________________________________________

The American Wind Energy Association (AWEA) has authorized me to offer
an electronic edition of its newsletter, _Wind Energy Weekly_, from
which the above article is excerpted, at no cost.

For those of you who have not previously seen excerpts from back
issues, the _Weekly_ reports on the outlook for renewable energy,
energy-related environmental issues, and renewable energy
legislation in addition to wind industry trade news.  The
electronic edition normally runs about 10kb in length. 

The free electronic edition of the _Weekly_ is intended as an educational
publication for those without a commercial interest in the wind energy 
industry.  If your interest in wind is commercial in nature, please write to
<windmail@mcimail.com> for more information about AWEA membership and
publications.

If you would like a free electronic subscription, send me an e-mail
request.  Please include information on your position, organization, and
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____________________________________________________________________________

Tom Gray 					          tomgray@econet.org
____________________________________________________________________________

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