Published on March 27th, 2015 | by Guest Contributor6
What Dow Chemical’s Huge Wind Deal Says About Our Energy Landscape
March 27th, 2015 by Guest Contributor
By Mira Inbar
Recently, The Dow Chemical Company signed an agreement to purchase 200 MW of wind output from a wind farm under development by a subsidiary of Bordas Wind Energy in South Texas. The wind power will power the company’s Freeport, Texas manufacturing site.
Everything about this announcement is huge: Freeport is the largest integrated chemical manufacturing complex in the Western Hemisphere. The wind farm will encompass nearly 35,000 acres of land, and annually supply an amount of electricity that could power more than 55,000 Texas homes.
Dow is the first chemical company in the US to power a manufacturing site with renewable energy at this scale. Their decision to do so is a clear sign that the energy landscape in the United States continues to evolve and that companies today have far more choice when it comes to accessing sustainable sources of power than they did just a few years ago.
So, what does Dow’s huge wind deal say about our energy landscape and the future of power generation? Three things:
1. Accelerating technological innovation and deployment at scale is driving down the cost of renewable energy.
Since 2009, the delivered cost of wind energy from many parts of the country has declined more than 50%. The Energy Information Administration recently released data showing that renewable energy generation provided 47 percent of new electrical generating capacity installed in the US during 2012 and 2013. In 2014 the US had installed a generating capacity of 65,879 MW of wind; this is approximately ten times the installed capacity of wind energy generation at the end of 2004.
Renewable energy is no longer a “what if” scenario. Rather, today we are seeing that renewable energy can be delivered to facilities at costs competitive with alternatives, providing a strong case to integrate renewable energy into our overall electricity supply strategy.
2. Wind energy is a perfect hedge against fossil fuel cost volatility.
In Texas, wholesale electricity prices are heavily influenced by natural gas costs. Natural gas feedstock is also a vital part of manufacturing processes. As consumers of both natural gas and electricity, manufacturing companies have the incentive to lock in a portion of future electricity needs through a long-term power purchase agreement at a known price with low-cost wind energy. While the use of wind energy is not able to directly replace the huge volumes of natural gas that Dow, for example, consumes for chemical manufacturing, this contract provides a cushion against natural gas price volatility and structural price increases at a cost and duration that is unavailable through a standalone natural gas trade.
3. Deals like this represent an efficient use of electricity markets.
Earlier this year, Texas completed a ten-year, $6.8 billion effort to build a huge network of new high-voltage power lines to connect all corners of the state to a robust electricity market that has become one of the most efficient and transparent in the world. These new transmission lines create better access to the market for all forms of electricity generation and allow for more efficient real-time operations and trading. This visionary investment has fostered competition and innovation, giving manufacturing companies more choice in their electricity supply so that they can better manage their costs.
Access to a reliable supply of cost-effective energy is a key ingredient to revitalizing manufacturing in America. Powering manufacturing with renewable energy is just one smart move to secure a future of sustainability, growth, and huge long-term competitive advantage.
Disclosure: She is a consultant to MAP Royalty and a former employee of the Dow Chemical Company.