What Dow Chemical’s Huge Wind Deal Says About Our Energy Landscape
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.
Mira Inbar is an independent consultant who works with energy and clean technology companies. She can be reached @mirainbar or mira.inbar@gmail.com
Disclosure: She is a consultant to MAP Royalty and a former employee of the Dow Chemical Company.
Photo credit: mj007 via Shutterstock
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Dow, a bulk chemicals producer famous for manufacturing napalm, is hardly exposed at all to consumer sentiment and has no reputation for civic greenery. This is very probably a straight commercial bean-counting decision.
I find it encouraging when the renewable energy producer was chosen strictly for the economics.
Very true, but my fear is that this is the same people who’ve been screwing us over with the petro industry, buying up formidable slices of the next technology, to maintain their monopolies. Not to mention what they make. Goto a developing world and find out about the chemicals (pesticides, fertilizers) manufactured in the west, (Canada is big in this) that are illegal to sell at home, but are major revenue producers where environmental regulations are fewer, and harder to enforce.
1. Fossil fuel costs have to be greatly exaggerated in order for Wind to be profitable. 2. You need WIND. I think I have heard that wind generates electricity only 30% of the time of what a continuous energy source, like coal, produces.
3. Main reason most of these wind farms have popped up are because the government is subsidizing (tax payers) them. Not only are we the people paying for them to go up but we pay for the electricity they produce. Double whammy. Once the subsidies run out many of these farms will sit dormant for most of the time because they cost more money to maintain them than they generate.
Is this deal driven by SUBSIDIES, by any chance?
The author’s reason #2 touches on reality. Natural gas is an important feedstock for Dow. If they use conventional energy for their plant it would likely be from a natural gas fired plant and that demand will only increase the price they pay for raw materials. They are enjoying the current low gas prices. Why would they want to hasten the day when they must pay more.