Moody’s says WPPI Energy wind energy PPA is credit positive

WPPI Energy’s 22-year power purchase agreement to receive electricity from a new wind energy center that will be located in Illinois is credit positive for WPPI because it adds a cost-effective resource, enhances the diversity of supply and improves WPPI’s carbon footprint by doubling the wind generation in its supply portfolio, Moody’s Investors Service said on Aug. 24.

WPPI Energy and Invenergy recently unveiled an agreement that will advance plans for constructing the 132-megawatt Bishop Hill III Wind Energy Center in Henry County, Illinois.

WPPI Energy, a not-for-profit, regional power company based in Wisconsin, has entered into a power purchase agreement, or PPA, to buy the electricity from the facility through mid-2040 in order to serve its 51 member utilities and their customers across Wisconsin, Upper Michigan and Iowa.

In its report, Moody’s noted that the agreement follows WPPI’s January 2017 execution of a 20-year PPA for all power generated from the 100-MW Point Beach Solar Energy Center to be built near Two Rivers, Wis. The Bishop Hill III wind energy center development is expected to achieve commercial operation in mid-2018, while the Point Beach solar development is scheduled to be online in 2021, the ratings agency said.

“The increase in renewable resources from the two PPAs further decarbonizes WPPI’s power supply portfolio and does so with economic and complementary resources,” Moody’s said.

The wind and solar resources provide a combined output that matches WPPI’s load profile in a way that is better than either resource would on its own, the credit rating agency said.

“The resources are also projected to lower the joint action agency’s purchased power costs, which in turn will help alleviate rate pressure for WPPI’s members,” Moody’s said.

According to the rating agency, purchased power makes up the largest component of WPPI’s cost structure at more than 70% of fiscal 2016 total costs -- including O&M, debt service and maintenance capital.

Moody’s said that while the framework around carbon regulation in Wisconsin and the rest of the country remains uncertain, the decision to enter the renewable PPAs reflects the increasingly cost-competitive status of wind and solar resources relative to conventional generation technologies, particularly coal.

Executing wind PPA enables WPPI to obtain favorable economics

Meanwhile, the rating agency said that while wind resources have exhibited more variability than solar, WPPI has assumed the wind energy center will only operate at a capacity of 50 MW on average. Moody’s noted that WPPI has observed historical production and locational marginal pricing data for the existing Bishop Hill I and II facilities, “providing it with better certainty as to the capacity and energy value of the Bishop Hill III project.”

In addition, executing the wind PPA now has enabled WPPI to obtain favorable economics because the federal renewable electricity production tax credit is set to phase out by the end of 2019, the rating agency pointed out. The PTC allows WPPI to obtain significantly lower PPA pricing than would be possible in the absence of such a credit.

Moody’s said Bishop Hill III will utilize an existing interconnection to the Midcontinent Independent System Operator grid, “which will allow it to meet the commercial operation date required by the tax credit and bypass the significant backlog of capacity in the generator interconnection queue.”

While renewable energy intermittency can present challenges, Moody’s said, wind and solar grid integration has improved and the resources have complementary production profiles.

“WPPI’s overall power supply portfolio remains balanced and reliable, with long-term PPAs for natural gas and nuclear complementing WPPI's ownership interest in the highly efficient Elm Road Generating Station coal plant. WPPI's diverse resources will allow it to continue meeting member energy requirements,” the rating agency said in the report.

WPPI has open power supply position starting next year

Moody’s noted thatWPPI has an open power supply position beginning in 2018, with significant flexibility beginning in 2021, “and the two recent PPAs have allowed it to add resources that will help satisfy environmental compliance without incurring the cost or risk of maintaining surplus generation.”

Prior to the new wind and solar PPAs, WPPI had renewable resources sufficient to comply with Wisconsin and Michigan renewable portfolio standards through 2022, the ratings agency said, adding that there are currently no renewable resource requirements for WPPI's Iowa members.

WPPI estimates the wind and solar PPAs will increase the renewable portion of its power supply mix from the current 14% to over 22% by 2023, and extend compliance with state RPS requirements through the expiration of the Point Beach solar PPA in 2042.

WPPI derives approximately 40% of its capacity from owned generation, with the balance from PPAs with staggered contract lengths that have allowed WPPI in recent years “to shed higher-cost resources for more economic options combined with market energy purchases.”

Moody’s said that WPPI has utilized the staggered duration and flexibility of its PPAs to reduce costs going forward.