Valero Harnesses Wind Energy to Fuel Its Oil-Refining Process

By ANA CAMPOY

SUNRAY, Texas -- In this windswept corner of the high plains, a big oil refiner is embracing new green technology in order to make more money producing old-fashioned fossil fuels.

Valero's $115 million Texas wind farm, above, will pay for itself in about 10 years at current electricity prices.

Valero Energy Corp., which has the capacity to process more crude than any other U.S. refiner, recently installed 33 windmills to supply a refinery here with green electricity to produce gasoline and diesel.
The marriage is one of convenience, Valero executives say. "We didn't build the wind farm so we could get into the wind-energy business," notes Tom Shetina, the refinery's manager, who expresses awe at the windmills' size. "We built the wind farm so we could support the refinery and run it more economically."
The company hopes to lock in fluctuating electricity prices by developing its own source of power, rather than relying on the grid, and to cut the $1.4-million-a-month electricity bill at the seven-decade-old refinery. The $115 million wind farm, which will be ready to operate at full capacity in August, will pay for itself in about 10 years at current electricity prices, company officials said.
Valero, which is based in San Antonio, does have some environmental motives. It hopes to produce its petroleum-based fuels more cleanly, something it could be forced to do if Congress enacts legislation to curb greenhouse gases.
While the wind farm will make the refinery greener, it won't reduce the greenhouse gas emissions spewed by cars and trucks as they burn the fuels that Valero makes.
Transportation generates 33% of U.S. carbon emissions, with gasoline accounting for the bulk of them, government data show. Transforming crude oil into fuels accounts for less than 5% of U.S. emissions, according to industry trade groups.
Valero is experimenting with alternative fuels -- it bought several ethanol plants earlier this year -- but it and other refiners are betting that Americans will continue to fill their tanks mostly with gasoline and diesel for years to come.
And faced with increasing competition from refineries located in lower-cost areas overseas, it wants to make those fuels more cheaply.
According to Ken Starcher, director of the Alternative Energy Institute at West Texas A&M University, the cost of electricity from a typical wind farm in the area averages 4.5 cents per kilowatt hour during the project's lifetime, including the initial investment and maintenance. That's about 1.5 cents less than the current utility-company rate, he says.
After the Sunray wind farm is completed in August -- and when the wind is blowing -- Valero expects to generate 50 megawatts of electricity an hour, the full load required to run the refinery next door. That should cover the refinery's needs 40% to 45% of the time, it says, an estimate that experts say is reasonable for the area if the wind farm is well managed.
Valero says it will also receive tax credits from the project and could potentially sell the renewable-energy certificates from its wind power, which will displace electricity that is mostly generated by burning Wyoming coal.
The refinery, which was built here in the 1930s to take advantage of nearby oil wells, happens to be in one of the most desirable wind-power-producing regions in the U.S. Located some 40 miles north of Amarillo, the refinery has few neighbors aside from cattle and prairie dogs, which don't seem to mind the towering white windmills.
For the refinery's workers, the new wind farm, with its sleek towers and swooshing sound, is a lesson in contrasts between the old and new energy. It will take only about three local people to operate, compared with the 450 to 1,500 workers required to keep the refinery's noisy labyrinth of tanks and pipelines running in good shape.
Write to Ana Campoy at ana.campoy@dowjones.com