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United States

Obama must ward off this gathering storm

Build it and they will come! Or will they? US wind developers are not so sure any more. On the face of it, a new generation of wind turbines coming online just as the world's biggest economy picks up ought to be analogous to opening an ice cream shop in a heatwave.

But, as our exclusive feature this month shows (see America faces up to customer drought), prices are falling as if the ice-cream summer had been wrecked by rain.

The problems are twofold. First, although the US economy is recovering, it is doing so from a very low base - and electricity demand remains lower than it was. Second, new exploration technologies have led to a glut of cheap gas. This has caused overall power prices to fall and is beginning to render wind uncompetitive. Spurred on by a robust subsidy and incentives regime, wind developers have cranked up supply only to find that demand is sliding away. It's not yet a disaster but it could be.

The federal government needs to shape up. Some argue that it has repeated the errors of past stimulus programmes by lavishing public funds on the supply side without securing demand. That is fair comment, but it is not too late to square the circle.

Any government solutions for boosting wind demand are likely to face the force of America's dyed-in-the-wool free-market ideology, particularly in Congress. This obstacle was painfully clear during President Barack Obama's bruising fight to reform healthcare. After a brief, buoyant honeymoon, his centre-left administration spent much of its first year in a misguided attempt to win consensus from the opposition Republican Party. The Republicans, scythed of many moderates amid an electoral blowout last year, have tacked firmly to the right and found their voice is strongest when saying "no" to government intervention. Now, having pushed a healthcare bill through, Obama should refocus on another pillar of his premiership - green growth.

There are two keys to the demand problem: pricing-in CO2 emissions to energy markets and establishing a Renewables Electricity Standard (RES) that requires utilities to derive a certain percentage of their power from renewables. Polluting energy types in the US are essentially subsidised by taxpayers because there is no effective market mechanism to ensure they pay the true cost of their activities. Even when renewables receive subsidies to bring them to the market, they remain vulnerable to underpriced fossil fuels once they get there.

RES could save the day

Plans are afoot. A bill that would have effectively created a carbon-trading market in the US was passed in the House of Representatives only to run aground in the Senate amid the melee over healthcare. An RES has moved through its own congressional channels and, arguably, stands a better chance of success in the short term.

There is hope, too, that the healthcare battle may have taught Obama that there is no point trying to forge friends from sworn enemies. He may still take on carbon legislation now or, eyeing a bruising congressional election cycle in autumn, he may shelve carbon for now and instead deliver the RES. Congress will find it harder to block legislation that has already been passed in 28 states.

Some will call an RES a consolation prize but, carefully crafted, it will smooth out the demand rollercoaster to which renewables have clung for decades, while giving the president time to hone carbon legislation. Having ploughed eye-watering sums into re-inflating his economy through renewables development, he must now ensure a fair and long-term market exists for its output.

Ben Walker is editor of Windpower Monthly

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