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United States

Significant role of state level incentives

Wind's federal production tax credit (PTC) is far from the only driver of wind power development in the US. At state level a variety of financial incentives are on offer to promote renewable energy development, including direct financial support for community and utility scale projects, grants and rebates that can cover up to half the cost for residential wind systems, and incentives for customers to buy green power. But even with $3.5 billion expected to be available over the next seven years, there are challenges developers face in using the funds to get hardware in the ground.

Ryan Wiser of California's Lawrence Berkeley National Laboratory told delegates to May's American Wind Energy Association (AWEA) conference that, through 2004, state renewable energy funds have provided $202.3 million incentives to 112 wind power projects with a total capacity of 1874 MW, compared to about $129 million for all other renewable technologies. In all, he calculates, state funding incentives have accounted for 14% of wind projects developed in the US.

Incentive designs vary by state. California, Minnesota, New Jersey, New York and Pennsylvania provide real-time production incentives such as $0.01/kWh of generation. Pennsylvania, Oregon and Illinois give up-front payments, while Illinois, Minnesota, New York and New Jersey offer grants. Massachusetts, New York and Connecticut also offer pre-development support for large-scale projects. While individually incentives may "not be huge," said Wiser, "they're not chump change, either."

The money for these incentives typically comes from small surcharges on customer bills. For several years, a dozen or so states have collected a combined $300 million annually for renewable energy, a figure expected to hit $3.5 billion through 2012. In January 2004, they formed a trade association of sorts by pooling their resources to create a mega fund called the Clean Energy States Alliance (CESA) to help build and accelerate the market for renewables. Wind, Wiser told delegates, is CESA's "most favoured" renewable resource.

Before developers jump on the state incentives bandwagon, however, there are some considerations. State incentives may reduce the value of the PTC, said Wiser, although most states have now designed their programs to not trigger "double dipping" rules. Another stumbling point is that developers still have to negotiate equitable power purchase agreements (PPAs). Wiser says the difficulty of clinching PPAs good enough to make a project viable is partly to blame for the sizable gap between capacity that has been awarded state financial incentives and those that are actually on line. CESA's most recent calculation has 568 MW of wind projects up and operating, but another 1303 MW pending.

State funds, added Wiser, may not be as stable as presumed. Projects that are aggressively bid, but unlikely to be built, can tie up program funds, preventing other projects from going forward. And political risk is ever present, especially if pinched legislatures see the fund as an easy raid to cure a state budget shortfall. Still, Wiser said, state funds can offer crucial support for community and residential projects and for utility scale wind projects where wind costs are higher than conventional generation.

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