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Explosion of project announcements in US -- Short term PTC extension creates urgency and raises costs

The wind industry response to a late-year congressional extension of the federal production tax credit (PTC) has been immediate and promises a record year in 2005 for wind plant development in the US. Announcements that construction will begin on over 900 MW of wind projects in Oregon, Minnesota, Iowa, Idaho, Illinois, Texas, California and New Mexico were made within days of the PTC's passage and more are expected this month, while GE Energy announced it had received more than $1.3 billion in orders for new US wind projects over the next 15 months.

But the timing of the extension means only a third of that 900 MW can make it into the ground in 2004. Including previously announced projects, the industry expectation is for about 480 MW by the end of the year. Although far more than earlier estimates, it represents a market nosedive compared with the 1687 MW installed in 2003.

The short duration of the tax credit, which expires at the end of 2005, has project developers and utility buyers under pressure to get turbines in the ground before the market collapses again. The PTC adds $0.018/kWh to the market value price of wind plant output.

The announcements

The explosion of project announcements began even before President George Bush signed into law the family tax package to which the PTC, and many other business tax breaks, is attached. MidAmerican Energy says it will move ahead on two projects in Iowa totalling 310 MW. Clipper Wind Power will build the first this year, 160 MW in the state's north-west, says MidAmerican's Allan Uris. Another 150 MW in north central Iowa is being developed by Enxco in 2005. Both MidAmerican projects use GE Wind 1.5 MW turbines.

PPM Energy says it will begin building two new projects using GE 1.5 MW turbines, but not for completion this year. The projects are the 100 MW Tremont plant in Minnesota and a 75 MW expansion of its Klondike wind farm in Oregon. PPM, whose current 831 MW of wind capacity makes it the nation's second largest developer behind FPL Energy, will increase its wind capacity in 2005 to at least 1006 MW, well on its way to a company goal of 2000 MW by 2010. PPM's Jan Johnson says the company has 8000 MW in the pipeline and, instead of laying people off during the industry sag, actually increased its workforce to cope with the load. The company will likely announce other projects it believes it can reasonably complete in 2005.

Completing the list of announcements last month are Padoma Wind Power's 120 MW San Juan Mesa project in New Mexico and FPL Energy's 114 MW Callahan Divide Energy Center in Texas. Neither developer has said which turbines it will be using.

Two-thirds of the 750 MW of GE's confirmed contracts for its workhorse turbine in what remains of 2004 and in 2005 are for the MidAmerican and PPM projects. GE turbines will also go to projects in California, Idaho and Texas, as well as the 106.5 MW Weatherford Wind Energy Center in Oklahoma announced by FPL earlier this year. GE says it has another 750 MW in commitments, although no contracts have been signed.

Two projects in the southwest are on schedule to be energised before the end of 2004. Cielo Wind Power's Walt Hornaday says his company will complete 60 MW of its 80 MW Caprock Wind project in New Mexico using Mitsubishi 1 MW turbines, while a 93 MW project, again using GE 1.5 MW turbines, by RES North America, the US arm of Britain's Renewable Energy Systems, in the Texas Panhandle will provide wind energy for the city of Austin.

Extra costs of instability

Sustaining the industry's momentum into 2006 with a PTC that runs out in 15 months is a major industry concern. So are the extra costs of doing business in such an unstable environment. Allowing lapses in the tax credit, says PPM's Johnson, is causing market inefficiencies that raise costs. "We definitely think the PTC is not an efficient way to run the marketplace," she says. "We would like to either see the PTC added to the tax code or a federal RPS," she adds, referring to a market mechanism known as the renewables portfolio standard (RPS).

Cielo's Hornaday says the "12-month fire drill" is increasing the cost of all projects. His company's 160 MW Wilderado Wind Ranch in the Texas panhandle is one of at least two projects set to be casualties of the short PTC extension. It will not be complete until the first quarter of 2006. And work will not start on Zilkha Wind Power's Wildhorse project in Washington until the middle of next year. Negotiations with Puget Sound Energy (PSE) for a power purchase agreement (PPA) for up to 300 MW are ongoing, says Zilkha's Chris Taylor. But there is no certainty that siting permits will be in place in time, says PSE's Tim Bader. "Most likely this project will not be operational until 2006," and that could throw a monkey wrench into PPA negotiations.

Projects by Enxco and RES Wind Energy Systems, both in the State of Washington, are also on PSE's short list. PSE has set a company goal of obtaining 5% of its sales from renewable energy by 2013.

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