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United States

The crippling cost of legislative limbo -- Billions of dollars of economic growth and 5 GW of clean power development hung up in impotent Congress

More than 4200 MW of wind power development is now scheduled for development in the United States for 2005-2006. Add to that the 900 MW in the pipeline for 2004 and the US market potential for sales of wind plant over the next two years is 5 GW. That is more than two-and-a-half times the 1687 MW installed in the US in 2003, a near-record year, and would almost double the existing 6350 MW of US wind generation.

Evidence of the hectic activity behind the scenes of the US market is borne out by Vestas of Denmark, the world's dominant wind turbine supplier. In its half-year report to the stock market, it refers to a "high level of activity" among US customers and that "projects for 2005 and 2006 are still under development." States with the largest volumes of proposed wind generation are West Virginia, Washington, California, Wisconsin, Kansas and Texas, which between them have projects pending for more than 2000 MW. If Massachusetts permits the Cape Cod offshore project at its current size, that alone will add 468 MW.

All of this potential, however, is locked in legislative limbo in Washington DC. Three quarters of the way through the year, just 17 MW has been installed in minuscule projects spread over three states -- California, Nebraska and Colorado -- with a mere 30 MW under construction, 27 MW of that in one project in Tennessee (table).

The failure of Congress to extend wind's federal production tax credit (PTC) past its expiry date at the end of last year has brought the entire US wind power industry to a grinding halt. Wind projects in the US are financially structured around the PTC, which provides investors with an additional $0.018 for each kilowatt hour of electricity sold over a ten year period. Of the 17 MW built, most are public projects that do not have tax-liable investors and thus do not use the credit.

Earlier this year, more than 2100 MW of development stood waiting in the wings for Congress to extend the PTC. But with few signs of a solution to America's legislative stalemate -- and time running out this year for getting turbines ordered and installed -- many wind project developers are putting off plans to break ground until 2005, dropping this year's US potential to a doubtful looking 900 MW. Most of that now looks as if it will be pushed over to next year, although the American Wind Energy Association (AWEA) is still optimistically predicting that up to 350 MW of development could occur by December 31.

Still going ahead

Developers are hesitant to predict when or if their projects will break ground in 2004. Earlier, most were saying the PTC had to have passed by June 30 for construction of projects this year. Few are prepared to begin without the PTC in place. One notable exception is Invenergy, of Chicago. It is now installing the first Vestas turbines for a 27 MW wind station at Buffalo Mountain in Tennessee -- and the company's Joel Schraeder says the project is on schedule to meet its construction deadline of December 31, 2004.

Schraeder declines to divulge what financial contingency plan he has up his sleeve should a PTC not be in place by the time the plant is ready to feed power to the Tennessee Valley Authority and has to start repaying its loans. He merely says he is proceeding as if the PTC will both be extended and implemented retroactively to the start of the year. Which of the involved parties is bearing the PTC risk remains an open question, but it seems at least some in the industry have agreed to soldier on despite the political impotency in Washington DC.

The PTC is not a contentious issue. It has backing from both sides of America's political divide, making its passage a matter of "when" rather than "if." But the tax credit remains caught up in the long running controversy over what a national energy policy should look like. Congress broke for summer recess in early August with no solution to the impasse.

The PTC is now tacked to a broad corporate tax bill in a manoeuvre designed to sidestep the energy policy stalemate. Some in the industry are predicting a swift passage of the bill when legislators trip back to Washington DC early this month. Others, including Vestas, say it is most likely the PTC will not be reinstated until 2005, after the US presidential elections on November 2.

The only boat

AWEA's Jaime Steve is not as pessimistic. He says the association and others in the industry are working hard to get approval for the corporate tax bill, also known as the jobs bill, soon after the recess. But while Steve says the jobs bill may be the "only boat that leaves the dock this year," he fears that add-ons like the PTC could cause the price tag to rise higher than Congress can swallow on behalf of taxpayers. He also agrees that Democrats may not allow any legislation dubbed a jobs bill to pass prior to the election, which could put the vote off to November or early December.

Two proposed versions of the PTC exist in the Senate and House. Both extend the credit through 2006 and make it retroactive to January 1, 2004. The Senate bill, however, removes the inflation adjustment included in previous PTCs and pins the credit at a constant $0.018/kWh through 2006, while the House bill continues with an adjustment for inflation, which the wind industry, of course, prefers, Steve says.

Last month, AWEA was busy touting the economic benefits and job creation of wind development in an effort to link the PTC to jobs and to convince lawmakers that more is at stake than wind turbines. "New projects in the pipeline amount to more than $2 billion in business," said AWEA's Randall Swisher. "They are ready to provide millions of dollars of badly-needed tax revenues and hundreds of skilled jobs to rural counties around the nation, once Congress renews the wind energy production tax credit."

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