As the wind power industry gathered at this year's American Wind Energy Association (AWEA) conference, delegates doing business in the US were understandably preoccupied with the ongoing challenge of juggling explosive market growth with the daily realities of transmission bottlenecks, tight turbine supplies, ever increasing costs and jittery capital markets. But it was broader geo-political developments in energy outside the industry that provided the backdrop for some of the event's most compelling and far-reaching discussions.
During the week that an astonishing 13,000 wind industry delegates gathered at the oil industry's favoured meeting place, the George R Brown Convention Center in Houston, Texas, for Windpower 2008, the US Senate began debating its most aggressive attempt yet to shape a climate change strategy for the nation. And on the second day of the conference's intensive schedule of six-track concurrent sessions, Barack Obama was confirmed as the Democratic nominee in a presidential election campaign that will bring a new administration to the White House and new hope for energy and environmental policies that will lay a foundation for sustained growth in what many see as the world's most promising wind market.
"Finally, after years of delay and denial, we are seeing, I think, a new bipartisan consensus on Capitol Hill calling for a new energy strategy and for real reductions in greenhouse gases," said John Podesta, former chief of staff to President Bill Clinton and CEO of the Center for American Progress, a policy think tank expected to be influential if the Democrats capture the White House. Podesta was part of a plenary session examining what the US wind industry can expect from a new president and Congress after the November 4 elections.
With off-the-chart oil prices translating into record high prices at the pumps, increasingly urgent calls from the American public for action on greenhouse gas emissions, electricity demand projected to increase 39% over 2005 levels by the year 2030, and a dangerously lopsided reliance on petroleum imports, there is little doubt that energy policy will be among the most pressing issues the country's legislators face. But how that translates into action is a question that is still very much up in the air.
"From any rationale perspective it seems inescapable that we should have US policies that deploy as much wind energy as we can as rapidly as we can," said Greg Wetstone, AWEA's senior director of governmental and public affairs. "But those who follow the twists and turns of our battles over the production tax credit (PTC) are very aware that just because something makes tremendous sense and is inescapable logic doesn't necessarily mean that is what happens in Washington DC."
Podesta was optimistic, pointing out that both Obama and Republican presidential nominee John McCain support implementing an aggressive cap-and-trade system to reduce greenhouse gas emissions, an approach similar to the one floated in the ultimately unsuccessful Senate bill. "I think the fact that both parties, at least the leadership of both parties, have embraced reducing global climate change is an important new development," he told delegates. "With serious leadership from a new president next year, at least that element of putting a price on carbon through a cap and trade system can be put in place within the first year of a new administration."
But Pat Wood, the country's former top federal energy regulator, questioned whether the challenge might be too great for legislators who, he worries, "are not really equipped to solve it." Wood pointed to the legislative debate over new electric reliability standards that followed an August 2003 blackout that cut power to a quarter of the North American continent. "It took two years to pass a reliability bill that nobody had a problem with," he said. "That was a long time to fix something that was so easy."
New energy and climate change policies have many more moving parts, said Wood, leading him to question whether the US will be able to politically manage something as complex as a shift to a low-carbon future, particularly in light of the fact that coal currently accounts for nearly half of all US electricity supply. "It is very difficult to develop consensus in a political environment, in a partisan environment, on a topic as diverse as energy," he said. "My experience is you have to talk about things for a few years and people start to internalise them."
Wood expects very little of that talking to take place during the presidential election campaign, which is likely to swing on votes cast in the coal-producing states of the Ohio Valley. "I think it is going to cause the candidates to be more tempered on the 800 pound gorilla in the room, which is what do we need to do about coal," Wood said. "That is what we really want to talk about. They will talk beautifully on both sides about what we need to do to get off our addiction to oil, but we've been talking about that for as long as I've been alive. Whatever, on that one."
The key to moving forward successfully, said Wesley Clark, will be to develop as broad a constituency as possible. "We've got to be careful in setting up the policy arrangements that we don't exclude," said Clark, a general and the former Supreme Allied Commander of NATO. He now runs a strategic advisory and consulting company and sits on the board of a small Dutch wind turbine manufacturer, Emergya Wind Technologies. "It is going to take some adroit leadership, but public pressure can be developed on this, and as long as we don't get too narrowly focussed on the wind energy business then I think we can bring others with us and get what we need."
Tax credit addiction
The overwhelming consensus among both panellists and delegates at the conference was that what the wind industry needs most right now is an extension of the $0.021/kWh PTC, set to expire at the end of this year. Jeff Deyette of the Union of Concerned Scientists told delegates he expects to see a one-year extension passed before the election. But the difficulty in getting even that in place, which boils down to a disagreement on how to offset the cost in the US budget (page 35), should send a message to the industry. "If there is a lesson we can take from the last 18 months it is that the wind industry should not expect that an open-ended PTC is going to continue indefinitely. It is getting more and more expensive. People in Congress are recognising that and the dynamics of this cycle of short term extensions is getting more and more challenging to change. So I think it is time to start thinking about new longer term policy mechanisms."
Andy Karsner, the outgoing assistant secretary for renewable energy at the US Department of Energy (DOE), was even more blunt in his assessment. "You have to begin, during the course of this conference, doing what has been delayed for far too long -- imagining, determining and crafting a post-PTC future for this industry. You have got to think of the day that you begin to progressively step down from, phase out, get rid of the industry's heroin-like addiction to tax credits that are known to be unreliable and exchange it in the same period for the implementation of something more durable," he told the conference's opening session.
"That means we need policy in this country that is not just for the wind industry or the solar industry or the oil industry or the coal industry or the nuclear industry. We are going to need for the government to confirm it is not their role to select technology winners and exhibit biases and do it on a polarised political basis. We need energy policy that is technology neutral, is permanent and predictable and durable, and ensures the delivery of the attributes that we seek. That means energy policy that is carbon weighted and leans towards emissions free sources."
The complexities of getting such a policy in place aside, speakers agreed it would be years before the kind of cap-and-trade system envisioned in the Senate legislation would deliver the kind of carbon prices needed to drive wind power development. "When this comes in you are not going to see a high price on carbon. Probably none of us have the ability to tell you exactly what it is going to be, but I think we could all say that having a price for carbon that is $25 a ton or higher before the 2020 time frame is pretty slim," said GE Energy's Edward Lowe. "So if you are going to have carbon prices that are going to be in the $10 to $15 a ton range, that is not going to end up encouraging the deployment of renewable energy. You are going to need an interim transition here."
For AWEA, Wetstone told delegates, that need means continuing its fight for a long-term PTC extension and a national minimum standard for the renewable energy content of America's portfolio of electricity generation. But it also means getting a national transmission policy in place to deal with what AWEA executive director Randy Swisher called "the most significant long term strategic constraint facing this industry." A favoured approach to getting transmission built for wind, one modelled on the Texas competitive renewable energy zone concept where high-voltage lines are built into areas with strong wind power potential to facilitate project development, is just starting to make its way into legislation at the national level.
A new report from the DOE examining how wind power can provide 20% of US electricity supply by 2030 pegged the cost of such clean energy superhighways at $60 billion. "It sounds like a lot until you compare it," said Karsner. "It is about 10% of the money, of the wealth, that we send abroad to nations that are hostile to our interests and way of life to import their carbon-based fossil fuels each year."
In fact, getting the money to build the lines is not really the issue, said Hunter Armistead of Babcock and Brown, a wind project developer that is branching into the transmission business in grid-challenged Texas. "There is a tremendous capital market attraction to investing in transmission because it is generally very low risk and also relatively low return," he said. "The largest challenge is understanding the nexus for the revenue recovery." Transmission costs can be rolled into consumer electricity bills, or recouped by selling capacity on the wires to generators who need to get their power to the market. Determining whether revenue recovery will be "rate-based or the equivalent of a merchant build," is key, said Armistead.
Equally difficult, he added, are the siting and permitting complexities that come with building lines across multiple states and multiple utility service territories. "The equation is there to make it happen, but the challenge is in the micro execution. How do you put together a consistent road map that allows you to build transmission? If you are going from Kansas down into the Southeastern Electric Reliability Council region you are going through four different utilities and you have eight different permitting regimes. How do you clear that?"
AWEA is in the process of developing a five-year plan on how to tackle the transmission issue, said Swisher, as it is with all of the barriers identified in the DOE report. Although there is nothing inevitable about 20% wind, he told delegates, the analysis does provide the industry with a new vision of the future. "We believe it is the foundation for everything going forward," he said.
A key 20% doubter
With the conference coming on the heels of the release of DOE's analysis of how to achieve 20% wind, the scenario not only had its own dedicated sessions, but also filtered through the debate in many others. For the most part the policy is firmly embraced by industry leaders, with the notable exception of FPL Energy's Mike O'Sullivan. FPL has more wind generation online in the US than any other company, making O'Sullivan the boss of America's largest wind industry customer. He believes 20% wind is unrealistic. "We have factual reasons and policy reasons why we don't think it's achievable, but the industry voted and went forward. We are just one voice on that matter and we respectfully disagree," he said. "But that doesn't mean we're not a believer in the wind business or the vision that some people have. We don't think they're wrong, we think in 2030 we'll be proven right. But that's not material."
GE Energy's view of wind's potential has changed significantly in recent years, said Vic Abate, the company's vice-president for renewables. "Five years ago we were a lot more suspicious about large penetrations in the double digit levels. Today, that is a strategic objective," he said. "Twenty per cent by 2030 almost unmotivates me. If I look at the next ten years, what are you going to do? Each year the demand for energy is growing, and what are you going to put in? Other than gas and wind there is not going to be a lot going in. It is here and now. There is going to be a tremendous penetration in the near term and where it ends, whether it is ten or twenty or thirty per cent is somewhat irrelevant. The demand curve and the challenge to grow this are now."
The 20% scenario would require installation of about 16,000 MW a year, compared with 5300 MW last year. But industry projections already see the US becoming a 10,000 MW a year market as early as 2011. It is an opportunity, said Repower USA's Steve Dayney, his company, based in Germany, cannot afford to miss. "However you want to measure it or look at it, the potential here in the United States is incredible."
The size of that opportunity helps explain why companies that a few years ago were demanding a long term policy signal to underpin any manufacturing investment are planning facilities even in the face of a looming PTC cliff. Germany's Nordex will be spending about $100 million to establish a production facility for turbines and rotor blades. President Ralf Sigrist told delegates that while a PTC extension is desirable "the ultimate decision will not have any impact on our commitment to invest in the United States."
Repower and Nordex are among a growing list of turbine makers looking to carve out a place among the handful of majors who have dominated the US market to date. Eleven companies participated in two manufacturer forums, while at least another three staked their ground in the exhibition hall. Even so, said Roby Roberts of Vestas, the second largest supplier to the US market after GE, meeting 10,000 MW of demand is going to be a challenge. "On one level we are making a big commitment and we really believe in the US and we should because the fundamentals are excellent. But there are a lot of problems on the policy side and on the transmission side for us to really say is this the place it is going to happen," he said. "We have a lot of work to do as an industry and as manufacturers if we are going to hit those kinds of numbers. And the jury is still out."
On the touchy issue of equipment price, which Armistead says has risen 80% since Babcock and Brown entered the business in 2002, most manufacturers said they expect the upward trajectory to continue. "I think there is still some room for price increases. What is important for us is to try to stay aligned with increases in the cost of energy so we don't lose our position," said Gamesa's Lance Marram. At the same time, though, Roberts sees a new dynamic emerging as more players get into the game. "I think there is going to be an interesting check and balance here. I think that certainly the commodity increases are going to be such that there is going to be upward push and I think there is going to be upward push on electric prices. But also there is a lot more competition too. So I think there is going to be a lot of push and pull on this one."
Although the wind industry's huge growth, both in the US and globally, has provided plenty of room for new equipment makers to compete, Michael Revak of Siemens believes it will ultimately be the companies with size and financial depth that will endure. "I don't see longer term having a lot of multiple vendors without having the ability to have the economies of scale of a large company like a Siemens. Longer term we think we will see some consolidation."
Whatever the face of the industry in the future, this year's AWEA conference made it abundantly clear that wind has found its footing in the US electricity sector and is, said Swisher, strategically well positioned to move forward. "When you think about the kinds of constraints that competing fuels and technologies are labouring under, we have got at least a decade of open field in front of us to take advantage of."