Delegates at the American Wind Energy Association conference in early June arrived in Washington DC with a sense of urgency. US wind capacity is expanding this year by up to 2000 MW, a rate the industry is confident it can sustain and even build on. To do that, however, it needs the federal Production Tax Credit (PTC) for wind development, a tax incentive due to expire at the end of this year.
As the conference opened, the US Capitol was in the midst of change. Not only were many of the government office buildings being remodeled to meet earthquake standards, but in the first half of this year a new US president had taken office and, to the chagrin of European nations, immediately backed away from dealing with global warming through the Kyoto Protocol. A month later President George W. Bush and Vice President Dick Cheney released a national energy policy that, not surprisingly, is highly dependent on gas and oil exploration and on resuscitating the coal and nuclear industries while giving minor concessions to renewable energy.
But those were not the only changes happening in Washington during the conference. Evident in the halls of the Everett Dirkson Senate Office Building, where desks and chairs were piled up in the corridors, was the Senate's change of leadership from Republican to Democrat -- a shift which is seen by many as positive for wind power and likely to radically change the course of Bush's pro-fossil fuel energy strategy. Senator Jim Jeffords of Vermont, a strong supporter of wind power and the PTC, jumped from the Republican Party, throwing a divided Senate over to the Democrats.
Inserted into this furore, conference delegates had a singular and urgent task on their minds-to convince the nation's policymakers they should grant a five-year extension of the PTC, now worth about $0.017/kWh. The PTC gives utility scale wind development a subsidy of up to 30%, which the wind power industry still needs if it is to compete head to head with those energy sources favored by the Bush administration. Outgoing AWEA president Dean Gosselin, also president of FPL Energy -- the largest wind power developer in the country -- said the industry needs to break the boom-bust cycle caused by the ebb and flow of the PTC. "We can't continue to go through this cycle and continue to bring our costs down," Gosselin said.
Full force lobbying
So important is this task that the American Wind Energy Association (AWEA) set aside two afternoons and an evening of conference time to give delegates the opportunity to take the 15-minute walk to the hill to lobby their favorite legislator. Over 200 people visited the Capitol, attending over 100 meetings with their Congressman or Senator. According to AWEA's legislative director Jaime Steve, the exercise will reap valuable rewards. "It's so important to show that our tax provision is the popular and right thing to do," said Steve. Prior to the meetings, the PTC had about 100 strong supporters in the House and another 15 in the Senate, but Steve expects support in the House to grow to at least 125 to 150 soon after the conference, and to 20 to 25 in the Senate.
Yet, having all the legislators lined up on one side may not be enough to get the PTC extended in time this year to avoid a slowdown similar to the one in 2000 after an extension of the PTC in 1999 was delayed. One of the reasons is the administration's ten year $1.35 trillion tax cut, a record breaker which includes an immediate rebate for US taxpayers. With Democrats criticising the package as fiscally irresponsible, says AWEA's Randy Swisher, "there is no consensus" there should be additional tax bills. The last estimate of the cost of a five-year PTC extension, done in 1999, was $76 million. "All you have to do is look at the activity in the market today to know the cost would be considerably more than that in the five years to come," he says. "We are actually commissioning a study now to get those numbers."
AWEA and its legislative sponsors are looking for the right piece of "must pass legislation" to which the PTC can be attached. There are a number of possibilities, says Swisher, but no guarantees. As a last resort, the PTC could be grouped with other expiring tax provisions in a stopgap bill, but that's likely to provide only a one-year extension. "It could come down to that being the best we can do, which is really ironic given the political support we have," he says. "There is no visible opposition to this out there."
The Senate power shift also complicates AWEA's tax agenda, bumping Republican Senator Charles Grassley, who Swisher describes as one of the fathers of the PTC, from his position as chairman of the powerful Finance Committee. "Senate Democrats don't have the same commitment to another business tax provision," explained Swisher.
National energy policy
Swisher also believes, however, that having Democrats in control of the Senate could improve the wind industry's position within the national energy policy debate. In March, Senate Democrats introduced an energy package that puts greater emphasis on renewables, energy efficiency and environmental issues than the Bush administration's plan.
The President's proposal is heavily weighted to conventional supply side solutions, particularly coal and nuclear. It does contain some "good things" for wind, says California attorney Chris Ellison, including a proposal to extend the PTC and a recommended $39 million increase in renewable energy research and development funding. But measures important to the wind industry are missing, adds Ellison, who has been advising AWEA on transmission. The plan does not include a national renewables portfolio standard, a transmission directive to the Federal Energy Regulatory Commission or a requirement for federal agencies to buy a portion of their power from wind turbines.
Making an important connection between the Bush energy policy and air quality, David Wooley, director of AWEA's Northeast State Policy Project, said environmental policy has always been crucial to wind energy and that is the case now. "Air quality and renewables share a common fate. Power plant emissions are a large driver of air quality," he told delegates. "When we hear people say there is energy in the air, it is literally in our lungs, our lakes and our streams."
He says the wind industry needs to get engaged in forming the next federal Clean Air Act. At this time, the Bush administration is suggesting a contrary view, that air pollution enforcement and permitting hinder the energy supply. "I say that is wrong in facts and is bad politics and the tepid endorsement of renewables in the policy belies the facts," Wooley said. Wooley expects major amendments to the act in the next one to three years and says it is essential that renewables, which currently receive no emissions allowances, be allowed to participate in air quality emissions trading programs. Studies have found that the added value for a 20 MW wind farm would be $360,517 a year in additional revenues, and almost $1.3 billion a year for the entire renewable energy sector. "You have a huge interest in the outcome, and you also have a lot to lose if it goes poorly."
Tapping in to emissions trading markets is key to monetizing the environmental benefits of wind, agrees Kevin Rackstraw, who conducted a study of credit trading for the National Wind Coordinating Committee. "Think post-PTC. What are we going to do when the PTC eventually ends? It's going to, and the market as a whole doesn't internalise the environmental problems of fossil fuels or any other waste-producing fuel. This is a way to capture some of wind's value."
Regulated pollutant trading schemes, like those for SO2 and NOX, are valuable for the certainty they provide, said Rackstraw. And while carbon markets remain voluntary and immature, wind developers should not lose sight of their potential, advises Marc Stuart of EcoSecurities. "We are in a situation right now where markets are fairly bilateral and not liquid. That does limit the transaction structures that are available, but nonetheless it doesn't limit the things you can think about."
Although a PTC extension is crucial to how wind fares in the coming years, it is not the only game in town. "The nation and the world are paying attention to energy," said Dave Garman, in his first public appearance as assistant secretary at the US Department of Energy. "Consumers are asking where their energy is coming from and what are the consequence of its production."
Much of the demand for green power products and the push for renewables portfolio standards is happening at the state level. Texas is developing a whopping 900 MW of wind this year because of its Renewables Portfolio Standard (RPS) setting a minimum standard for the proportion of renewables in the state's energy portfolio, the sixth such standard to pass into law in the nation. The Texas RPS is coupled with a renewable credit trading program passed by the state in 1999.
New state efforts -- supported by the Clinton administration's Windpowering America initiative -- in North Dakota and Oklahoma, while not yet resulting in new wind projects, are laying the groundwork for future development. A 1000 MW solicitation by the Bonneville Power Administration in the Northwest US is another local effort by a federal agency, but, as one delegate said, it is like throwing gasoline on a fire that is already burning. PacifiCorp, Montana Power and some public power agencies are already actively pursuing projects in the Northwest, which could have as much as 1500 MW of wind by the end of 2002.
In California, said Woodrow Clark II, energy advisor to Governor Gray Davis, wind can play a big part in solving the state's energy crisis. Fearful of its dependence on natural gas, California wants to install 1500 MW of renewables in the next eight to ten months.
In a state that has already mandated that Xcel Energy build 425 MW of wind generation, Linda Taylor of the Minnesota Department of Commerce, said the state is looking to strengthen an additional 400 MW mandate by 2013 on the utility and that will "likely come sooner and likely will be larger." The real story in Minnesota, she said, is the voluntary efforts to provide green power for customers by Great River Energy and Moorhead Public Service. Great River is adding 21 MW to its resource mix and 4 MW for its Wellspring Wind Energy program and Moorhead is adding a second wind turbine to meet demand for its Capture the Wind program. Pennsylvania is experiencing similar success. Since it deregulated two years ago, 80,000 customers have switched to a green product, said John Hanger of PennFuture.
A missing element
Missing from the conference were people representing public power. Randy Udall, from the Community Office for Resource Efficiency in Colorado, said there are about 900 rural electric co-operatives in the US. serving nearly three-quarters of the land mass where most of the wind potential is located, but only a handful attended the conference. "There is a disconnect between public power and wind," he says. One reason may be that most co-operatives aren't eligible for the PTC or other incentives.
Despite their successes, the states still believe there is a role for the federal government in encouraging wind development, which includes extending the PTC, resolving transmission interconnection issues and setting aggressive new goals to buy wind generation for federal facilities. "I would like to see some leadership," said Ron Lehr, a Colorado attorney. "That's having an agenda and getting people rallied round the agenda. People want clean energy and want the country to get started on this and get it done."
While the surge in US wind development has captured the attention of the financial sector, there's still work to be done in attracting new money to the industry. "It's clear that there's still not sufficient depth of participation by the financial community, on either the debt or equity side, and because of that there's not enough competition," says Swisher. "The cost of money is higher than it ought to be." As yet, all the money behind the wind projects not developed by utilities in the US is coming from one lone British company, Fortis Bank.
The challenge facing the industry is one of education and managing expectations, said Jim Tynion, a Milwaukee lawyer specializing in project finance. He predicted that in the coming months equity investors on an "unprecedented scale" will be looking to invest in wind projects. But many will know very little about the issues involved. "These are highly structured deals in a very specific market," said Tynion. "The people who have a lot of money to invest and lend really need to learn the wind industry."
Electric industry deregulation, underway in 26 states, adds new challenges on the debt side of the equation, said Michael Davies of Fortis Bank. The concept of merchant power is here to stay, he says, but the accompanying high price volatility and market risks do not work well for wind. "You can do a merchant deal, but lender risk is going to mean you are going to get nowhere near the debt capacity. Wind deals are far more sensitive to a merchant environment than conventional power projects. So, is this the future for the wind market in the US? No, I think not, but it has potential."
This is an important year for US wind power development. Although AWEA will continue its work with federal legislators to influence their votes, the delegates are home waiting for the results of their lobbying. If Congress extends the PTC, the boom will likely continue as wind generation takes its place as a competitive power source. If not, can the industry expect the bust it experienced in 2000?
That will certainly be one of the topics at AWEA's 2002 conference as the organisation moves its annual shindig back to one of the centres of wind development, Portland, Oregon.