This year, the looming year-end expiration of the PTC, the lack of a long term national energy policy, and an electric industry hamstrung by debt, could dampen expectations again. According to one of America's most active wind power developers, if Congress fails to extend the PTC, which is worth $0.018/kWh for the first ten years of a wind plant's life, projects not heading into construction by spring will have to be placed on hold while the industry awaits a more stable business environment.
"The wind industry needs continuity," says Terry Hudgens, CEO of PPM Energy, which has 200 MW in construction, both on its own and with wind powerhouse FPL Energy. "It's difficult to be in a business that has an incentive one day and not the next. It creates a less efficient market in the long run." The country, says Hudgens, needs to settle on an energy policy that includes a longer term PTC or a national renewables portfolio standard (RPS). In addition, he adds, the electric industry needs to work through issues such as transmission integration and the high penalties transmission owners inflict on intermittent energy resources, to set the wind industry on a stable path.
Aside from PPM's 50 MW Moraine wind project under construction in Minnesota and the 150 MW High Winds project with FPL Energy in California, it is working on four smaller projects -- in the Pacific Northwest, south west Wyoming and north east Utah, California and Iowa. If everything lines up -- permits, transmission and turbines -- by early April, they will add another 100 MW to PPM's 2003 total. If the schedule slips, completing the projects this year in time to reap PTC benefits will be questionable. "As a practical matter, that puts us in limbo until Congress acts," Hudgens says.
brakes to progress
While a multi-year extension of the PTC through 2006 is supported by both political parties, its passage is dependent on a Congress that has its eyes on other issues, such as the country's record budget deficit and a war against Iraq. When lawmakers do sit down to discuss energy, political flashpoints like oil exploration in the Alaska National Wildlife Refuge could continue to delay adoption of a national energy bill.
Also working to slow wind development growth this year is the creditworthiness of some of America's largest electric utilities, especially in the West where they are recovering from the high costs of the 2000 and 2001 energy crisis. Still, many of those utilities will soon find themselves resource short and begin energy purchases.
Ironically, the PTC uncertainty could help spur development during 2003. Historically, the credit has had a boom-and-bust effect on the wind industry. Only 52 MW was installed in 2000 after Congress failed to extend the PTC until eleven months past its expiry. That development drought, however, was followed by a record build-up in 2001. Following a similar boom pattern, this year the industry could rush to another record, or near record, in an attempt to beat the December 31 deadline.
Two trends are encouraging. The nation gained two new state portfolio standards last year, one in New Mexico and a strong RPS in California that requires the state's largest utilities to reach a 20% penetration rate of renewables by 2017. Colorado state legislators reintroduced RPS legislation again this year after a narrow defeat in 2002.
The other trend is an increase in natural gas prices to nearly $6/MMBtu, triple what they were a year ago. Rising gas costs, which some analysts believe could reach $8/MMBtu before the year is out, are driving electricity prices up into the $40 to $50/MWh range, while better wind projects come in at $30/MWh, says Hudgens.
At the same time, however, what Hudgens calls the industry's number one issue is driving up the cost of getting wind energy all the way to market. The costs associated with transmission services, especially balancing accounts, can add as much as $20-$30/MWh to the cost of wind. Those transmission charges, he says, need to fall into the single digit range. "I would argue that the PTC is largely an offset to the inordinately high costs of getting wind across the grid."
Hudgens wants the US to adopt a transmission structure approved by the Federal Energy Regulatory Commission last year for the California Independent System Operator (Windpower Monthly, May 2002). The structure is included in FERC's proposed Standard Market Design (SMD), but the SMD concept has become a political football that is unlikely to move forward this year.
While most wind development in 2002 occurred in just California, Iowa, West Virginia and the Northwest, 2003 development should be more widespread. The Northwest led the pack in 2002 with 110 MW, including Nine Canyon (48 MW) in Washington, Condon Phase II (25.2 MW), and a 37 MW expansion to FPL's Stateline Wind Energy Center, giving it the honour of being the world's largest wind farm at an even 300 MW. California projects totalled 104 MW. The largest projects in that state were Whitewater Hill (61.5 MW) and Cabazon (41 MW), both owned by Shell Wind Energy. FPL added both the Hancock wind farm (98 MW) in Iowa and the Mountaineer project (66 MW) in West Virginia, a state that is becoming an east coast powerhouse in wind development.
This year, projects are on the drawing board in as many as 18 states, with eight states seeing substantial development plans. Although developers are working on a potential 2200 MW of new facilities, the American Wind Energy Association has trimmed its estimate of new capacity for the year to about 1500 MW, saying PTC uncertainty and electric utility debt could result in sluggish investment.
With its new RPS, California again will be a leader in 2003 with a potential build-up nearing 800 MW, although that number will likely be much less due to utility resistance to getting a head start on the RPS requirements (Windpower Monthly, February 2003). Texas, which had no projects completed in 2002, will get one more this year -- Cielo Wind Power LLC's 240 MW Noelke Hill Wind Ranch. New Mexico will get its first large project in the summer when FPL completes a 204 MW project and Colorado will finally get the long awaited 160 MW Lamar Project that was delayed due to Enron Corp. bankruptcy proceedings and the resulting sale of Enron Wind to GE Wind Energy. Among the other states slated for projects this year are Oregon, Washington, Minnesota, Illinois, the Dakotas, Iowa, Tennessee, Wyoming and New York.