The United States, a country of 280 million people that uses more than 25% of the world's energy, spews out 25% of its pollution, and buys 60% of its oil from foreign sources, still does not have an energy plan for navigating the country out of its energy dependence quagmire. That could change by the end of this month, however, when the US may not only have an energy policy, but one which will likely have provisions to spur wind development to more years of record installation.
The great energy debate in Congress last year ended in the autumn without a plan, largely due to a disagreement between the Senate and the House of Representatives over whether to allow oil exploration in the Alaska National Wildlife Refuge and on a plan that would limit the power of the Federal Energy Regulatory Commission (FERC) to move forward on its market-friendly goals (Windpower Monthly, November 2002). Also at issue, although to a lesser degree, was a national renewables portfolio standard (RPS) proposed by the then-Democratic controlled Senate.
There is hope, as the full Congress again debates an energy policy this month, that the two houses can reach an agreement, although as Randy Swisher of the American Wind Energy Association (AWEA) points out: "There are still many contentious issues that could derail the bill." If the two houses do see eye to eye, Congress could arrive at solutions for the two items that most plague the US wind power industry.
The first is the lack of an incentive that encourages and guarantees longer term development. Both the Senate and the House have proposed legislation to extend the production tax credit (PTC) to January 1, 2007, which would at least provide a four year horizon. The second is a consistent nationwide transmission policy to ensure that new transmission lines get built where needed and to remove the disincentives that are preventing wind generators in most areas of the country access to the same low-cost transmission as traditional energy resources. Whether the transmission policy proposal survives congressional squabbles is less clear than the likely adoption of a PTC.
It would be useless to solve one of these problems without dealing with the other, says Dale Heydlauff, American Electric Power's senior vice-president of environment and governmental affairs. "We can't just look at wind development without also looking at transmission development," he says, pointing to the poor record across the country of providing the infrastructure needed to bring wind energy from outlying areas to load centres.
PTC or RPS?
While both the Senate and House membership agree that an extension of the PTC deadline is needed, Congress may continue to discuss whether to add other renewables, such as biomass or solar, to the list of PTC-eligible technologies.
Regardless of the resources that become eligible, what the wind industry wants out of the debate is simple consistency. Failure to provide unbroken PTC extensions from year to year has resulted in years of boom-and-bust conditions. When Congress took 11 months to extend the incentive after it expired at the end of 1999, annual installed capacity fell from 663 MW to 67 MW. It happened again after 2001's record year of 1697 MW, when 2002 installations fell to 410 MW.
Despite the political support for a PTC, always out there is the spectre that Congress could again fail to agree on a comprehensive energy bill and debate could end again without a policy. In that case, uncertainty continues to reign and the industry will have to look for other legislative vehicles to get an extension passed. "If the PTC were not extended it would be a serious setback for the industry. So I think a PTC extension is essential," Swisher says. "But it does not a market make. That is why an RPS would be so valuable, because a good RPS could really drive the market."
The likelihood of a national RPS, however, is slim. Neither bill coming out of committee contained RPS language. Although it is possible that a portfolio standard could get introduced from the floor, support for the idea among Congressional Republicans, who gained control over both the Senate and House during last November's mid-term elections, is not strong.
Support for an RPS among major electric industry players is also lacking. Heydlauff objects to an RPS on philosophical grounds, saying he prefers the carrot to the stick. He argues that an RPS puts utilities, many of which are in financial straits, in a tough spot by forcing them to build to a certain capacity at a time when they cannot afford it and at a time when they are moving back to their core competencies to try and solidify their balance sheets. Because of that, he predicts, some wind projects expected to begin construction this year will be delayed.
AEP, the nation's largest power generator with 42,000 MW, including 310 MW of wind generation in Texas, is a case in point. Heydlauff says it had some "lofty ambitions" this year for wind projects, but has "shelved them due to a lack of access to capital." Despite the challenges the industry is facing, however, it is not clear if there is anything Congress can do to restore investor confidence, he adds. "We need to do that ourselves," he says. "Companies like ours are returning to their traditional electricity business." Swisher confirmed this trend earlier in 2003, saying that AWEA trimmed its expectations of installed wind generators in 2003 due to "uncertainty in the electric industry."
The Bush White House opposes an RPS, saying such detailed market structuring should be left to individual states. But RPS progress in the states has been mixed with only a limited number of successes (story page 58).
The transmission gains made by developers, wind advocates and AWEA in California and the Pacific Northwest will be codified nationwide if FERC's Standard Market Design (SMD) proposal goes into effect next year (Windpower Monthly, September 2002). But they could also be endangered if the unhappiness some US legislators have with the proposal is reflected in a final energy bill.
The SMD, supported by the Bush administration, would set the rules for open access to all transmission in the US, facilitate wholesale competition and pave the way for retail competition. For wind, it does even more.
The plan removes the primary transmission obstacle for wind power by adopting a ruling it made in early 2002 when it approved a California Independent System Operator (CalISO) proposal to remove "imbalance penalties" from intermittent resources, such as wind generators, who fail to deliver power as scheduled. The ruling also proposed to schedule wind resources on the transmission system using a wind energy forecasting model and to average imbalances over a month. "We definitely support SMD because it has essentially everything wind needs and most of what wind wants embedded within," says Jim Caldwell, AWEA's policy director. "It would mean significantly lower tariff charges for use of the grid, significantly easier, cheaper, faster interconnections in most of the country, significantly more capacity available on existing transmission lines in the Midwest and West, and at least a glimmer of hope on accelerating new transmission development."
The SMD's benefits for wind power are not an issue with legislators, but other aspects of FERC's proposal are. The competitive market structure is especially unpopular with the western states. They do not believe the area was well served by competition during the West Coast energy crisis in 2000 and 2001. Neither is the SMD popular with Southeast legislators, who like their utility systems the way they are.
The debate is about who controls transmission policy in the country. Some Senate legislators are proposing a non-partisan amendment to the energy bill that would in effect gut the SMD by reducing FERC's power over electric utilities. If that fight persists, collateral damage would include wind's fair access gains to transmission.
Caldwell says the impacts of gutting the SMD would be regional. SMD-like tariffs already exist or are in progress in some northern East Coast, Mid-Atlantic and upper Midwest states. The West, lower Midwest, the Southwest, and reciprocity with the federal systems, like the Bonneville Power Administration in the Northwest and the Western Area Power Administration in the Midwest plains states "is where we lose most," he says.
"The real advantage for us with SMD is that it would have all been done at one time in one place for the whole country," Caldwell says. If SMD is killed in legislation, then "we'll have to slog it out one issue at a time in about six individual FERC proceedings and depend on the co-operation of about 180 individual utilities."