United States

United States

Good benefits from market restructuring -- State funds provide billions

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Wind power in the United States is faring well in a wide range of state sponsored programs to promote the development of renewable technologies, says the co-author of a recently released report analysing US clean energy funds. As part of electric industry restructuring, says Ryan Wiser of California's Lawrence Berkeley National Laboratory, 14 US states have instituted so-called Systems Benefits Charges (SBC). Collectively they will collect roughly $3.5 billion through 2012 to pay for measures which add benefits to electricity systems that the market would not otherwise pay for.

The charges are added to consumer rates and used to help finance renewable energy projects, support green power marketing efforts and educate consumers. California's fund, which will collect at least $135 million a year through 2011, is the largest. Delaware's fund, at $1 million a year, is the smallest.

Using a combination of production incentives and grants, the states have so far committed a combined $225 million to large scale renewable generation projects and wind power has been a major beneficiary. Of the 1164 MW of new renewables receiving support, 880 MW are wind projects. Large scale wind farms, for example, now exist or are planned in states where they never have before, such as Montana, Pennsylvania, Massachusetts, and New York. In large part, says Wiser, the activity is due to the state funds. "Restructuring has been great for wind," says Wiser.

California hold-up

The news, however, is not all good. Much of the SBC activity is taking place in California, which has held two auctions to award five year production incentives to 1014 MW of new renewable energy projects, 750 MW of which is wind. "There's some real uncertainty as to how many of those megawatt will be developed in the near term given the credit problems of most of the buyers," says Wiser. The risk is that some winning bidders may never build their projects, "holding up scarce funds" that could be used for more viable developments.

Four of the five largest funds are located in the US northeast where, he says, permitting issues and other conditions have not always been conducive to wind development. "Clearly you need to keep active at the state level and encourage states to take a regional focus in their approach and look for projects outside their state boundaries. We're starting to see some movement, especially in New England," Wiser told delegates at this year's American Wind Energy Association conference.

"Also, if we want to take advantage of some of these funds, there may have to be a reinvigorated emphasis on low-speed wind turbines, smaller scale projects, perhaps offshore wind development and addressing permitting issues."

The PTC catch

Wiser also warned wind developers that certain types of state incentives might actually reduce the value of the federal government's wind energy production tax credit (PTC) to a project's equity holder. While the language in the federal tax code is "rather vague," he says, there are certain kinds of incentives that do have an impact. "What is clear is that a grant, a capital grant, will reduce the value of the PTC. It may not reduce it one hundred per cent, but it reduces it proportionally. The other thing that certainly will do it is subsidized financing."

Wiser says that when California was designing its systems benefit program, it contacted the Internal Revenue Service to ensure its planned production incentive wouldn't conflict. He suggests wind producers with questions do the same. "What I'm trying to get folks to do is go to the IRS and ask in advance."

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