United States

United States

American market secured for two years -- Tax credit safe but energy policy stuck on old course

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A new energy policy signed into law by US President George Bush in August will keep the country's wind power developers working without interruption through 2007. The industry's vital production tax credit (PTC) passed unscathed and wind did well out of the funds available, But the policy does little to provide the industry with the long term market stability it was looking for.

"We got what we needed, which is an extension of the credit for another two years. So we've got 29 months of what will be a very strong market," says Randy Swisher of the American Wind Energy Association (AWEA). "But it doesn't resolve the issue of longer term, stable policy in support of this industry. That question mark is still out there."

The long awaited energy bill, the first overhaul of US policy in 13 years, passed the Senate and House of Representatives in July, ending a four year stalemate over how to expand and diversify the country's fuel supplies. The $14.5 billion tax package that is part of the legislation provides $2.75 billion to extend the $0.019/kWh PTC to December 31, 2007, most of which will go to wind, and $400 million to create a new category of tax credit, called clean renewable energy bonds, that can be issued by local governments, co-ops, non-profit utilities and tribal governments to help pay for green power projects. "If you look at the numbers, wind did well," says Swisher. "We got our share, from the perspective of many more than our share, of policy support."

Dirty and dangerous

But like most sustainable energy advocates in the US, AWEA had been hoping the legislation would produce a fundamental shift in the direction of the country's energy policy. Instead, the bill gives the lion's share of subsidies to conventional energy technologies. The nuclear industry is among the biggest beneficiaries of the bill, receiving $3.1 billion in incentives to construct new plants and tax breaks for energy produced from them. The legislation also includes $2.6 billion in tax breaks for oil and gas drilling and the expansion of pipelines and refineries, while coal companies will receive $2.9 billion to invest in new technologies that reduce air pollution.

"When you look at the outcome of the bill, it is essentially business as usual. There is no fundamental change in course," says Swisher. "If there were any major themes, certainly the attempted renaissance of nuclear power is something you see pretty strongly, and the emphasis on clean coal is strong."

In fact, the Union of Concerned Scientists went as far as to call the legislation a "dirty and dangerous" failure. "The energy bill funnels billions of dollars in taxpayer money to polluting industries while ignoring practical solutions to global warming such as a renewable energy standard, which would create jobs, spur economic development and save consumers money," says Alden Meyer, director of strategy and policy.

The Senate version of the bill contained a federal renewables portfolio standard (RPS) requiring 10% of the electricity be generated from renewable sources by 2020, but the provision, opposed by both the Republican-dominated House of Representatives and the White House, was stripped from the final version.

Swisher says an RPS, or some kind of mechanism that provides value for the environmental benefits wind power brings, is essential to provide a solid policy footing for the industry. Relying on tax credits is a bit of a numbers game, he says, where the wind industry is competing for limited tax revenue with "almost unlimited" special interests. The result has been short term PTC extensions and a now familiar on-off development pattern.

"The issue, I think, is moving to a different policy that is not subject to those kinds of constraints," says Swisher.

The timely extension of the tax credit, the first time it has been continued without expiring first, gives AWEA some breathing room to focus its lobbying efforts on getting that kind of long term policy support in place. Swisher believes the debate around clean air and climate change could be one avenue to pursue.

Climate attitude

"Part of my optimism here is viewing the ground is shifting with regard to climate. I think we saw a real shift in attitude as part of the energy bill debate," he says. "If you are realistic, you look at who the decision makers are and you recognise that it isn't going to be anything radical. But doing anything at all that smacks of limits on carbon would fuel what we already see in the private sector. Business is way ahead of the government in terms of having a realistic understanding that action on this issue is way overdue. It needs some certainty in terms of what the policy is going to be that is guiding their investment decisions on future generation options."

AWEA is being careful about predicting just how much new wind capacity will be installed in 2006 and 2007 as a result of the PTC extension, but Swisher calls 5000 MW a conservative estimate. Although there are an "unbelievable" number of megawatts at some phase of development in the US, there are also significant constraints to getting projects into the ground.

"Turbine supply is certainly one that has been important and I think will continue to be an issue to some extent next year. Transmission obviously will increasingly be a concern. Investment is not a limitation. The financial community is ready."

One impact of the extension could be that this year's total is actually lower than expected, now that developers no longer need to rush to get turbines in the ground before the end of December, when the PTC had been scheduled to expire.

"That's one of the things we were theorising on," says Swisher. "It is a more rational development model. You've got a little more flexibility and that is a good thing. If we don't get quite as many megawatts online, but we get them online in a more cost-effective way, that's great."

Full speed ahead

In the field, however, some of the biggest players say there is no let up. "We are not slowing down any of our development efforts," says Steve Stengel at FPL, the largest developer of wind projects in the US. "We told the marketplace we planned to add 500 to 750 megawatts of new wind to our portfolio this year and we continue to be on track to do that."

Michael Skelly of Zilkha Renewables sees no changes in the company's development schedule as a result of the end-2007 horizon for expiry of the PTC. "We are ploughing ahead," he says. Zilkha has about 350 MW due to come online by the end of the year. Enxco is also is taking the extension in its stride. "Although it is not directly affecting our 2005 projects," says president Tristan Grimbert, the PTC extension "will allow Enxco to take advantage of its several thousand MW pipeline in the coming two-and-a-half year window of legal certainty and provide the country with some of the renewable energy it needs so badly."

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