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United States

United States

Mastering the market

The lapse of the Production Tax Credit (PTC) sent the wind industry into a downturn last year, and it looked like wind was not ready to compete head to head with other energy resources without the nearly 30% subsidy the PTC provides. That may be changing this year. A combination of factors, with the PTC at the centre, is pushing US wind development to its best year ever. The Northwest is developing more than 1000 MW of wind without any public mandates and states are putting up turbines because customers of green pricing programs are demanding it. The same market forces that are driving the huge push for gas turbines in the US are also driving wind development. In a market that is paying dearly for electricity, wind is looking very good.

Last year at this time, the US wind industry's mood was one of cautious optimism. It had come off the best year ever in terms of installed wind generation and Texas had put into law a well-crafted Renewables Portfolio Standard (RPS) that was creating an instant wind market for 2000 MW. But the optimism was cautious for a number of reasons. The industry recognised that it was running into some significant transmission problems: utilities were becoming reluctant to integrate large chunks of wind into their resource mix due to wind's intermittent character. And, on top of that, developers were slow to recover from the expiration of the federal Production Tax Credit (PTC) in June 1999, even though it was retroactively re-instated five months later.

The industry set out to deal with these problems and has done a credible job in gaining some respect among traditional utility folks who are always far more comfortable with reliable and dispatchable generating plants than with a resource that has to put up with the vagaries of weather. Still, the lapse of the PTC sent the industry into a downturn. With only 52 MW put up in 2000, it became clear that wind development rises and falls not just with the tax credit, but with the anticipation that the tax credit will be in place. With the exception of Greg Jaunich's wind and gas combination in Minnesota (Windpower Monthly, September 2000) it looked last year like wind was not ready to compete head to head with other energy resources without the nearly 30% subsidy the PTC provides.

That may be changing this year -- at least to some degree. A combination of factors, with the PTC at the centre, is pushing US wind development to its best year ever. It is on course to develop more than 2000 MW before the tax credits expire December 31, bringing US wind capacity to more than 4500 MW. The biggest factor at work for wind is the electricity market -- a significant change from last year when pro-wind state policies were seen as the crucial element. Yes, there is a significant RPS in place in Texas and yes, the 80 MW Chanarambie project in Minnesota is the completion of a state mandated 425 MW. But the Northwest is developing more than 1000 MW of wind without an RPS and states like Colorado and Pennsylvania are putting up turbines because customers of green pricing programs are demanding it.

The same market forces that are driving the huge push for gas turbines in the US are also driving wind development. Much of the nation, particularly the West, is short on generation. That is driving electricity prices sky high in California and the Northwest. The price of wholesale natural gas has doubled over the last year, while the price to install a wind MW has dropped. It takes up to five years to site and build a combined cycle gas turbine. It takes as little as six months to a year to site and build a wind farm. The time is even less if a site -- like Foote Creek in Wyoming or Ponnequin in Colorado -- already has its permits and environmental work completed and is simply expanding.

Wind power that is quick to market, has falling costs and a tax credit to lower its final price is competing directly in the US with a resource whose price is rising and whose best use could be to simply pipe it into every home for heating rather than using it to produce electricity. In a market that is paying dearly for electricity, wind is looking very good.

The industry still needs to fix its relationship with the power grid by resolving integration issues and working on ways to more closely predict when the resource will be available. But these are concrete problems with solutions in sight -- not barriers created by an electricity playing field tilted in the direction of conventional technologies. For the first time the wind industry is being given the chance to box with real issues rather than political shadows.

unwitting benefits from Bush

Make no mistake, wind still needs its tax credit to measure up against its still-subsidised competitors. An extension of the credit after this year is included in the much maligned Bush energy budget, but it is too early to tell how much political capital Bush and congressional Republicans will spend on keeping it intact if they don't get all they want out of the administration's energy plan. The realisation that wind can couple Bush's business bound ethics with a cleaner environment effort has yet to dawn, if actions are anything to go by. Instead of boosting spending on wind research, Bush has proposed cutting it by half.

Yet this month should see the release of the new US environment plan -- the keenly awaited Bush input to the Kyoto process on reducing global greenhouse gases. The expectation is that Bush will advocate a business-based approach to ensuring sustainable development. Wind power is one opportunity for Bush to clean up his act both at home and overseas. Indeed, Bush's support of the market as a driving force behind electricity plant development could work well for wind power in the US. As long as the PTC survives the machinations of Congress and the President's quill, wind is now one of the cheapest options in town for getting new generation on line fast. Bush could unwittingly promote a huge push in wind development, where it could share the burgeoning market with coal, oil and gas. Welcome to the market.

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