Following on the heels of its best ever year, evidence of the US wind industry's dependence on its federal Production Tax Credit (PTC) can be seen in the construction shut down during the early months of 2002. When Congress failed to extend the PTC -- which adds $0.017 to every kilowatt hour sold by its producer in a project's first ten years -- beyond its December 31 expiration date, construction all but stopped.
While planning and development for up to 2700 MW of additional wind capacity continues for 2002, financing agreements are unlikely to be signed and construction will be delayed until the PTC is either extended or is forever killed. When Congress allowed it to expire, it "virtually stopped almost everything," says Bob Gates, president of Enron Wind Development. "The economics of wind projects depend on the revenue of the PTC. While some still could go, it would be at a higher price."
The industry has been through this before. The PTC expired in 1999 and was not reinstated until November 2000. By then, the year was almost over and the industry increased installed capacity by only 52 MW. Most US projects on the drawing board this year generate a revenue stream from producing and selling energy, but they also need the second source of revenue generated by the PTC. Gates says cash from the energy buyer pays the debt and operating costs, with a little left over. The PTC, combined with the cash, provides a return on the owner's equity.
Gates thinks a national Renewables Portfolio Standard (RPS), which would require all power retailers to acquire renewable energy credits equivalent to a set percentage of their annual sales, would spread out both the costs and the benefits of renewable energy better than the PTC. All taxpayers finance the PTC, but only some get the benefits of the lower price and renewable energy.
With an RPS, Gates says, everyone gets the benefits of price stability and reduced greenhouse gas emissions. Although an RPS won't directly lower the price like the PTC, he adds, an important benefit is that the broader market it would bring for wind power could introduce many more lenders into the market, bringing down borrowing costs for projects.
The most likely path to a national RPS, which is high on the wish list of many wind industry advocates, is through a national energy policy, says Gates. But the potential for Congress to act on a PTC extension by spring is far greater than having feuding Democrats and Republicans agree on broad-ranging energy legislation.
In 2001, the US wind industry rushed to put turbines in the ground before the PTC expired, managing to add 1695 MW -- far beyond the previous record of 800 MW in 1999. Last year's growth boosts the nation's wind power to nearly 4300 MW.
Leading the pack of developers was FPL Energy with projects totalling 840 MW, including the 278.2 MW King Mountain plant in Texas and the 261 MW Stateline project in the Northwest, the two largest wind plant in the world.
Exactly when the industry picks up the development reins this year all depends on the PTC, but there are some surprises in store. Texas, the hot area in 2001, will take a break from wind development. After leading the nation with a build up of more than 900 MW in 2001, due largely to its aggressive RPS, the state has no projects in the pipeline. Still, 380 MW are being considered in 2003.
Northwest the place to watch
FPL Energy, Seawest and Northwest Windpower added 310 MW in the north west states of Oregon and Washington. The Northwest may beat that in 2002 if all the planned 427 MW gets built. But low wholesale electricity prices and a slowdown by the Bonneville Power Administration, which had intended to buy much of the Northwest's wind over the next two years, could slow growth.
California has about 600 MW that could come on-line this year, mostly as a result of the state's energy commission auctions. Developers, the state and utilities, however, are still debating key issues, such as who will buy the power. Other areas without significant wind generation are beginning to heat up. Clipper Windpower could build the first large-scale wind project in South Dakota, one of the windiest states in the US. The 199.5 MW project is slated for the south east reaches of the state, near Minnesota. Three projects totalling 386 MW are due for completion in Montana. There are also plans to build 85 MW at the Nevada Test Site and Navitas Energy hopes to install 50 MW in Illinois. Both projects are firsts for their respective states. Another 40 MW planned for Hawaii over the last several years could get built in 2002. Other proposed projects include 110 MW in Pennsylvania, 178 MW in Iowa, 50 MW in New York and 209 MW in Minnesota.