A Fresh Wind in the US

The post-election speculation is well underway, with predictable positions on one side arguing for a rapid implementation of the Obama energy plan, and on the other cautioning that not much can or should be done. FWIW, I've stated my opinion several times and, while no one can say with certainty what will happen, bets are already being made, and they suggest the start of a new boom.

BP is coming ashore in the US:

A spokesperson for BP told New Energy Finance: "We have decided to focus our investment on onshore wind assets in the US, where we have been extremely successful and have built up a portfolio that, if fully developed, could amount to as much as 15GW. We will not be pursuing opportunities in wind outside the US, and if we have ongoing ventures in other countries, we will review them." He stressed that the move did not represent a change in BP's level of investment in wind "at all".

Clearly not:

Clipper Windpower and BP are teaming up to build the 5,050-megawatt Titan wind farm, the world’s largest, in eastern South Dakota. Already under development, Titan will generate five times as much electricity as the state’s 780,000 residents currently use. This project includes building a transmission line along an abandoned rail line across Iowa, feeding electricity into Illinois and the country’s industrial heartland.

BP is not the only legacy energy company reallocating their wind energy attention. Shell pulled out of the London Array back in May, disappointing its partner E.ON. Said Paul Golby, UK CEO:

The current economics of the project are marginal at best - with rising steel prices, bottlenecks in turbine supply and competition from the rest of the world all moving against us.

At the time oil was at $120 a barrel and heading up. With oil now almost half that and trending down, all renewable energy projects, including wind, have come under pressure. Illiquid credit markets, a global recession and a lower cost of energy are combining to inhibit new energy project investment generally. Yet wind is clearly experiencing little more than a lull.

A BP spokesman, talking about the US said “It’s a big place and it’s got a lot of wind,” and BP found the existing regulatory frameworks in the U.S. "helpful" in boosting development through incentives. Shell does too:

Shell and BP are competing in the US to build the world’s largest wind farms. ‘Many are now recosting their plans and are attracted by other countries who are tempting them with tax breaks and a freedom to build what they want practically anywhere,’ said one analyst.

That seems a bit over the top given the growing opposition to wind farms in the US, but there's little doubt that public opinion is changing in ways that should make development of large scale wind projects easier to do. That the US environment is perceived as more favorable than the UK's is also odd considering that the Production Tax Credit (PTC) for wind received only a one year extension, while UK's Crown Estate has pledged to pay for half the pre-construction cost of offshore wind. One big reason for companies abandoning the UK market is grid connection:

Some companies in Scotland have been told to join a 13-year queue and are being asked for deposits of millions of pounds before the grid will agree to connect them. Currently, 115 Scottish renewable schemes, totalling 9GW of mostly wind power, are waiting to plug into the grid before they can supply electricity. Some already have planning permission but have to wait many years to connect.

Creating a smart grid with more capacity between windy plains and energy-hungry cities appears to be a high priority for the incoming Obama administration. Wind companies will also welcome a longer-term PTC which will make the financial planning more certain.

The prospects for wind now appear increasingly bright despite lingering concerns over the global economy, as turbine manufacturers, wind developers and the public at large perceive ever more clearly which way the wind is blowing:

The market for wind is very strong, with more than £40bn invested worldwide last year, demand for turbines going through the roof as countries rush to meet climate change targets, and the very few manufacturers producing turbines now looking only for large orders. Emerging Energy Research, a leading research and advisory firm analysing clean energy markets, expects the international wind power industry to increase 500 per cent over 12 years.

Vestas, the world’s biggest turbine maker, now has a £6bn order book and its turbine prices have risen 74 per cent in the past three years. China plans 100GW of wind power by 2020, a ten-fold increase from today. Texas alone plans more wind power than is expected to be installed in Britain in the next 20 years. The net result is that prices are escalating and orders for equipment taking longer and longer.

‘Everyone wants wind power. If you ordered today you could possibly get a turbine in 2011. But you would have to be a serious order,’ said an Enercon spokesman. ‘It is a very good time for wind.’

The boom has begun. Will it become a bubble? Do we care? Perhaps it's normal. At least we will be solving some real problems (energy security and climate change) in a sustainable way, even if some of the economic benefits prove eventually to be more transitory. Caveat investor, after all.

Wind Power Flagging?

The United States added more wind capacity in 2007 than any other country in the world--over 5,000MW. This year, the new additions will break records again--more than 7,500MW. Can it continue? The Wall Street Journal, quoting the American Wind Energy Association, is doubtful:

Next year won’t be so sweet, the AWEA says, for two big reasons. First, the financial crisis is making it tough for lots of developers to get the cash to build new wind farms. And even though the industry’s prayers were answered with a last-minute, one-year extension of tax credits for wind energy, the tax breaks came late, in the last-gasp Congressional bailout package. That means construction on new wind farms will get a slow start next year.

There are other reasons for concern not cited by the Journal. One is growing opposition to wind projects from the local NIMBY factions and also from those who oppose wind farms on principal (for whom some have coined the terms BANANA--Build Absolutely Nothing Anywhere Near Anyone--and NOPE--Not On Planet Earth.) More on this in a later post.

Another reason is our increasingly creaky and ad hoc transmission and distribution electrical grid. With generation typically far from the load, the power must be moved. Here in Washington most wind generation is in the eastern half of the state and must use one of two corridors over the mountain passes. Both of these routes are at or very close to capacity today, so new wind farms cannot send power to a hungry Puget Sound area unless more wires are strung, a very expensive option.

These last two problems might be overcome by offshore wind. The larger problems of tight credit and, shall we say, gusty support for renewable wind energy will require stronger and better focused political leadership than we've seen the last few years. Dithering on making the smart and necessary energy choices would be an enormous missed opportunity for both our environment and our economy. The renewable energy industry in the United States demands bold leadership. Let's boldly demand it.

Renewable Energy incentives enacted

The house comfortably passed the Splurge and the President has signed it into law. That's the good news. The bad news of course is that we taxpayers are now on the hook for another $700B of good money after bad with little indication that there won't be another "emergency" next month or next week.

The bill also includes provisions for disaster relief, mental health, and random other.

The renewable energy portions are basically good, although lacking some provisions that might have been adjusted or added if there had been more time and deliberation. But then, maybe we would have got less too.

Energy provisions of note:

Sec. 101 extends the renewable energy credit for wind for one year. AWEA and others make a compelling argument that a one-year extension is too short. Bizarrely, "refined coal" also gets this "renewable" energy credit. (I suppose coal could be renewable if enough life dies out and we just wait long enough.)

Sec. 102 provides the PTC for "marine renewables" which include the obvious wave and tidal, but also ocean currents and energy produced from the "free flow" of rivers, canals, etc., which is excellent news for Hydrovolts. The provision applies to equipment placed in service before 1/1/2012.

Sec. 103 extends the credit for solar out to 12/31/16.

Sec. 104 provides for a credit for small wind (less than 100kW) and increases it from $2000 to $4000.

Sec. 105 provides credits for geothermal heat pump systems.

Sec. 106 "clarifies" (as only the Government can!) residential rules for credits for small wind and geothermal.

Sec. 107 provides $800M of new Clean Renewable Energy Bonds (CREBs).

Sec. 117 requires a "carbon audit of the tax code" by the National Academy of Sciences who is tasked with issuing a report in 2 years.

Sec. 304 extends the new energy efficient home credit by one year, and Sec. 305 provides credits for energy efficient appliances.

Sec. 306 allows accelerated depreciation for "smart grid" hardware.

Sec. 404 extends the federal unemployment tax another year. No doubt some would call this a "tax increase" but it's more accurately termed a decision to not provide a tax cut.

There's a lot more stuff to help the steel industry, the coal industry, the oil and gas industry, the Black Lung Fund, for carbon sequestration, biofuels, plug-in electric vehicles, to encourage bicycle commuting, to dicker some more with the Alternative Minimum Tax (AMT), and clauses (whether intentionally so-designed or not) to further complicate everyone's tax return.

There are also some of the clauses quickly becoming infamous, such as Sec. 502 for Hollywood producers and Sec. 503 providing an exemption from tax for makers of wooden arrows for children. I can see the entertainment industry having the clout to stuff this in, but the childrens' archery lobby?

Glad to get at least enough on the renewable energy front to tide the industry over into the next Administration which will have the opportunity to do a thorough top-to-bottom restructuring of our energy economy and perhaps both simplify the rules and better align tax policy to a a sensible and realistic energy policy that addresses climate change, energy security, and the creation of jobs. The renewable energy industry is still in its infancy; our government has the opportunity to make the US a leader as it grows into the next global industry.

PTC added to the Splurge

In the latest twist of the ongoing drama around the credit market bail-out (aka the Splurge), the Senate passed a version today that adds in the PTC, ITC and other renewable energy incentives that were in uncompleted legislation passed earlier by the Senate. By adding these and apparently many other initiatives into the Splurge Congressional leaders are clearly hoping that they can attract enough votes (without losing others) that the bill can pass both houses and presumably be signed with minimal sniveling by the President.

It's a really risky approach--adding in a host of unrelated legislation and spending to attract additional one-issue voters who feel passionately enough about the additions that they will vote for a bill on which they otherwise would have voted nay. At $700B, those members of Congress will have to really love these added goodies to vote yeah.

The House was where the previous PTC legislation foundered, as some representatives arbitrarily insisted that the renewable energy provisions be subject to the pay-go rules. Will they stick to that petty token of financial discipline so they can still posture as fiscal conservatives even while sacrificing the budget (and the deficit) on the altar of trickle-down salvation?

The stink of the Splurge is causing many people to hold their noses. Will it be voted anyway, especially in an election year? I worry that the renewable energy elements will garner the stench of this massive taxpayer-funded handout, which, regardless of its merits, is extremely unpopular. I like Thomas Friedman's view that funding green initiatives is the right way to address our economic problems, but coupling a tiny tincture of that to the horse pill which is the Splurge may make all of it unpalatable. Too bad we can't decouple the Splurge altogether. Imagine what $700B would do if instead it were all committed to (re)building our country's infrastructure and laying the groundwork for a sustainable 21st Century economy and the enormous and multi-faceted industries that will compose it.

I don't think that's likely to happen, but right now I don't see anyone who has much of an idea what will happen at all, regardless of whether the Splurge passes or not.

Does anyone else get the sense our planning is less disciplined than making decisions based on the Magic 8-Ball?

PTC Update

Latest status on the PTC--very iffy.

What's up with the PTC?

The annual renewable energy policy circus is back in town, and it's far from the greatest show on Earth.

The Senate passed the “Energy Improvement and Extension Act of 2008” (HR 6049), providing about $60 billion intended to foster renewable energy investment, some of the costs of which are to be funded by lessened support for the Fossil Industry. The House meanwhile passed the “Comprehensive American Energy Security and Consumer Protection Act” (HR 6899), which is similar in many respects but has some differences in how (completely) it applies the pay-go rules. The President has complained, of course, about the burdens these bills would place on his favored Fossil Industry, but has not (yet) threatened a veto. It is not clear whether Congress can get a bill done, especially with the impending election recess and the need to complete the Splurge to bail out the credit markets. “This may be the last chance to get these renewable energy incentives passed into law,” said Rep. Edward Markey, D-Mass. “If President Bush and Senate Republicans shoot this package down like they’ve shot down every other clean energy tax package, there may not be another opportunity.”

The Production Tax Credit (PTC) is critical to the renewable energy industry. Yet every year we have to go through all the same arguments and deal with all the same objections and are forced to justify it all over again. Once again, Congress dawdles over renewing the PTC, putting at risk projects, the ability of States and utilities to meet their Renewable Portfolio Standards (RPS) and indeed, the long-term energy security of the United States itself. Why does this happen?

The PTC provides an income tax credit of 2 cents per kilowatt hour for the production of electricity from renewable energy sources. This incentive is available for electricity produced by equipment placed in service before the expiration of the credit, currently December 31, 2008. The credit is a significant component of the overall feasibility of renewable energy projects, particularly those producing wind energy. The PTC was first enacted into law by the Energy Policy Act (EPACT) of 1992 and has been extended repeatedly for one or two years at a time. It was allowed to lapse in three different years: 1999, 2001 and 2003, with predictable results--a steep decline in the development of renewable energy generation. The PTC has been in place since 2005, and this stability has helped nurture the industry.

Similar approaches elsewhere have proven to create sustainable renewable energy capacity, spur technological innovation, and create jobs. I wrote earlier about Portugal. The UK has its Renewables Obligation, and they are creating a global industry by creating incentives and letting entrepreneurs do the rest. Our neighbor to the south, the State of Oregon, has a Business Energy Tax Credit (BETC) that is enticing industry to the state and building an ecosystem of innovation that is gradually turning Oregon into a national leader. There are plenty of other examples that show what works and what doesn't; all we need do is be clear about our policy and go find the best practices others have already pioneered.

The PTC isn't perfect and has had its abusers. A feed-in tariff would be a much better policy, but as always good policy takes a backseat to politics, "the art of the possible." Read one critic's case against the PTC here.

Other criticisms I hear about the PTC have much less merit. The worst is the gripe that the industry ought to be able to stand on its own, and the taxpayer should not be subsidizing an industry that, the argument goes, would not be financially viable without these artificial supports. Some of these critics go further, and argue that, to meet our energy and energy security needs we should make a yet-greater push for domestic oil and gas exploration, captured by the inane slogan: "Drill, baby, drill." I think this is a truly stupid and myopic idea, a great sound bite and a lousy solution that neither lowers the price of gas nor provides energy security for the country even as it contributes to our growing environmental problems.

Government has a critical role to play in energy, but it shouldn't be to try to pick winners. My conservative friends never tire of arguing how the market always does a much better job of identifying the best solution to any need or problem than any government can do, no matter how carefully the lawmakers study or how lofty their intentions. (I've largely come to agree with the viewpoint; however, recent events in the financial arena ought to make everyone question any reflexive belief in the "magic" of the market.) OK, if government should stay out of the markets, why do we provide enormous subsidies to the Fossil Industry? Why does the latest House Bill (HR 6049) provide an 8-year PTC for solar but only one year for wind? The only conclusion I can draw is that policy isn't driving the debate; instead, such laws are an amalgam of favors produced by horse-trading between our Representatives. Maybe this is how government should work, but let's dispense with the facile bromides and recognize that this isn't a coherent policy.

It's sausage factory lawmaking.