Last week the American Wind Energy Association (AWEA) released its annual report on the US wind industry. By most measures it reflects another banner year. New wind power installations topped 10,000 Megawatts for the first time, bringing cumulative capacity to just over 35,000 MW, roughly 93% of which was added in the last 10 years. Last year's increase was sufficient to expand US wind generation from 1.3% to 1.8% of total US net power generation, though a fifth of that gain in market share was the result of a 4% decrease in the denominator, due to the recession. The portions of the report that I was able to access provided much food for thought, particularly with regard to the government policies that helped the wind industry overcome the near-paralysis it faced when financial markets froze in late 2008. A crucial contributor to that recovery is now due to expire at the end of the year, and the industry's supporters are already calling for its extension.
Most of AWEA's 2009 report is only available to non-members for a fee. Some of the information I'll be referring to can be found in the media version, but not in the free "teaser" available on AWEA's website. One interesting comparison featured in both versions shows that wind accounted for 39% of new US power generation installed last year, having overtaken all other technologies except for gas-fired generation within the last few years. Coal was a distant third, and "other renewables" lagged far behind, despite the high profile of solar and geothermal energy. It's a toss-up whether wind can overtake gas on new additions anytime soon, considering that wellhead gas prices are running at less than half their level of just two years ago. That ultimately translates into lower levelized electricity costs, particularly compared with wind and other new sources vying for the non-baseload portion of the power market.
One of the other main uncertainties for wind energy concerns the financial and policy environment in which it operates, both of which were changed drastically by the recession and financial crisis. Prior to the demise of Lehman Brothers and the retrenchment of the entire banking sector, many wind projects relied on the "tax equity" market, in which the rights for future tax credit receipts were exchanged for prompt cash. The collapse of that market threatened to bring the US wind industry to a standstill, as developers without sufficient taxable earnings, or lacking the financial strength to wait to receive tax credits once their projects began to sell power, had few options for financing new activities. That would have left turbine manufacturers with unsold inventories or unacceptably risky receivables. Into this void stepped the US Congress with the Renewable Energy Grant program included in the stimulus bill. Importantly, in order to qualify for up-front cash grants in lieu of tax credits, a project must at least have begun construction by the end of 2010. After that, new wind projects would still be entitled to the Production Tax Credit (PTC), or to an Investment Tax Credit in lieu of the PTC, but as before the financial crisis they'd only receive it as a reduction to future income taxes. Two Senators introduced a bill last year to extend the grants for another two years, but it is apparently still in committee.
You might also recall that the grant program was the subject of considerable controversy, when it turned out that most of the money disbursed as of last fall had gone to non-US companies, mainly to purchase non-US wind energy equipment. A review of AWEA's 2009 statistics shows that the situation probably hasn't changed. Of the top 10 wind turbine companies in the US last year, only two, GE and Clipper--now part-owned by United Technologies--were notionally domestic. Together they accounted for just 45% of installations by capacity. The list of top wind farm owners also includes many foreign companies. Spain's Iberdrola and Germany's E.On , both of which were leading recipients of the Treasury grants last year, were in the top 5, along with the US subsidiary of EDP.
My intent here is not to vilify foreign wind companies, most of which either have US manufacturing or source significant portions of their wind turbine supply chains here, and without which US wind installations would slow dramatically. However, the structure of the US wind market does raise serious questions about who stands to gain the most from an extension of this temporary stimulus program beyond the end of 2010. That's especially pertinent, since most of the companies that now dominate US wind on both the manufacturing and project side--including GE, Siemens, UTC, Iberdrola, MidAmerican, and big utilities like FPL, Edison Mission, and Duke--are again strong enough financially to afford to wait for their tax credits as projects are completed and power is actually produced, as intended under the original PTC rules. Moreover, it's not clear how the tax equity market could be expected to revive fully--and the larger renewable energy financing business with it--as long as companies can continue to turn directly to the government for nearly a third of their project costs, paid up front.
This leaves the Congress and administration with two fundamental questions to address. First, as the economy recovers from the worst recession in decades, when do temporary measures to prevent the complete breakdown of business activity during a crisis begin to retard full recovery and become counter-productive? Second, how forcefully should the government be promoting wind power, which has developed into the most competitive and mainstream of our new energy sources? Fairly soon the focus should turn to how we might eventually wean wind power off subsidies, altogether, rather than continuing to accelerate them in a manner more appropriate to less well-developed, less-competitive energy sources. To complicate matters further, this must be considered against the backdrop of climate change policy, which is still very much in flux, and the growing debate over deficits. I'm sure we'll be hearing a lot more about this issue as the wind industry begins to consider projects that couldn't realistically start construction before the year-end deadline for the current grant program.