Wind Power: Policy Drivers and Utility Issues

by Jeff Anthony, American Wind Energy Association

Change is in the wind. Having grown tremendously during the past several years, the wind energy industry is poised for continued expansion. Several factors are driving demand: 28 states have established renewable electricity standards (RESs), global warming concern has increased and Congress has made available economic incentives for renewable energy despite the economic slowdown. More incentives in the form of pro-wind energy policies may be forthcoming. Congress and the new administration are revamping U.S. energy policy in ways likely to increase the market for wind energy and other renewables. Utilities will be at the forefront of these changes and wind power growth as they deliver the majority of wind energy to customers across the United States.

The Wind Energy Industry

By the end of 2008, the wind energy industry had installed 25,170 MW producing enough electricity each year to serve the equivalent of more than 7 million average U.S. households. Wind power provided 42 percent of the entire new U.S. generating capacity added in 2008—up from 35 percent in 2007—and has been second only to new natural gas power plants for four years.

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Wind power expansion has grown in an otherwise stagnant U.S. economy. In 2008 the wind energy industry added 35,000 jobs. It now employs an estimated 85,000 Americans. Because wind turbine components are being manufactured increasingly in the United States, these jobs include manufacturing, not just jobs associated with wind farm construction and maintenance. Since the beginning of 2008, 55 wind-related, U.S. manufacturing sites were announced, opened or expanded.

Nevertheless, economic conditions are impacting 2009 wind growth. The American Wind Energy Association (AWEA) does not expect new wind installations to reach 2008 levels that reflect the industry’s adding more than 8,000 MW. Provisions of February’s economic stimulus bill, however, will help prospects for a quick recovery. These provisions allow a renewable energy production tax credit—the long-established incentive for wind developers—to be converted to an investment tax credit that could be exchanged for a Treasury Department grant equal to 30 percent of the investment’s value. This new provision is intended to speed investment flow to wind projects while the production tax credit is unattractive because few investors have profits to offset.

The Critical Role for Utilities in Wind Power Growth

Utilities play a key role in delivering wind energy to U.S. residential and business customers. They are recognizing benefits from wind power deployment in their systems. The environmental benefits are clear to most utilities, but utilities with wind power experience are recognizing advantages to having wind energy on their systems, including:

  • Environmental: Wind power produces no carbon dioxide or air-pollutant emissions, does not require water, mining, drilling or transportation of fuel and does not generate radioactive or other hazardous or polluting waste.
  • Price hedge: Wind power lowers the portfolio volatility of electric utility power supplies, yielding benefits for future price risk and mitigating the impacts of fossil-fuel price volatility.
  • Price trends: Although wind turbine prices have increased in the short term, long-term trends are expected to continue, which will continue to make wind power cost competitive with other generating options as manufacturing catches up with demand.
  • Utility financial considerations: Wind projects have short constructive periods and can be deployed quickly with positive impacts on generation planning and cash flows. For wind ownership, additional rate base and tax-related benefits accrue to the utility, as well.

Other reasons include:

  • Regulatory treatment: Wind power is viewed favorably by utility regulators and other stakeholders in regulatory proceedings.
  • Economic development and jobs: Wind projects contribute directly to economic development and job creation where projects are located.
  • Customer satisfaction and green pricing options: Customer awareness and interest for wind power is increasing, and many customers demand green options from utilities for their use.

Nearly half of the wind energy delivered by electric utilities to end-use customers is delivered by the top 10 utilities with wind power on their systems, and 65 percent is delivered by the top 20 utilities. Many federal policy changes should accelerate these efforts.

The Policy Agenda for Wind Power

The Obama administration and Congressional democrats have put forth a broad renewable energy agenda driven by concerns over climate change, oil imports and energy security. One proposal would require all states to meet a national renewable energy standard (RES) of 25 percent by 2025.

Another legislative effort aims to build a new high-capacity transmission network for renewable energy. Finally, many in Congress and the administration are seeking legislation to cap CO2 emissions to slow global warming. It’s unclear how much of this agenda will become law. All of these measures would increase demand for wind and other renewables and promote wind industry growth.

Some argue that a national RES would increase electricity rates for consumers, especially where coal-generated power would be replaced by renewables. Diversifying the power supply by developing homegrown, renewable energy resources would help shield consumers from energy price spikes. According to a study by a respected energy research firm, a national RES would save U.S. consumers as much as $100 billion in lower electricity and natural gas bills.

Wind Power: Savings Consumers Billions

This was also documented in the May 2008 U.S. Department of Energy (DOE) report “20% Wind Energy by 2030,” where a base case of adding no new wind power was compared with a scenario in which 20 percent of U.S. electricity would come from wind projects (on an energy basis) by 2030. In this scenario, the modeling showed additional natural gas plants being built to provide the needed capacity and fast-response resources to accommodate the variable nature of wind energy output. Fast-response natural gas plants were the most cost-effective way to provide resources to pick up load when wind energy output decreases (and at a lower cost than any energy storage technologies could provide). But the rest of the time when wind energy output was high, the natural gas plants were backed down and generating 50 percent less on an energy basis. The added natural gas plants were needed for additional capacity to accommodate the variable wind energy output but generated 50 percent less energy.

With 50 percent less natural gas being used to generate electricity, it reduced natural gas prices, reduced natural gas price volatility and preserved more natural gas for home heating and other uses (such as industrial or natural gas vehicles). The cost savings to consumers from reduced natural gas prices more than offset the increased costs in the 20 percent scenario from building out the wind power capacity, incremental transmission needed and capital costs of the added natural gas plants in the scenario—representing billions of dollars in savings for U.S. consumers.

Transmission Infrastructure Needs

The same DOE report concluded that insufficient transmission is the biggest obstacle to obtaining 20 percent of U.S. electricity demand from wind energy. A 2009 white paper developed by AWEA and other renewable groups notes that nearly 300,000 MW of wind projects—more than enough to meet 20 percent of electricity needs—are waiting in line to connect to the grid because there is inadequate transmission capacity.

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To meet that challenge, transmission legislation is designed to help clear the way for construction of a high-capacity, green superhighway system that would connect renewable energy sites often in rural areas to urban population centers where electricity demand is growing.

Most proposed legislation would do that by tackling planning, paying and permitting. First, legislation would create a national planning process to designate key transmission corridors needed for renewable energy. Second, legislation would set up a means to pay for the system by allocating the costs of new transmission infrastructure among users who would benefit. Third, all of the proposed bill would create federal siting authority to override state or regional objections if needed.

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Much of the new authority needed to get new transmission going would fall to the Federal Energy Regulatory Commission (FERC), which would be given authority to establish a national planning process, mandate cost allocation and approve transmission siting. In some cases, FERC would act only if regional transmission organizations did not act.

Climate Change Legislation

Climate change legislation is the third piece on the renewable agenda established by the Obama administration and Congressional democrats. It would reduce CO2 emissions by gradually capping emissions. It also would allow companies that achieve emission reductions to sell or trade credits with companies that meet the emissions cap.

Climate change legislation offers opportunity to expand U.S. reliance on wind energy and make a down payment on emissions reductions. If properly crafted, such legislation will send price signals to invest in clean, renewable resources such as wind power in the near and long term.

To be most effective in promoting wind power, climate change legislation should financially recognize the emission-reduction contribution from renewable energy; create a strong, direct and stable market price signal; address transmission infrastructure needs; and help expand domestic manufacturing and training for renewable energy industries.

It is unclear which policies will be enacted when, but passage of any measure would impact the wind energy industry and utilities that are bringing more clean energy to customers. It is rare that so many policy changes are being proposed at once, especially because there is a good chance some, if not all, will be passed. Some electric utilities are engaged with AWEA to grow, prosper and deliver clean, affordable energy to U.S. consumers as part of these efforts.

On the Net: DOE report: http://www.20percentwind.org

Author

Jeff Anthony is the manager of utility programs for the American Wind Energy Association. Reach him at janthony@awea.org.

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