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Windpower: Beyond Boom and Bust
Windpower is caught in a vicious cycle of Washington politics. Escaping the cycle will require visionary leadership in Congress and the utility industry.
So why is windpower accelerating steadily in many other countries, while it stumbles along here in fits and starts? The answer is multifaceted, but it boils down to two fundamental factors.
First, the wholesale power industry is a freer market in the United States than in most countries. Net cost is the dominant consideration when making fuel choices. Only when the social values and costs of various resources are included in the power-planning calculus can wind farms compete against traditional fossil-fired plants.
Second, the primary mechanism for recognizing those social values, the federal renewable production tax credit (PTC), is subject to the political whims of a fickle Congress. Legislators have extended the credit for only two years at a time, and repeatedly allowed it to expire without renewal.
This combination of factors has hobbled the U.S. windpower industry, and prevented wind from joining the mainstream of utility resource planning.
"For a long time we have advocated the need for a long-term national energy strategy," says David Sparby, vice president of government and regulatory affairs for Xcel Energy in Minneapolis. "The lack of a long-term strategy has resulted in a boom-bust cycle, not just for wind but also for other sources of power generation. This is the worst outcome we could imagine."
A long-term PTC by itself, however, will not eliminate the obstacles that prevent windpower from becoming a "standard" power-generation technology. Transmission constraints, in particular, pose tricky problems-both technical and regulatory (). And in the long term, tax credits and quotas are not a particularly efficient way to account for external values; a more robust, free-market approach would better serve the U.S. power market.
Resolving these issues will not be easy, even if the windpower buzz grows deafening.
Windy Over There
Despite being the largest power market in the world, the United States has only the third-largest amount of windpower capacity (6,740 MW at the end of 2004), behind Germany (16,629 MW) and Spain (8,263 MW). Furthermore, U.S. windpower growth last year was downright anemic. According to figures from the World Wind Energy Association, the U.S. wind industry grew at just under 6 percent in 2004, compared to the five-year global average of 28.4 percent.
Of course, the reason wind went nowhere in 2004 was the PTC had expired without renewal in 2003, and development plans were shelved until Congress renewed the PTC in September 2004. But that renewal only extended the credit 15 months; it expires at the end of 2005, and thus developers are frantically trying to plant wind farms before the credit expires again.
"As long as we have the PTC coming and going every year or two, there will be tremendous volatility and instability," says David Eves, vice president of resource planning and acquisition for Xcel Energy. "That creates tremendous problems for us, in terms of planning and lead times required to develop the transmission and interconnect those facilities."
While current indicators suggest the PTC will be renewed again, investors and manufacturers cannot predict when that might happen or under what terms. "Extension of the credit