The latest dispute over PJM’s bidding rules has raised the level of uncertainty in organized electricity markets. Efforts at reform have created a market structure so jumbled that it can’t produce...
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.
does not move on its own," says Randall Swisher, executive director of the American Wind Energy Association (AWEA) in Washington, D.C. "It moves as part of a more complicated vehicle, whether it's an energy bill or a tax bill. That's where things get difficult."
In the face of inconsistent and unpredictable policies, windpower has been unable to sustain its momentum in the United States. If utilities cannot plan for windpower, then projects remain in limbo, and manufacturers will not invest in manufacturing and marketing infrastructure to serve the U.S. market. "Windpower is a real business in the United States, and $2 billion worth of turbines will be put into the United States this year," says Paul Gipe, a longtime wind-industry consultant and gadfly, based in Tehachapi, Calif. "There will be a lot of chest thumping, but the people that were hired this year will be fired next year when the bottom falls out of the market."
Clearly this is no way to run a railroad-or a power industry. Whether a better way exists, however, is a difficult question.
In many countries-including, most notably, Germany, Spain, Denmark, France, and likely China in the near future-lawmakers have established a more direct way to support renewable power projects. Specifically, utilities are required to buy renewable generation at a predetermined rate that varies depending on the cost of the resource and the value lawmakers ascribe to it. This is known as the "German model," a "feed-in tariff," or a standard-offer contract.
This model works in those countries because political trends support giving a strong and direct subsidy to preferred technologies, based on environmental performance, use of domestic energy resources and other factors. The details of this approach vary by jurisdiction, but they all have one thing in common: They establish a higher rate for power sourced from renewable facilities, and they recompense load-serving utilities for the higher cost of that power.
"This has rocketed the development of renewable energy, particularly windpower, in Germany, Spain, Denmark, and also France," Gipe says. Further, the Chinese government passed a feed-in tariff law in March, which could position China to take the lead in windpower over the coming years and decades.
"Of course China wants to develop a manufacturing sector and sell turbines to us and everyone else," Gipe says. "The best way to do that is with a feed-in law that lets their own market know what it will be paid. If China does it right, they will have a windpower industry that is hell-bent for leather."
These trends are causing some analysts to wonder whether the United States should consider pursuing a similar approach. But with the exception of California's standard-offer contracts in the 1980s, the idea of feed-in tariffs has met a chilly reception in the United States, largely because the idea of allowing the government to set prices is antithetical to the American free-market paradigm, even though the utility ratemaking process effectively does just that.
"Don't make believe we have a free market in electricity," says Michael Eckhart, president of the American Council on Renewable Energy