The utility’s role is changing, and regulation must change along with it – to spur innovation and respond to evolving customer needs. Modernizing the industry will require a dynamic approach.
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.
(ACORE). "It is a regulated market, and regulators need to create solutions for renewable energy just as they did for nuclear power when it was first commercialized. These are new variables, but there's no reason to change the methodology."
Politically, however, tax credits and other types of incentives have better prospects. "At the federal level, it seems easier to deal with tax policy than with a more direct pricing mechanism," says Ed Feo, a partner with Milbank, Tweed, Hadley & McCloy in Los Angeles.
Given this political reality, few wind supporters are lobbying for a feed-in tariff.
"A European-style tariff is unworkable in the U.S. political system," says O'Sullivan of FPL. "In Germany, they've made a political and regulatory decision to incentivize wind."
This decision, moreover, hasn't always resulted in the best resource decisions, O'Sullivan says. "Although there is a lot of new wind being developed, it is very high-priced. In Germany some projects get a 10-cent tariff. If we had that here, there would be wind turbines all over the place."
The problem is that wind turbines are efficient only in places with strong and steady winds. Feed-in tariffs support projects sited in poor wind-resource areas, and thus much of the windpower capacity built to capture a feed-in tariff is less productive than it would be under a more free-market system.
"The technology is fine, but it has a 15 to 22 percent capacity factor," O'Sullivan says. "Germany doesn't have many large wind projects. They are scattered all over the country. But in this country we see a 40 percent capacity factor, because we have competitive projects that make sense."
Incentives American Style
While the possibility of a federal feed-in tariff seems remote, similar incentives are emerging at the state level. In fact, standard-offer contracts could return to California if political winds continue blowing in their current direction.
California's Austrian-born governor, Arnold Schwarzenegger, has strongly supported renewable energy incentives in the state. In March, Schwarzenegger met with the German M.P. who authored the country's feed-in tariff, Hermann Scheer. At the same time, Schwarzenegger resurrected legislation defeated in 2004 that was aimed at installing photovoltaic modules on 1 million California roofs, modeled after Germany's "100,000 roofs" program.
Time will tell whether the "Governator" might similarly propose a feed-in tariff to spur wholesale development of renewable power. In the meantime, however, California already has the most aggressive RPS program in the country, envisioning 20 percent of the state's electricity being generated from renewable sources by 2020.
Fully 21 states now have adopted RPS or similar structures that set targets and incentives for windpower and other renewable developments. Many of these programs have proved highly successful: The Texas PUC, for example, recently announced it expects the state to achieve its goal of adding 2,000 MW of renewable energy by 2006, which is three years early.
Other state programs have been less successful, generally because their mandates have not been as strong. Nevertheless, industry analysts consider RPS programs to be just as important as the federal PTC, and the growing list of states adopting RPS