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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.

Fortnightly Magazine - May 2005

schemes lends credibility to the concept.

"Because the PTC comes and goes, the real driver behind the business is not the PTC, but the renewable portfolio standard," Feo says. "An RPS is a subtle feed-in tariff. In effect it says the price will be the best we can get to meet the goal for a given technology, and as a policy matter we are willing to pay a higher price for that technology."

An RPS can be viewed as a demand-side incentive, versus the supply-side PTC. This distinction is important, because it suggests a combination approach for incentives could spur windpower forward in the United States. "Looking where wind has developed the fastest, it has been where states have created demand-side credits or penalties on the side of the offtakers," says Auerbach of Goldman Sachs. "Many states are saying we need both a state RPS policy and a federal PTC. They coalesce to make windpower more attractive."

How long such incentives must be in place, however, is an open question. Current legislation envisions a five-year extension of the federal PTC, and wind advocates are lobbying for extensions of 10 years or more. At some point, however, the economic and regulatory situation will change, and such programs might become obsolete.

"Eventually the ratemaking apparatus would take over the job, once we can monetize the benefits and determine what we are willing to pay," Eckhart says. "We are still in the phase where we don't know how to price renewable energy attributes."

However, as regulators and utilities implement RPS and integrated resource planning (IRP) programs, they are steadily gaining knowledge about key factors, such as fuel-price and environmental risks, and are developing new ways to assess the risks and account for them in the supply planning process. "Major utilities are becoming increasingly sophisticated in their ability to evaluate risks," says Ryan Wiser, a scientist with Lawrence Berkeley Laboratories in Berkeley, Calif. "Two risks frequently highlighted in utility IRPs are natural gas price risk and future carbon regulation. An increasing number of utilities already are valuing windpower on its risk-mitigation characteristics."

In hopes of helping the industry in its transition to an even more sophisticated approach to valuing resource options, ACORE recently formed a committee to begin the process of planning a national "green-tag" trading market for renewable energy credits. Such a mechanism would allow market forces to work in establishing prices for the external values involved in renewable energy. "We are trying to make this work before the state rules get so entrenched they can't compromise," Eckhart says. "We are looking for national solutions that would bring all the state rules into harmony, so there can be a national market."

Such harmonization would help wind take major strides into the power-generation mainstream. But even then, electric utilities still might be less than enthusiastic about integrating windpower into their resource plans, for two primary reasons. First is the transmission-planning and interconnection problem that FERC and regional transmission organizations are working to resolve ( see “Wind, Wires & Coal,” sidebar below ). Second is the fact