Wind power is coming of age. But the policies needed to support further growth are in question and are creating a host of economic uncertainties. What now? 
 

The answers, of course, vary and depend upon the degree of political compromise. But, global policy is emphasizing clean air and clean water. As such, domestic and international laws are evolving and are aiming to cut emissions released by power plants and specifically those that are thought to be tied to global warming such as carbon dioxide. It's a trend that appears to be unyielding and one that will inevitably envelop all nations, particularly as technologies and transmission access improve.

Ken Silverstein  EnergyBiz Insider  Editor-in-Chief

"More than half of the Bush administration's energy policy is on renewable energy and conservation," says Rebecca Watson, assistant secretary of the Department of Interior. "We need more of all kinds of energy." 

Wind is gaining a lot more credibility as a viable energy source. And the proof is showing in the marketplace: From 2000-2004, the energy form has grown at a 24 percent annual clip in the United States, says the American Wind Energy Association. By the end of 2005, about 7,000 megawatts is expected to be on line. Worldwide, the total capacity is more than 47,000 megawatts. In Europe, authorities there believe the continent can supply 100,000 megawatts by 2010. 

But in this country, projections are cloudier. While the wind association says that wind energy could increase its share of the generation market in the United States from about one percent today to six percent in 2020, it adds that such progress is uncertain because of national energy policy. At a minimum, the trade group wants a five-year extension of the production tax credit that now provides an income tax credit of 1.9 cents per kilowatt hour. That credit is scheduled to expire at the end of 2005, although it could get another extension if a new energy bill passes. 

In 2004, for example, the credit was allowed to expire — a move that resulted in only 400 megawatts coming on line. That's because financial lenders are hesitant to provide capital for such projects under precarious circumstances. And any deals that are rushed through to meet tight deadlines add to a project's costs and are therefore reflected in electricity rates. Moreover, the production tax credit helps keep the price of wind power competitive with other energy forms at between 3 cents and 6 cents a kilowatt hour. 

Is the credit worth it? The wind industry says that conventional fossil fuels as well as the nuclear industry have been the benefactors of favorable government policy for decades. And, if the nation is to emphasize a cleaner environment, then it is imperative that it, too, receive some assistance — at least initially. Clearly, wind is not going to take any sizable market share from other energy forms for some time. But the wind association says that a single megawatt of wind energy will generate the same as burning 29,000 tons of coal and 92,000 barrels of oil, all over 20 years. 

Many Challenges

The environmental benefits are one matter. Profits are another. Capital, of course, flows to where it is naturally most welcome and where investors can earn reasonable returns. Along those lines, Siemens AG says that it sees 10 percent growth in the wind energy market and notes that it plans to invest primarily in China, Europe, India and the United States. The hope is that major players such as Siemens and GE Energy will facilitate further development by making modern technologies more accessible to the utilities that would use them. 

"Each fuel source will have an important place in the market," says Mark Little, vice president of GE Energy. "Wind is the most viable renewable form. We are working to find better ways to achieve greater performance and more efficiency." In fact, wind turbine size is continually growing, enabling wind farms to produce more power with fewer towers. Such turbines are now in the 2.3 megawatt range. 

To be sure, the wind industry faces many challenges. The wind, for example, does not blow on demand and it generally cannot be economically stored, although some vendors would disagree with that proposition. That's why wind farms must be backed up by conventional power plants to ensure that electricity will be available when needed. That duplication of capacity not only diminishes the environmental benefits of wind, critics say, but it also increases the cost of wind power while adding an extra burden on the transmission system. 

Wind farms, meantime, are generally more expensive to build than fossil-fueled generation. The U.S. Department of Energy says that roughly 80 percent of the cost of wind projects is the machinery, with the balance being site preparation. And with today's steel prices at least 50 percent more than last year, constructing a wind farm is a costly endeavor. Still, once a wind farm is built, the price of the power is stable. And, with the current subsidy, it is also cost competitive. 

Critics of wind power, however, say that the tax breaks and subsidies are paid for by taxpayers and electricity customers. MidAmerican Energy, for example, is scheduled to complete by year-end a 310 megawatt wind farm in Iowa — a plant it acknowledges would not have been built had it not been for the production tax credit. The Omaha World Herald reports that the utility will reap about $300 million in tax benefits, about half of which will come from the tax credit and the other half from forgiveness of property taxes. In exchange, the utility will keep its rates stable until 2010. 

"The tax breaks and subsidies have more value to wind farm owners than the revenue from the sale of electricity they produce," says Glenn Schleede, a wind critic in Virginia. 

New Jobs

But the wind association says that if the fuel form is to advance and national clean air goals are to be met, the government must stay involved. Indeed, that connection has already fostered billions in new investment and an estimated 150,000 new energy jobs. 

With a steady national energy policy that includes a five-year extension of the production tax credit, PPM Energy, a division of Scottish Power, says that wind power can grow by 5,000-10,000 megawatts each year in the United States alone. Without those incentives, planning is difficult and capital can't be optimized, it says, adding that customer demand cannot be met. Altogether, that hurts consumers and raises the cost of wind power. 

"Wind is barely on the agenda," says Terry Hudgens, CEO PPM Energy. "Clean coal, nuclear, natural gas and liquefied natural gas are getting all the attention. We in the wind sector live year-to-year." 

Unlike traditional fuel sources, those incentives provided to sustainable energy forms by policymakers are often granted as part of a broader compromise. The renewable sector is then left in limbo and the results are financiers and developers get cold feet — a phenomenon that hurts both jobs creation and the environment. The maturity of wind energy will no doubt continue. But, advocates say that its evolution is a partnership among government, industry and consumers.