Summary
Last year, about
27 GW (see pg 4) of new wind capacity was installed throughout the world - 36% more than in 2007. The units actually installed represent a considerable amount of time and effort in locating the wind site, defining the wind resource (requires at least a year long study), locating the money to buy the turbines and also the money to install them (about 30% of the total project cost). These projects completed may have been started 3 to 5 years earlier - odds are, the order to installation time was over 18 months. As both turbines and projects get bigger, so does the required quantity of capital needed to do the project. From 2005 until 2009, wind turbine prices increased - as did installation costs, though not as much - partly due to the intense demand for turbines, and partly due to raw material price increases (iron and steel, copper, epoxy resin, fiberglass). The intense demand also led to supply chain problems. With 8000 different manufactured items in a commercial scale turbine, a lack of any one of them is not good, and a lack of several of them is even worse. There were also quality issues (for example, Vestas and its offshore V90 x 3 MW turbine) associated with trying to do too much too fast. Finally, there were intense financial pressures for most wind turbine companies to become profitable after years of either losing money or breaking even - often related to the presence or absence of the US Production Tax Credit (PTC).
As of the beginning of 2009, many things have changed. A lot more production capability (final assembly and components) has been constructed or is in the process of construction - for example, the new huge Vestas complex in Colorado - towers, nacelles and blades. The cost of steel, iron and copper has dropped by about 50% in the last few months - somewhat tracking world oil and natural gas prices. In the U.S., the PTC/MACRS incentive (worth approximately 5 c/kw-hr for the initial 10 years to some extremely rich investors) has been extended by another 3 years (to 2012). In addition, $1.6 billion in new CREBs (zero interest to the issuer, with the interest paid in the form of tax credits to wealthy passive income individuals and entities) bonds have been authorized. Finally, wind turbine companies are now profitable, and were charging a 30% down payment to those wishing to buy their turbines. The delivery time might actually start shrinking from 18 months back towards 6 months......
Unfortunately, along came the credit crunch, and many tax investors no longer can utilize the deductions and tax credits, because they have to have taxable income to use the tax credits and tax deductions.....and either that, or the high probability of having that high income stream for the nest decade is not such a good bet anymore.....
Anyway, discussed below is a summary of the new wind energy incentives in the US care of the Stimulus package, the Ontario Green Energy Act, New York State's proposed Feed-In Law (Assembly A187, Senate S2715) and some "wind on the waters" news.
DISCUSSION
First, a word from the AWEA with regards to the new legislation passed this February:
"February 20, 2009
Hi AWEA Members.
I’m Denise Bode and for those of you who I have not met, I’m CEO of the American Wind Energy Association.
I’d like to take a few moments to bring you, our members, up to date on some very important, and very favorable, developments in Washington, D.C., affecting the wind energy industry.
As you know, Congress has passed, and President Obama has now signed into law, the economic stimulus bill, formally known as HR 1, the American Recovery and Reinvestment Act.
Thanks to the tremendous efforts of you, our members, our AWEA legislative team, Members of Congress and many allies, both in the Administration, on the Hill, and around the country, the stimulus bill contains a number of provisions aimed at helping our industry continue the very strong growth in new installations and new jobs we have seen over the past few years.
Among these provisions are:
- A three-year extension, through 2012, of the federal wind energy production tax credit, or PTC, which has been so helpful to our industry;
- an option to elect a 30% investment tax credit instead of the PTC;
- an option to convert the investment tax credit into a grant for projects placed in service during the next two years, or placed in service before 2013 provided construction begins in the next two years. This means that the value of the credit can be realized even if the investor in a wind farm does not have a tax liability;
- a new $6 billion loan guarantee program (with $4 billion to directly promote renewable energy and $2 billion to promote transmission);
- an additional year of bonus depreciation for 2009 for wind equipment;
- a $1.6 billion increase in the Clean Renewable Energy Bonds (CREBs) program;
- elimination of the cost caps for the small wind turbine tax credit; and
- targeted provisions to encourage renewable transmission.
This is a tremendously helpful collection of policies for wind energy. We at AWEA are grateful to Congress and the President for their strong support and for this important step forward in the effort to make wind power and other renewables a catalyst for America’s economic recovery.
We are thankful to be called upon by them, and ready to deliver. Wind power will create jobs by the thousands today and help build the vibrant, clean energy economy of tomorrow.
As signified by this legislation, Wind Energy has a permanent seat at the energy security table.
While we did take 5 minutes off to celebrate this incredible accomplishment, we are now turning to our next major legislative priorities, an effort to enact a national renewable electricity standard (RES) and to make progress toward construction of the Green Power Superhighway, the new transmission system that will be needed to fully develop America’s immense wind resources. "
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Next, there is the recent introduction of Ontario's Green Energy Act . For a brief explanation - see http://gristmill.grist.org/story/2009/2/25/02953/8633. The goal of this act is to both massively increase the quantity of renewable energy made in Ontario (right now the province has more wind energy generation than any other Canadian province), and to provide 50,000 new jobs - manufactruing, installation and building thermal efficiency - within 3 years. The GEA is split into enegry efficiency and renewable energy generation. The latter will be largely based on Feed-In Tariffis in the German sense. These provide a set rate for electricity production (price depends on the technology) for 20 years at an approximately 10% return on investment, and they minimize the risk to investors. This minimal risk compared to the previous system in Ontario or the present one in New York will lower finacing costs and thus lower the installed cost and cost of electricity production. Feed-In Laws will also tend to prevent electricity prices from spiking when natural gas prices spike.
If half of the GEA jobs come from wind turbine manufacture (a guess), that would be 25,000 jobs (not counting supporting/spin-off ones). At 16 job-years per MW of capacity installed, this would be approximately 2000 MW installed in the next 3 years, or about $US 4 billion worth in 3 years or less. The production capacity in Ontario resulting from 25,000 workers (at 16 jobs/million dollars of installed wind turbine capacity) would be about 1600 MW per year, which would give another 11 GW of installed capacity, or about 4000 MW delivered - more than enough electricity to replace the highly polluting Naticoke coal burning power plant (3.3 GW capacity). Of course, there will probably be more capacity installed; unfortunately for Ontario, not all locally installed wind turbines will be made in Ontario, especially given that none are at present to any great extent (an exception being DMI's tower plant in Fort Erie). Thus, more wind turbine capcity other than 11 GW is likely to be installed in Onrtario in the next decade. Also of note - due to the large multiplier effect of wind turbine manufacturing, net job creation GEA direct plus indirect) could be up to 100,000 jobs just for the wind turbine aspect. Since Ontario has been hammered by the depression in the auto industry, the GEA will be most welcomed.
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Great beer, and the world's most effective renewable energy arrangement (Feed-In Laws) - how can NY compete with Ontario? Withe the GEA and Quebec Hydro's massive RFP program (which also results in similar electricity pricesto Ontario's, despite the slightly better wind regimes), the wind industry in the midsection of North America will shortly shift to the north side of the Great Lakes. Here exists a significant industrial infrastructure available (ex-auto) and underultilized, government single payer health care (a significant advantage to companies) and now a more economically and socially more efficient way to install renewable energy (lower cost, increased installation rate) than exists in the U.S. There is also a wind resource equivalent to that of the U.S., with 10% of the population.
On the theory that "if you can't beat them, join them", there may be some hope for NY State in that regard. After all, NY state is way less than broke, and demands for money are colliding with the urgent need among the increasing numbers of people becoming unemployed and under-employed. So, NY State is not likely to be able to shovel money to developers and corporate wind farm owners in order to stay competitive with Quebec and Ontario. However, NY could provide developers and communities with a Feed-In Law OPTION. This is why Assembly bill A187 and Senate bill S2715 are potentially "game changers", which will allow for an orderly development of renewable energy at significant rates in NY. It is, in all likelihood, the only way the "45 x 15" proposal can ever be realized. For a link, see http://assembly.state.ny.us/leg/?bn=A00187&sh=t
What is a Feed-In Law system? In this arrangement, in return for forgoing the U.S. tax based incentives (worth about 5 c/kw-hr, and paid for by your tax dollars to the very wealthy owners of owners who can utilize these incentives), a specified tariff (electricity rate) is provided to the wind turbine owner. The owners can be major corporations, wealthy individuals, partnerships, cooperatives of any income range. The tariffs are set much like the rates were when monopolies such as Niagara Mohwak was both a utility distributor and a generator (they owned the Huntley and Dunkirk coal burners, for example) - in an openly arrived at procedure. The rates allow for a reasonable but not excessive return on the investment, and these are set for 20 years - the rates can be constant, increasing or declining over time. This allows the prospective renewable energy generator to be able to predict their gross income stream for 20 years providing they know what their renewable energy resource is (and they can't get financing from private sources without this). With a knowledge of the income in hand, bank and other financing is significantly less risky than for those going the PTC/MACRS route. And since financing costs and return on equity are the main cost of production...this lowers the installation cost of the renewable energy project, and also the cost of energy production. At present, the financial risk minimizing is very important, and banks will really appreciate this aspect.
In contrast to the Feed-In option, corporations willing to go the PTC/MACRS route must line up "tax investors" who can predict what their taxable income will be - 10 years in advance for the PTC (passive income only) or 6 years in advance for the MACRS (all income). Should they lose money and not pay taxes, they lose the benefits/cannot take the tax credit and tax deduction. Furthermore, they will have NO idea what their income from sale of electricity will be, due to the way that NY conducts its electricity market (NYISO, or New York Independant System Operator). While some range of prices is probable (in WNY, this has been 5 to 6.3 c/kw-hr for the last few years), things like "severe recessions" also depress electricity prices. And while there is a slight incentive available through the Renewable Portfolio Standard (RPS), this only covers a small aspect of the generated electricity price (1.5 c/kw-hr in 2008). the RPS incentive is likely to shrink when more capacity is installed than is allocated in the RPS for a year (targets were absurdly low given the need for renewable energy in job creation and to slow down/mitigate global warming). In effect, this is a gambling proposition, and a bet on higher future electricity prices. In addition, the "merchant wind" option provides no buffer to future price spikes, such as the one that occurred in the spring/summer of 2008 until natural gas prices collapsed.
The RPS/PTC/MACRS system only works reasonably well during good economic times (lots of rich people seeking legal tax dodges, high NYISO electricity prices), and only for large commercial scale wind turbines. It has proven ineffective with tidal and run-of-river energy systems and the commercial scale wind installations in NY to date have resulted in very little manufacturing in NY for the $2.6 billion of installed investment. These incentives are meaningless for small wind and photovoltaic systems, as well as locally owned and community owned moderate scale installations of commercial scale wind turbines. Compared with the eventual task at hand (100% renewable electricity generation in NY, mostly from hydro, tidal, run-of-river, wind and bio-mass/bio-gas), the existing rannagement can easily be seen to "need improvement". On the other hand, it is ceratinly better than nothing (as in Arkansas, which has no installed wind turbines, but they do at least have a Nordex facility under construction (700 -> 3500 jobs) and a blade factory (LM Glasfiber) - they manufacture what is installed elsewhare...).
From NAW, some nice NY News:
NYISO Marks Wind Power Milestone
| in News Departments > New & Noteworthy |
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The New York Independent System Operator (NYISO) recently achieved a milestone in the expansion of wind power generation in New York. At 6 p.m. on Feb. 19, the combined total output of all wind plants in New York reached 1,000 MW.
"This is a significant milestone for New York's power system," says NYISO President and CEO Stephen G. Whitley. "Wind is a rapidly growing segment of New York's power supply and an essential element of the state's portfolio of renewable power resources."
The NYISO contracted with AWS Truewind, of Colonie, N.Y., to provide wind power forecasts. The data is fed directly into the NYISO operational systems that determine the balance of electricity supply and demand. The NYISO dispatches resources to meet electrical demand using a least-cost, bid-based system that recognizes transmission constraints and reliability requirements.
At the time when wind output reached 1,000 MW, it provided nearly 5% of the roughly 21,000 MW of total system demand. New York's total wind capacity is currently 1,274 MW, with another 8,000 MW of wind power proposals being studied by the NYISO for interconnection to the grid. By contrast, the total installed wind capacity in January 2008 was 424 MW, and the top combined total output reached was 375 MW.
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Offshore:
Recent news has the German utility group RWE signing a 2 billion Euro (about $US 2.6 billion) for the 5 and 6 MW RE Power offshore turbines. This would be about 600 MW of capacity. In a smaller move, a company called Mainstream Power has signed for a $1.1 billion x 360 MW windfarm off the north side of Scotland. The first German operating wind farm (Nordex 2.5 MW units, ~ 52.5 MW) should be operating within 2 months - installation is largely complete. This farm is located in the Baltic Sea. It is the first of a series of wind farms (so far, more than 10 GW, or $40 to $50 billion worth) have been announced. Most of these will use 5 MW or larger units.
Not to be outdone, Finally, there was this article:
"Exclusivity agreements to be offered for offshore windfarms
The Crown Estate is to offer exclusivity agreements to companies and consortia for 10 sites for development of offshore windfarms within Scottish territorial waters.
The 10 agreements will be made to nine companies and consortia, and in total the sites have the potential to generate more than 6 GW of offshore wind power.
Four of the proposed wind farms - Beatrice, Bell Rock, Islay and Kintyre - were awarded to consortiums including Scottish and Southern Energy (SSE). They alone could have a combined capacity of up to 2,700 MWs. The proposed Kintyre wind farm would have up to 126 turbines covering about 70 sq km; another off Islay would have 138 turbines covering 93 sq km.
E.ON, ScottishPower, RWE npower and Mainstream Renewable Power were among other companies also awarded rights to start development of the schemes.
The agreements are designed to allow developers to begin initial survey and consultation processes for their sites while the Scottish Government conducts a Strategic Environmental Assessment (SEA) for offshore wind within Scottish territorial waters.
Following completion of the SEA, The Crown Estate can go on and award agreements for lease for suitable sites. Leases which enable the developers to actually go ahead with construction works will only be granted by The Crown Estate once the developer has obtained statutory consents and permissions from the Scottish Government.
Option fees will not be payable until award of agreements for lease in 2010. It is intended that the option fees be used to address generic research and development issues faced by offshore wind developers in Scotland."
Most of these offshore contracts are with utility developers (and other partners), with long term secured contracts. In Gremany, the Feed-In Law is responsible for all of this activity, which in England (with awesome offshore resources in shallow waters), this is done with long term contracts with the government. Either way, that's a lot of money, jobs and financing going on.
And just to be fair to UB, the statement applies to us all...
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