Analysis: Drivers of wind demand 

Without federal support from both a long-term commitment to a production tax credit and a federal renewable portfolio standard, the future of wind power may be uncertain.

Developers and investors at the 2007 Wind Power Finance and Investment Summit in San Diego voiced concern for the industry past the end of 2008 when the production tax credit expires. Much of the investment that’s been put into the developing technology has come from the incentives given through the PTC.

Before the end of its last session, the 109th Congress passed a short term extension of the PTC through the end of 2008 however there is no long term extension of the production tax credit for renewables in the fiscal 2008 budget raises questions about the future of investment for wind.

However, the last year before 2007 with a full PTC was 2003, which was also a year of large growth in investment and in installed capacity. The instability of the legislation causes the entire industry to stall, said Jeff Chester, partner with Kaye Scholer.

Another major driver of demand for wind-generated electricity from the utility companies is the state-by-state renewable portfolio standards. Michael Polsky, president of Invenergy, LLC, is optimistic about the prospect, especially with the growing enthusiasm in Congress, like from Sen. Maria Cantwell, D-Wash., whose state is a major generator of wind power.

Polsky insists that a federal RPS is the only way to drive demand for wind power and to get the utilities to cooperate.

“Utilities buy wind because of RPS,” Polsky said. “There is no natural demand; you have to create it to truly advance the industry.”

He is also confident that in the near future a federal RPS will be recognized. Even if it’s at a low percentage, like 15 percent renewables, it will still increase demand for renewables like wind.

During a hearing of the U.S. Senate Energy and Natural Resources Committee however, Energy Secretary Samuel Bodman said the administration would not support legislation passing a long-term extension, citing the free market as the best indicator of proven technology. He also was opposed to the idea of a federal RPS

Some industry players, like Tristan Grimbert, president and chief executive officer of Enxco, say they don’t think PTC is the best method for attracting investment. Enxco develops wind projects in Asia as well as in the United States, and Grimbert said other places like Taiwan and Japan have found more innovative ways to drive demand.

In many of the other countries where wind projects are developed, there is some sort of federal program or private program. In the United States, the regulations as well as incentives vary state by state as well as on the local level.

Aside from persistent issues, like permitting delays, environmental issues, transmission and now supply strain and the impending expiration of the PTC, the high risk of investing in wind is still not completely known.

“Twenty years from now we don’t know if these turbines will still be operating in the same way,” said Toni Volpe, president and chief executive officer of Enel North America.

Yet despite the uncertainty, new companies continue to get involved with wind power on every level of development everyday. Chevron is just one example of a company poised to enter the wind market.

Market demand is outpacing supply even without a long term PTC, said Mike O’Sullivan, senior vice president of development for FPL Energy.

“We’re not in a do or die situation until next year,” said Chester said. “A normal construction cycle will bring greater stability and growth (over the next year).”

Many investors are hoping Congress will come through on a five year, long term extension of the PTC, despite opposition to the artificial market it creates and the alternative demand drivers other countries have turned to.

By Kristyn Ecochard
UPI Energy Correspondent

8 February 2007

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