Large-scale wind may wane in Oregon 

John Audley talks first about the positives, such as how wind energy developers have driven economic growth in rural Oregon like no industry since timber ruled the state.

“I don’t think there is an industry out there that has invested $5.5 billion in rural Oregon over the years like the wind guys,” said Audley, deputy director of the Portland-based advocacy group Renewable Northwest Project.

But that preface is followed by a stark and troublesome reality.

“Whether or not there will continue to be projects in Oregon,” Audley said, “is the thing we’re dealing with now.”

After a decade of unprecedented growth that left the vistas along the Columbia Gorge dotted with wind turbines, the wind energy industry is facing a series of challenges that could determine whether Oregon remains a vital market for large-scale wind projects.

The Business Energy Tax Credit, the state incentive program credited with fueling much of the growth, was disassembled last year and replaced with a new power-generation tax credit that excludes large wind energy projects.

At the federal level, a grant program for renewable energy products created by the 2008 federal stimulus bill and extended in 2010 expired at the end of the year with little hope of revival.

Meanwhile, the federal energy Production Tax Credit program, which provides a 2.1 cents per kilowatt-hour tax credit to owners of wind farms, is set to expire at the end of 2012. Unless it’s extended analysts fear the industry could begin to shrink.

Add to that the ongoing struggle with the federal Bonneville Power Administration over how to accommodate both wind and hydro energy on the power grid with the need for improved power transmission systems to move electricity from where its being generated to population centers, and the future of wind in Oregon grows even murkier.

With so much uncertainty overhanging the industry, wind farm development is already starting to slow.
No new development

Portland-based utility PacifiCorp, which holds the nation’s second-largest wind energy portfolio, plans to hold off on adding to its holdings until at least 2018, when it expects transmission infrastructure to improve.

“We have substantial wind holdings and we’ll add a fair amount more of that starting in 2018,” said PacifiCorp President Pat Reiten. “But we have to wait until then because it’s dependent on transmission investment. We think the best place to put wind is in Wyoming where it’s extremely transmission constrained.”

Roby Roberts, vice president of communications and regulatory affairs for EDP Renewables in Vancouver, Wash. – formerly known as Horizon Wind Energy – said his company continues to work on several projects in the Northwest.

“But we slowed the pace until we see the possibility of getting a power purchase agreement, and we don’t see a lot of those right now,” Roberts said. “This market is a handful, that’s for sure.”

The problems facing developers aren’t limited to policy and infrastructure. Roberts said certain basic economic indicators are just as challenging.

Energy consumption, for example, is down, hampering demand for renewables.

Meanwhile, Diana Enright, a spokeswoman for the Oregon Department of Energy, notes that on Nov. 24, the spot price for natural gas reached the lowest level in two years, making it more difficult for wind energy to compete in the marketplace.

“I think anybody would tell you there are a whole lot of factors that affect renewable energy development,” Enright said.

Yet even with those market pressures, the wind energy market – at least for now – is still growing.

Enright said six new wind farm projects are going through the permitting process in Oregon. Just in the last few weeks, E.On Climate and Renewables North America filed a notice of intent to erect the Brush Canyon Wind project, a 500-MW wind farm covering 85,000 acres in Wasco and Sherman counties.

Wind energy installations in the U.S. are projected to total 7,300 MW at the end of 2011, growing to 8,000 MW in 2012 – and that’s including the expiration of the federal grant program, said Ethan Zindler, head of policy analysis for Bloomberg New Energy Finance in Washington, D.C.

Further helping the cause of wind developers, the market today is oversupplied with wind turbines, putting pressure on manufacturers to dramatically reduce prices.

“This is bad news, generally speaking, for manufacturers, but it’s good news for project developers because they can get the equipment at a lower cost,” Zindler said.
The credit question

But even that generally positive outlook gets bleaker when discussing the fate of the federal production tax credit and other programs that have helped developers finance the building of wind farms.

A federal grant program was instituted as a more convenient alternative to a tax credit. It was a direct cash payment that, unlike a tax credit, didn’t require a developer to find a tax equity investor to monetize it.

Congress, Zindler said, doesn’t appear to have the appetite to revisit the grant program, leaving developers with the federal production tax credit as the only remaining government incentive designed to help manage the financing of wind projects.

Congress has the next year to decide whether that program is worth extending. It has let the tax credit lapse three times before, Zindler said, with each time leading to a precipitous drop in new wind energy installations.

“In 2013, if you’ve got no grant and no tax credit, then it’s a serious problem,” Zindler said.

For Audley at the Renewable Northwest Project, the solution seems to be in working within the political process to make the case to keep incentive programs intact.

Renewable energy advocates in Oregon last year seemed resigned to the fact that they would lose the BETC program as they knew it.

They exited last year’s Legislature believing that, at the very least, they retained the structure of an incentive program, even if those programs didn’t have the funds necessary to support a growing industry.

By working with Gov. John Kitzhaber and other policy-makers, groups like the Renewable Northwest Project hope to keep the importance of renewable energy to the state’s economy at the forefront.

“I guess what I want to emphasize is this industry has been good for the Pacific Northwest and brought jobs and economic investment,” Audley said. “Our challenge is to reconstruct an environment that will continue to bring those jobs and investments to Oregon, especially in those rural parts of the state.”