Government incentives and state mandates are allowing green energy to sprout in certain places. But the possible removal of some of those stimulants could cause the industry to begin gasping for air. Fiscal austerity is one cause. But so too is the growing skepticism of wind and solar energy and its variable nature.
Part of the discussion comes down to the age-old question as to whether government ought to be in the business of picking winners and losers. If wind and solar are competitive, they would make their way into markets, say free market thinkers. The flip-side of that is that the public is demanding cleaner energy and it is therefore the government’s role to motivate such development through the use of environmental laws and tax breaks.
Green market incentives have been bargaining chips in the high-stakes world of political deal making. It’s no surprise then that the tax breaks supporting development have been ensnared in the current budget fights. In fact, an upfront cash credit has already expired while the production tax credit for kilowatt hours generated will end this December. Both could get resurrected in exchange for maintaining the tax deals given to coal, natural gas or oil companies.
Skeptics of green power have another, equally pragmatic concern, which is the management of the transmission grid. To the point, wind and solar are intermittent. That makes it difficult for the “traffic cops” to schedule those resources so that the electricity keeps flowing. Those grid managers’ task is to maintain reliability with the lowest-priced fuels.
Consider California: It now has 3,000 megawatts of wind. In a few years, that will be 7,000 megawatts. A few years later, it will be 10,000 megawatts. By 2020, the goal is to have 33 percent of electricity generated from renewable energy. To that end, the wind does not blow on demand.
“That’s making grid operators nervous,” says Jim Detmers, principal in Power Systems Resources and the former chief operating officer of the California ISO, in a prior talk with this reporter. “We have to be truthful about what the impact will be. These new embedded costs will be significant.”
What are those added costs? Getting “backup” generation in place that can quickly crank up when the wind dies down. But such “firming” or “cycling” is not only expensive but it can also be dirty. If coal plants are “cycled” up and down, they will release more pollutants per unit of output than if they ran full steam ahead.
Should U.S. lawmakers maintain the incentives and mandates or set out to smother them? The American Wind Energy Association responds that green energy remains the foundation for new economic opportunities and that the cash and tax credits as well as renewable portfolio standards are necessary: U.S. wind companies have contributed 35 percent of all new generation capacity over the last 4 years, which is second only to natural gas but still more than coal and nuclear combined.
Indeed, nearly 50,000 megawatts of wind power is installed here with another 8,300 megawatts under construction. All that is taking place in 31 states and it is responsible for thousands of jobs. The production tax credit alone generates millions of dollars in value not just from wages but also from vendors and land leases, says an earlier evaluation by GE Energy that makes wind turbines.
The cash credit has only been around since 2009. But the production tax credit is more mature and has been allowed to lapse multiple times. Each time it is re-instituted, development takes back off – a key reason why wind advocates are urging an end to what they believe is political gamesmanship. Despite the tumult, production costs have dropped 80 percent over the last 20 years, which the wind industry says is partly because of a proactive government.
“The stakes here could not be clearer,” says Denise Bode, chief executive of the wind association. “Economic studies have shown that congressional inaction on the production tax credit will kill 37,000 American jobs, shutter plants and cancel billions of dollars in private investment.”
What about the need for backup generation and the resulting higher emissions? While cheap and abundant shale gas is a primary competitor to wind, it can still provide a much-needed assist when the wind stops blowing. Regulators, meantime, are favoring natural gas because it releases fewer emissions than coal.
Green energies are getting better and cheaper irrespective of government’s stop-and-go policies. But wind power still requires a reliable generation source that adds both cost and pollution. Grid managers already know this. Consumers need to better understand it. And U.S. lawmakers need to figure out a way to resolve the political and economic paradox.