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Economic and dam related articles

Turbulent Times

by Johanna Peace
Sustainable Industries, March 31, 2010

With a record-breaking 10,000 megawatts (MW) of added capacity in 2009, wind remains one of the fastest-growing renewable energy industries in the nation.

West Coast states stand at the forefront of that surge. Both California and Washington already rank among the top five states for cumulative installed capacity--totaling 2,794 MW and 1,980 MW respectively--while Oregon added a hefty 691 MW last year to bring its total to 1,758 MW, according to American Wind Energy Association (AWEA).

But the winds may be shifting for this flourishing industry, and the West is no exception.

An ongoing recession has states and investors tightening their purse strings, and short-lived incentive programs threaten to create an uncertain market that could send manufacturers and developers to more lucrative regions. As incentives and tax credits dry up, the booming wind industry faces an increasingly uncertain future.

As the blades turn

It's not all bad news for the wind industry nationwide--in fact, by most measures, it's full steam ahead.

In February, General Electric marked a milestone for both the industry and its own company's growth when it announced the installation of its 13,500th turbine worldwide. Now North America's largest wind turbine supplier, GE watched its annual revenue from wind energy swell from $200 million to $6 billion over the past eight years.

Federal stimulus dollars have been a particular boon for wind developers and manufacturers, helping to prevent a projected 50 percent decline in installed capacity during 2009. Thanks to that boost, about 2,000 jobs were created in 2009 alone in the operation, construction and maintenance of wind farms, even as dwindling investments erased about the same number of jobs in the wind-manufacturing sector.

Liz Salerno, director of industry data and analysis at AWEA, credits the stimulus with rescuing the wind industry after 2008's economic crisis brought financing for wind projects to a grinding halt. "Almost instantaneously [after the stimulus took effect], projects started moving forward again," she says. "And not only projects that had been started earlier in the year--we started to see new projects getting started. It gave a signal of hope to the industry."

The stimulus measures helped kick-start investment for Iberdrola Renewables, according to Jan Johnson of the Portland-based company. Iberdrola, the second-largest wind operator in the United States, invested $2 billion in wind projects in 2008. The company planned to cut its investments after the financial collapse, but found that federal programs helped it meet and exceed its investment targets for the year, according to Johnson. Iberdrola earned almost $550 million in U.S. Treasury grants for eight projects in 2009, and the company has announced it will invest an additional $6 billion in wind over the coming years.

AWEA's Salerno says Western states stand to gain more jobs and significant renewable energy resources in 2010 as construction on major wind projects continues to move ahead.

After earning Washington Governor Christine Gregoire's go-ahead in February 2009, the Desert Claim Wind Power Project is slated to break ground in Washington in 2010 and bring 300 jobs and 190 MW of renewable energy to the state. In California, eight new wind projects kicked off in 2009, with the largest promising to reach a 150 MW capacity.

And in Oregon, the $2 billion, 338-turbine Shepherds Flat wind farm, due to be completed in 2012, is expected to employ more than 400 people in construction and reach a capacity of 845 MW--making it the world's largest land-based wind farm.

Poised on the brink

Though stimulus funding brought a breath of fresh air to the wind industry, it didn't add up to net job growth-- during 2009, the number of Americans working in wind energy remained steady at about 85,000.

What's more, the American Recovery and Reinvestment Act's convertible tax credit provision--which lets energy developers forego tax credits in favor of direct grants--runs out in 2012. That could leave thousands of jobs hanging in the balance, particularly for the manufacturing sector. "Historically, tax credits have been short term in nature," Salerno says. "They expire, and when that happens, we usually see annual projects drop by 70 percent to 90 percent. That's not an environment that manufacturing can thrive in."

According to a recent report released by AWEA and other RES Alliance members, California could gain as many as 6,000 wind jobs and Oregon 4,000 by 2025, with more than half of those likely to be in manufacturing. But that's only if federal lawmakers pass a renewable energy standard calling for 25 percent of the nation's power to come from renewable sources by 2025. "We have to put a policy in place that's long term and stable in order to create the market certainty that has eluded us for decades," AWEA's Salerno says. "That would allow manufacturers to expand out and add jobs."

Though a national RES has solid support in Congress, RES Alliance says the provision needs to pass sooner rather than later. Otherwise, the U.S. wind industry could suffer a dramatic slowdown as manufacturers take their business into more stable wind markets in Europe and Japan.

Unstable state incentives

The federal level isn't the only place where a changing wind incentive landscape is leaving future markets precarious. In Oregon, recent amendments to the Business Energy Tax Credit (BETC) could make it harder for developers and investors to get new wind projects off the ground.

When the BETC came into widespread use about five years ago, it immediately gained popularity with developers. The program offered tax credits worth as much as 50 percent of project costs up to $20 million--an incentive unparalleled in nearby Washington or California.

It had other unique perks, as well. "It was very well liked because of the fact that the credit can be monetized and sold up front," says Dan Eller, a tax attorney with the Portland-based Schwabe, Williamson & Wyatt. "It's laudable because if you get the investor in at the beginning and you get though the application process, the investor can get the credits now, separated from the actual production of energy. They're not subjected to this artificial need to have a partnership for 15 years, and they have certainty in their investments going forward."

But the BETC became too successful for Oregon's shrinking budget, and the number of credits authorized under the program quickly exceeded what the state had expected to pay. Meanwhile, an economic downturn made state tax revenues even more crucial and Oregon saw as much as $180 million in claimed credits disappear from its balance sheet in a year--so in late 2009, lawmakers convened a special legislative session to address the problem.

"The BETC has helped create thousands of jobs and leverage hundreds of millions of dollars in private investment across the state--but every tax credit has a shelf life and should be routinely reviewed to ensure it is still necessary to achieve its primary objective," Oregon governor Ted Kulongoski said at the time. In early 2010 Oregon's House Revenue Committee passed Bill 3680 to modify the BETC, capping available credits at $300 million for the 2009-2011 biennium. The legislation also began phasing out the tax credit for large-scale wind, slashing the cap for projects over 10 MW to $3.5 million in 2010, $2.5 million in 2011 and $1.5 million in 2012.

According to Eller, that could signal trouble for the wind industry as more projects face obstacles to getting investors on board. "If we never run into the cap, it won't be an issue. But if the cap is lower than the appetite, then that can affect deals," he says.

In such a scenario, a petering demand for turbine components would likely cause manufacturing jobs to drop off. Fewer new and large wind projects could also put the brakes on Oregon's rapidly expanding capacity numbers, making it harder for the state to meet its RES of 25 percent by 2025. Some see the changes to the BETC as a signal that the state is putting a lower priority on developing wind energy. "The legislature has certainly looked at wind energy as being less important for investment capital right now than other types of renewable energy," Eller says.

Chris Taylor, head of North American wind and solar development at Element Power, says that legislative attitude threatens to derail the considerable progress Oregon has made. He largely attributes that progress to the BETC. "Oregon is not the windiest state in the U.S., and its power prices are not the highest. Oregon's success in growing this industry has owed more to the policies the state has adopted than anything else."

At the same time, Oregon's worsening policy landscape is by no means unique to that state. Jim Voorhees, project manager at Seattle's Ridgeline Energy, says he's seen state and federal policy changes in recent years--including Oregon's BETC reform-- create a more restrictive environment for wind development across the board. "I see a general trend to restrictions of development, versus one state or the other standing out as the most wind- friendly," Voorhees says.

Mo' money Most industry insiders say the battle for financing is still the biggest challenge facing wind developers today. "It's still a tight, competitive world out there," Voorhees says. And the financial turmoil of 2008 and 2009 has been no help: "Now you have to get four, five, seven banks to agree on it so they can spread that risk. It makes it difficult to get projects out the door."

Then there's the well-known NIMBY phenomenon, which seems to be a growing obstacle as the wind industry matures [see "Land of the free," Sustainable Industries, Ocotber 2009]. "The public is more familiar with the technology now," Voorhees adds. "People recognize wind projects. The novelty has worn off, and they're asking, do we want it as part of our community?"

Taylor says the changing process has added time and cost to developing projects, sometimes due to regulatory initiatives conceived and set without input from developers themselves. But he sees heavier regulation as a sign of the wind industry maturing. "If we want to be taken seriously as a big industry, we need to act like one, and that involves having standards and regulations. Nobody would want the coal industry to be unregulated."

Despite all the stumbling blocks, there are also signs of hope for the future of U.S. wind power. Manufacturing capacity has improved, opening the door for even more job gains in the industry--and although electricity demand is historically low, making it hard to finance new wind projects, the capital costs to build a wind farm have dropped too.

That's why most regional developers believe U.S. wind energy is still on the road to success in the coming years. "It's an adolescent industry," Voorhees says. "We just have to work through it."


Johanna Peace
Turbulent Times
Sustainable Industries, March 31, 2010

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