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Wind Proponents Blast Washington by Steve Gelsi MarketWatch, June 2, 2008

Industry calls for production-tax credits, help with building transmission lines

NEW YORK -- Wind-energy leaders meeting at the biggest-ever industry conference on Monday called on the federal government to both extend federal tax credits and pave the way for more grid infrastructure to help the United States tap into this vast, clean form of electric power.

All told, more than 12,000 people flocked to Houston for the Windpower 2008 Conference & Exhibition, up from about 7,000 last year, with the industry looking to make strides toward generating 20% of the U.S.'s electric power needs by 2030. Some 770 exhibitors are taking part, including wind-power plant developers and turbine manufacturers.

Alexander Karsner, assistant secretary of the U.S. Energy Department, said that the Bush administration supports the production-tax credit as debate over energy legislation ramps up this week in the U.S. Senate.

"Not only would we like to see it extended, we'd like to see it improved," Karsner commented on a conference call for the press. "Right now, it's caught in political trench warfare in the House."

He added that Congress should extend the tax breaks for more than the customary one-year period approved in the past. "The production-tax credit and these chronic temporary implementations are not good for the wind industry."

'There's a tremendous capital-market attraction to invest in transmission. It's low risk. The big issues are the siting [of transmission lines] and effectively having the right jurisdiction to allow you to build.'

- Hunter Armisted, Babcock & Brown

Vic Abate, vice president for renewables for GE Energy (GE) , a maker of turbines, said that wind could become a "mainstream fuel source" with the right policies in place.

Given the regulatory uncertainty in the United States, GE and others are spreading the investment risk around the globe by funneling manufacturing and other operations to Europe, China and India, he remarked.

Ditlev Engel, chief executive of Denmark-based turbine builder Vestas, noted that the company was launched in 1986 when oil cost about $14 a barrel. Now, Vestas employs 18,000 people and America is its largest market.

"Having potential and realizing it are two different things," he said. "A lot of things have to be done."

Mike O'Sullivan of FPL Energy, a unit of Florida-based energy company FPL Group (FPL) , said that his company has invested billions in wind and plans to keep building its portfolio.

Transmission challenge

Hunter Armistead of investment firm Babcock & Brown confirmed U.S. government projections that it'll cost tens of billions to pay for major transmission lines to carry wind energy from wind-rich locations like North Dakota to energy-burning urban areas such as Minneapolis.

"There's a tremendous capital-market attraction to invest in transmission," he said. "It's low risk. The big issues are the siting [of transmission lines] and effectively having the right jurisdiction to allow you to build." Armistead added that the value of U.S. wind assets in places like East Texas is being dampened by a lack of transmission-line capacity.

"The federal government will have to play a role and assert itself in new ways," concurred Randy Swisher, executive director of the American Wind Energy Association.

Two years of work of wind energy

Wind-energy development requires two types of transmission: trunk lines to carry wind energy directly from turbines and backbone high-voltage lines across long distances.

Indeed, the Energy Department's preliminary report entitled "20% Wind Energy by 2030" projects that wind energy could supply a big part of the nation's s electric power needs in 22 years, but points out that this would require a significant investment in transmission lines. See the government's study.

"A new transmission superhighway system would be required," said the study, which was released last month after two years of work. Among the variety of studies on the subject, utility firm American Electric Power Co. (AEP) called for 19,000 miles of new 765,000 watt transmission lines at a discounted or net present value cost of $26 billion.

The discounted price subtracts the value of the electricity and other items from the price tag.

All told, the nondiscounted estimate totals about $60 billion by 2030, according to one study cited by the report. The investment amounts to about $3 billion per year over the next 22 years, on top of the current annual investment level of about $8 billion a year for transmission now.

"Regardless of wind's role, most analysts believe that this [$8 billion] figure will continue to increase as utilities make up for decades of underinvestment in the grid," the study said.

ERCOT, the independent transmission operator for Texas -- home of the nation's largest wind farms -- has evaluated 12 plans to build transmission lines, including one estimate to add up to 18,000 megawatts of wind energy to the grid at a cost of $3 billion to $6.4 billion.

"Clearly, significant additional transmission capacity would be required to integrate high levels of wind across the country," according to the Energy Department study. "As the studies described here demonstrate, however, meeting this challenge could be economically and technically feasible."

2008 could be record year for wind

The U.S. wind-power industry remains on track to continue its record run in 2008 after the sector installed 1,400 megawatts of new generating capacity in the three months ended March 21, according to figures released in May by the American Wind Energy Association.

If the pace continues, a total of 5,600 megawatts of generating power will be installed in 2008, eclipsing the record of 5,300 megawatts, data from the American Wind Energy Association show.

The new wind-power plans installed in the first quarter of this year produce enough electricity to serve the equivalent of 400,000 homes.