SUBSIDIZING WIND

Turbomachinery International, Oct 2008 by Robb, Drew

THE INDUSTRY DEMANDS A LEVEL PLAYING FIELD AND STABLE POLICIES

Opinions are split when it comes to the Production Tax Credit (PTC), a subsidy that materially helps the expansion of the U.S. wind industry. The most recently available figures from the U.S. Department of Energy (DOE) for 2006 show wind receiving just over a half billion dollars in subsidies. The U.S. Congressional Committee on Taxation estimates that continuing this subsidy for the next 10 years will be equivalent to the U.S. government spending over $11.5 billion.

There is a general consensus that renewables need to be subsidized to promote their use. However, some argue for reducing the subsidy for wind and doing more to bolster other renewable sources.

Even within the wind industry itself, there are divergent views on the PTC. Many are staunch supporters. Some can see better long-term solutions. And a few are downright opponents. "It is time to jump off the PTC treadmill," says Paul Gipe, a thirtyyear veteran of wind energy.

Vested in wind

Opponents of wind say that giant wind turbines spoil the scenery, or protest that the southern states lack good winds. U.S. Senator Lamar Alexander (R-TN), for example, says, "Let us take the available money and extend for two years the production tax credit, and let some of it go to open-loop biomass, more to small irrigation power, more to landfill gas and trash combustion, and qualified hydropower and wave and tidal power."

Wind proponents say that the subsidy has a multipler effect on the economy by providing more jobs. The American Wind Energy Association (www.AWEA.org) claims that failure to extend the PTC could cost the economy far more in terms of jobs and dollars. "Some 116,000 jobs and nearly $19 billion in clean energy investment are at risk," says Gregory Wetstone, senior director of government and public affairs at AWEA. A study by Navigant Consulting, though, stated more conservatively that failure to promptly extend the PTC places at risk 76,000 wind industry jobs and Sl 1.5 billion in economic investments by the end of 2009.

The PTC was originally introduced in 1992. It amounts to a subsidy of 2.1 cents per kWH produced. Since its original introduction, it has a history like a soap opera romance of being on again, off again. The PTC is in for a short period and then is allowed to expire for many months with a period of uncertainty as to whether it will be reintroduced.

Congress has allowed the PTC to expire three times before renewal, each time creating uncertainty about the industry's future. "The pipeline of investment for 2009 has been on hold for months," says Randall Swisher, executive director of AWEA.

The result is a boom-and-bust cycle that is detrimental to the industry (Figure 1). Record years of U.S wind capacity build in 1999 and 2001 were followed by collapses the following year. Another slump happened after PTC expired at the end of 2003.

A stable PTC since 2005 has meant four record years in succession - almost 2,500 MW in 2005 and again in 2006, followed by over 5000 MW in 2007 and a projection for over 7000 MW this year. As a result, the U.S. is now number two in the world in terms of installed capacity behind Germany, and is the world's top producer of wind energy output.

It took 30 years for the wind industry to pass the 10,000 MW mark in the U.S. and two years more to pass the 20,000 mark (in the middle of 2008). If the PTC is upheld, the nation is certain to pass 30,000 MW during the first half of 2009. Last year, wind represented 34% of the country's new electrical capacity.

This year, Congress managed to ratify a one-year extension of PTC after a pre-election nailbiter. If that legislation had failed, the results could have been dire. Thomas Carbone of Vestas Americas, for example, says that during the nine months of 2004 without the subsidy, his company decided to deploy its turbine fleet in other parts of the world.

Expanding facilities

Vestas had been dallying with grand U.S. expansion for some time. With a stable policy framework in recent years, the company finally launched major plans for U.S. production. It broke ground on a blade factory in Windsor, Colorado in 2007, which opened in 2008. The 400,000 sq. ft factory adds about 650 jobs.

"Not only are we now able to manufacture the blades nearer to where the wind turbines are installed, but we are also sending a clear and strong message to politicians that wind power is a significant driver for sustainable economic development," says Jens Søby, president of Vestas Americas.

Now Vestas is poised to take a bigger step - it is adding a second blade facility, as well as an adjacent turbine manufacturing plant at a site near Denver. Up to 1,400 2 MW and 3 MW turbines will be made there by 2010. The favorable long-term prospects of the U.S. market justify the investments, in spite of the prevailing uncertainty as regards the extension of the PTC scheme, says Ditlev Engel, worldwide president of Vestas.

The last three years, in fact, has seen the largest expansion in U.S. wind energy manufacturing space in history. As well as Vestas, suppliers such as GE, Gamesa and Clipper Windpower have added significant square footage on this continent.