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APRIL, 2003
Production Tax Credit The federal policy that has been most effective in driving wind energy development in the last decade has been the wind energy production tax credit (PTC). Under current law, an income-tax credit of 1.8 cents is granted for each kilowatt-hour (kWh) of electricity produced by wind energy facilities built before the credit expires. Eligible facilities will receive the credit for 10 years. The value of the credit is indexed for inflation. It was created under the Energy Policy Act of 1992 and originally set at 1.5 cents/kWh. The PTC is now set to expire at the end of the year. Several bills to renew the tax credit have been introduced in this session of Congress, and an extension is part of wide-ranging House and Senate energy policy bills. The PTC itself has broad bipartisan support. However, its inclusion in a complicated energy policy bill makes the date of its passage uncertain. The effect of short-term extensions of the production tax credit leads to a roller-coaster “boom-and-bust” environment of short-term planning, in which potential investors become hesitant to provide capital for wind projects. A rush to complete projects before the deadline leads to added costs resulting in higher electricity prices. Businesses are also wary of committing resources to the market. AWEA is advocating for the longest possible extension of the production tax credit. A longer-term extension will create an environment where project developers can receive better lending terms and manufacturers can take advantage of greater economies of scale, thereby reducing the cost of wind projects and increasing the attractiveness of wind power as a generation source. Increased Transmission Availability One of the main problems that wind power development is starting to face is availability of transmission capacity. Wind power facilities are more dependent on transmission access than most conventional sources of generation because facilities are site-specific and usually located in remote locations. The Federal Energy Regulatory Commission (FERC) has proposed standardizing electric system rules in its Standard Market Design (SMD) proceeding. The new proposal would modernize the wholesale electricity market, rationalize transmission charges for use of the common grid, and help to remove transmission bottlenecks in windy regions of the country. AWEA's policy director said, "We are very encouraged by the steps that FERC is taking. The key to the importance of SMD is that it levels the playing field between new and existing resources and between wind and conventional technologies." AWEA has estimated that the savings in transmission-related charges that the SMD tariff could bring to wind projects, compared to current rates, could be more than 2 cents/kWh. In addition, the SMD proposal would establish a process for interconnection of new generation facilities that could allow wind projects to connect in a matter of months rather than years, and would significantly "expand" the effective capacity of the existing transmission system without building new facilities or transmission corridors. Renewable Portfolio Standards Thirteen states have passed laws or regulations—known as renewable portfolio standards (RPS)—that require utilities in the state to procure a certain amount of the electricity they sell from renewable sources. These laws are written in various ways, the most effective at stimulating wind development so far being the law passed in Texas. The important elements of the Texas law were: 1) the renewable requirement was high enough to drive development, starting small and rising over time; 2) utilities were able to use market mechanisms to comply with the law, creating an incentive to develop projects at the best sites, regardless of where they were in the state; and 3) the utilities faced a cost for not meeting the standard. The Texas RPS, together with the PTC that lowers the price to utilities of the wind power, resulted in more than 900 MW of wind power development in 2001, more capacity than had ever been installed in the entire country in a single year. This is enough power to meet the needs of more than 220,000 homes. An RPS has been proposed on the national level, but is currently caught up in the energy policy debate that is taking place in Congress. State-level standards are being considered in a number of jurisdictions. Small Wind Investment Tax Credit The U.S. Senate energy policy bill would create a new tax credit of 30% of the cost of a small wind system (rated at 75 kW or smaller). This credit would be available to businesses and individuals who invest in a wind turbine for personal use, as opposed to the production tax credit, which is only available to businesses that own utility-scale systems. This credit is not included in the House version of the energy policy bill. Government Purchase Requirements Federal and state governments are some of the country's largest energy users. A requirement that government entities purchase a portion of its energy needs from renewables allows the government to lead by example by taking a positive action to increase America’s use of domestic, non-polluting energy sources. The State of Pennsylvania, for example, pledged to purchase 5% of the state government's energy from renewable resources for two years beginning Jan. 1, 2002. The contract covers 100 million kWh of electricity, about 5% of the state's total usage. Twenty percent of this purchase of green power will be supplied by wind power. This wind purchase for 2002 and 2003 is equal to the generation from 5 of the wind farm's turbines, which is the equivalent of planting 1,630 acres of trees each year, or taking 856 cars off the road. Public Benefits Funds More than a dozen states have taken the step of creating a renewable energy fund, usually funded out of a very small charge on transmission fees. Such funds, called public benefit funds or clean energy funds, have been found to be one of the best ways to support wind on the state level. According to a Lawrence Berkeley National Laboratory (LBNL) report entitled "Utility-Scale Renewable Energy Projects: A Survey of Clean Energy Fund Support," 15 states have created "clean energy funds." In the coming decade, these 15 funds are expected to collect more than $3 billion to be allocated in support of renewable energy. The three most common forms of incentives used to support large renewable generation projects to date are grants, forgivable loans, and production incentives. Through these measures, state clean energy funds have allocated more than $265 million over the past four years in support of a potential 1,500 MW of new renewable capacity. So far, however, only a small fraction of this capacity has been built, underscoring the significance of remaining barriers to development. For more information: For updates, policy priorities, and wind energy facts, go to http://www.windenergyaction.com/ . AWEA's main Web site at http://www.awea.org/policy contains some basic policy information and fact sheets. For more timely news, AWEA's weekly newsletter, the Wind Energy Weekly, is available in a complimentary, time-delayed version. If interested, send a blank e-mail to windenergyweekly-subscribe@yahoogroups.com . The report, "Utility-Scale Renewable Energy Projects: A Survey of Clean
Energy Fund Support," can be downloaded from LBNL's renewable energy
publications Web site at
http://eetd.lbl.gov/ea/EMS/EMS_pubs.html#RE
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©
2003 by the American Wind Energy Association. |
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