2009 Industry Forecast: New Power Politics Will Determine Generation’s Path

Kennedy Maize; Angela Neville, JD; and Dr. Robert Peltier, PE

Pages: 1 2 3 4 5

Renewable Projects Get a Second Wind

Renewable energy, particularly wind, has been the fastest growing electricity-generating technology in the past five years or so. Environmentalists and advocates for technologies to displace fossil fuels have long pushed wind and other renewables (but not politically incorrect hydro) as the answer to the question of how to cut U.S. greenhouse gas emissions while ensuring low-cost electricity (Figure 4).

4. Renewables are a growth industry. Renewable energy contributed 7% of total U.S. energy demand (and 8.4% of total U.S. electricity generation) in 2007, the last full year data is available from the EIA. The sum of components may not equal 100% due to independent rounding Source: Energy Information Administration

According to the American Wind Energy Association, the wind industry installed 1,389 MW of nameplate capacity in the third quarter of 2008, "bringing to 4,204 MW the total of wind power projects completed in what is expected to be another record year." With congressional wind production credits once again renewed (as part of the $700 billion bank bailout), 2009 looks to be another good year for wind.

But there’s a downside. Congress renewed the tax credits for another year only. That sets up a battle in the new Congress and creates uncertainty on the part of investors in renewable energy projects, which are mostly wind projects. It also reflects a concern that wind and solar, which drive up overall electricity prices, aren’t an economically sustainable answer to the need for new generation (see sidebar, "Wind Power Goes Mainstream").

Wind Power Goes Mainstream

Climate change issues, a struggling economy, and technical and legal problems related to the development of carbon capture and storage technologies don’t seem to bode well for the future of our country’s electrical generation industry. Nonetheless, wind energy appears to be one bright spot on this somewhat gloomy horizon.

In October, Edward Zaelke, a partner with the law firm of Chadbourne & Parke LLP, participated in a finance and investment workshop sponsored by the American Wind Energy Association (AWEA). He pointed out that, despite the current general financial turmoil in the U.S., there remains a great deal of interest in renewable energy, including wind power.

"Industries that do well through tight economies tend to perform even better when the economy recovers," he said. "Once the financial dust settles, I would not be surprised to see renewable energy be one of the key leaders in the new economy."

With the U.S. wind energy industry posting its fourth record year in a row in 2008 and rolling up its sleeves to help tackle the impacts of the financial crisis and economic downturn, AWEA stated in November that it looks forward to working with President-elect Barack Obama and Congress on a new energy policy agenda that will encourage continued investment in wind energy.

"During the campaign, President-elect Obama spoke of moving America toward a new energy future by facilitating investments in clean energy and revitalizing our economy in the process by creating new, green collar jobs," said Randall Swisher, AWEA’s executive director. "The U.S. wind energy industry is ready to work with our new leaders to help revitalize the American economy."

"Wind energy’s recent rapid growth is evidence of its strong economic fundamentals and huge potential," Swisher said. "The U.S. Department of Energy reported in early 2008 that wind could provide 20% of U.S. electricity by 2030, supporting 500,000 jobs and reducing greenhouse gas emissions as much as taking 140 million vehicles off the road."

On November 13, the leaders of the AWEA, the Geothermal Energy Association, the National Hydropower Association, and the Solar Energy Industries Association released a joint statement in which they emphasized that the new Obama Administration and Congress need to take action to ensure that the renewable industries’ growth continues, given the current challenging economic realities.

In their statement, the renewable energy industries spelled out what actions they want the Obama Administration and the 111th Congress to take in the near future:

Adjust renewable energy tax credit policies so incentives work as intended given the current economic conditions.
Adopt a national renewable electricity portfolio standard to ensure that at least 10% of electricity consumed in the U.S. is derived from renewable energy sources by 2012, and at least 25% by 2025.
Approve a minimum five-year extension of the federal renewable energy production tax credit and additional funding for the Clean Renewable Energy Bonds program.
Issue an executive order expanding federal procurement of renewable energy generation to meet the government’s substantial energy supply needs.
Launch a major initiative to support investment in the U.S. interstate electrical grid infrastructure and smart-grid technology to deliver green energy from areas with renewable resources to population centers and to support distributed power generation.
Invest $30 billion in 2009 for financing options that support new project development and installations for all renewable energy technologies as part of the Obama Administration’s commitment to investing $150 billion over the next 10 years in clean energy technologies.
Adopt a cap-and-trade regime to reduce GHG emissions that rewards the production of clean renewable energy.

"If the new Administration and Congress can quickly implement these policies, renewable energy growth will help turn around the economic decline while at the same time addressing some of our most pressing national security and environmental problems," Swisher said. "Expansion of renewable energy production will mean billions of dollars in economic growth, millions of new jobs, enhanced energy security as we increase domestic energy production, and critically important progress in reducing GHG emissions."

— By Angela Neville

The exponential growth in wind capacity seen in the U.S. comes from a tiny base, and wind remains a miniscule contributor to U.S. electricity supplies. The claims of wind and solar advocates that renewables can effectively replace baseload or even peak generation are overblown, according to many experts. Wind and solar are not dependable replacements for fossil-fueled generation, according to these critics.

A recent article by Carnegie Mellon University researchers Jay Apt, Lester B. Lave, and graduate student Sompop Pattanariynkool, in Issues in Science and Technology, lays out a powerful critique of renewables in general and the specific trend toward state (and potentially federal) renewable portfolio mandates. The summary of "A National Renewable Portfolio Standard? Not Practical," states, "Legislation that mandates specific electricity production from renewable sources paves a path to costly mistakes because it excludes other sources that can meet the country’s goals."

Renewable energy, say the article’s authors, "seems to addle the brains of many sensible people, leading them to propose policies that are bad engineering and science or have a foundation in a yearning for utopia."

A national renewable generating mandate, a goal of the incoming administration in Washington, they argue, is a bad idea for three reasons. First, "renewable" and "low greenhouse gas emissions" are not synonymous, as "there are several other practical and often less expensive ways to generate electricity with low CO ₂ emissions." This is a veiled reference to "generating" what’s known as "negawatts" (a term coined by Amory Lovins) through energy conservation and energy efficiency. In fact, some utilities are negotiating with their regulators to add energy conservation project investments (such as projects that subsidize the replacement of older refrigerators with Energy Star models) to their rate base in order to earn a guaranteed rate of return. Whether regulators will put investments that promote end user conservation on the same footing as major generation construction projects remains to be seen.

Also, locations for wind and solar generation are generally far from the loads they must supply, leading to "unpopular and expensive transmission lines" to move the power to the market. Transmission lines that cross states but confer no local benefits have historically drawn intense opposition.

Finally, the Carnegie Mellon team argues, because it’s unlikely developers would build the needed transmission lines, a national market to allocate carbon reductions through trading would mean supply disruptions and cascading grid blackouts. "Renewable energy resources," says the report, "are a key part of the nation’s future, but wishful thinking does not provide an adequate foundation for public policy." A national renewable portfolio standard, says the report, "could cause a backlash that might doom renewable energy even in the areas where it is abundant and economical."

FBR Capital Markets analyst Kevin Book predicts that the 111th Congress, probably in 2010, will approve some form of carbon dioxide regulation. The legislation, he told reporters recently, will be enacted not because the carbon restraint will change behavior. Rather, he argued, it will be enacted because the regulation — cap-and-trade, carbon tax, or whatever one choose to call the surcharge on fossil-fueled energy — will be a way for the federal government to raise money. It will be, in short, a new tax.

What do all these indicators mean for U.S. electricity supply? As in the recent past, it looks as if the industry will continue muddling through. It may see advancement in infrastructure investment, significant new generation, or new technology development. But it also faces the possibility that the policies necessary to achieving those goals will not materialize, for political and economic reasons. In the words of the 1970s disco group the Bee Gees, in the splendid film Saturday Night Fever, it’s likely to be a case of "Stayin’ alive, stayin’ alive."