I came across a few interesting factoids recently.

1. In 2007, wind energy not only led renewables in terms of installed capacity in the US, but actually led all forms of generation added that year – including coal.
2. 2008 was a record-setting year for wind generation, with 8,500 MW coming online – adding almost 50% to the domestic wind generation capacity.

If that’s all you knew about wind power in the US, you might think that the future for wind power looks pretty good. But here’s the catch: the federal Production Tax Credit (PTC) for wind and other renewables expired last year. In every previous instance that the PTC has lapsed, new wind installations plummeted the following year.

This year is no exception. According to a story in Forbes magazine this week Wind Sector Looks To Congress For Lift – Forbes.com:

Following a half-decade-long boom, the wind energy sector went bust in the second quarter of 2009. Some 1,200 megawatts of new wind projects were completed during the quarter, the American Wind Energy Association said Wednesday, half the average for the previous four quarters, when wind developers installed nearly 10 GW of generating capacity, making the U.S. the world’s largest wind market.

This is particularly critical for wind installations because the major cost associated with wind is the upfront cost of development. (Ironically, this is also its major advantage over supposedly “cheaper” coal-fired plants, which require additional outlays for fuel) The PTC has been used as an investment vehicle and sold to the larger investment houses and commercial banks. Unless you’ve been living under a rock for the last six months, you probably know that the financial sector has taken a beating and just recently shown signs of recovery. As a result, they have clamped down on lending in general, much less for multibillion-dollar projects whose viability depends on a patchwork of state incentives and regulation and a Federal tax credit that is only intermittently available. Although the American Recovery and Reinvestment Act renewed the PTC for three years, and added a more streamlined investment vehicle (Investment Tax Credits, or ITC), the hiatus slowed what had been record growth in the industry.

To be sure, there are other problems facing the renewable energy sector. From the Associated Press: Pickens calls off massive wind farm in Texas

HOUSTON (AP) — Plans for the world’s largest wind farm in the Texas Panhandle have been scrapped, energy baron T. Boone Pickens said Tuesday, and he’s looking for a home for 687 giant wind turbines.

The article indicates that the lack of a robust transmission system to feed the Pickens wind farm energy to where it could be used is part of the reason Mr. Pickens has altered his original plan. While the current (relatively) low price of natural gas makes the original Pickens Plan less economical, surely the expiration of the PTC, and inaction by Congress for a national renewable energy standard also factor into the decision.

Echoing Pickens’ concerns, the American Wind Energy Association has been pushing for additional funding for improved transmission lines. From the Associated Press coverage of the AWEA annual conference:

The U.S. has become the world’s biggest wind-power generator and of the electricity production added in the country last year, 42 percent came from wind turbines. But as more megawatts come on line, the problem of getting power from wind-swept plains to places where people actually live becomes more urgent.

“In some ways we’re reaching the glass ceiling,” said Rob Gramlich, vice president of policy at the American Wind Energy Association. It was the organization’s biggest annual conference to date, drawing 1,200 exhibitors and more than 20,000 people.

The country’s grid is aging, often overloaded and, in the case of wide-open states like Wyoming and North Dakota — some of the best places to erect wind turbines — not nearly extensive enough to move electricity to major markets where customers wait.

The wind industry group says it needs 19,000 miles of new high-voltage lines — at a cost of about $100 billion — for wind-farm developers to keep building.

There is really nothing standing in the way of the continued growth of renewable energy in this country – except a lack of political will. And that’s a real shame, because these kinds of projects are what our country and our economy could use right now. According to AWEA, the 8,500 MW added last year pumped approximately $17 billion into the economy, and created 35,000 new, good paying jobs at a time when the overall economy was shedding jobs at the worst rate since the Great Depression.

Sounds like the change we need, all right.

Feds at last announce how to obtain stimulus package cash (in lieu of tax credits) for renewable projects.

Source: http://www.treas.gov/press/releases/tg202.htm

Treasury, Energy Announce More than $3 Billion in Recovery Act Funds for Renewable Energy Projects

Cash Assistance Will Increase Economic Development, Promote Renewable Energy Use

Program Guidance Now Available to Businesses to Facilitate Swift Implementation

WASHINGTON – As part of an innovative partnership aimed at increasing economic development in urban and rural areas while setting our nation on the path to energy independence, the U.S. Department of the Treasury and the U.S. Department of Energy today announced an estimated $3 billion for the development of renewable energy projects around the country and made available the guidance businesses will need to submit a successful application. Funded through the American Recovery and Reinvestment Act (Recovery Act), the program will provide direct payments in lieu of tax credits in support of an estimated 5,000 bio-mass, solar, wind, and other types of renewable energy production facilities.

“The renewable energy program provides another important avenue for the Recovery Act to contribute to economic development in communities around the country,” said Treasury Secretary Tim Geithner. “It will provide additional stimulus to economies in urban and rural America by helping to develop domestic sources of clean energy. This partnership between Treasury and Energy will enable both large companies and small businesses to invest in our long-term energy needs, protect our environment and revitalize our nation’s economy.”

The Recovery Act authorized Treasury to make direct payments to companies that create and place in service renewable energy facilities beginning January 1, 2009. Previously, these companies could file for a tax credit to cover a portion of the renewable energy project’s cost; under the new program, applicants would agree to forgo tax credits down the line in favor of an immediate reimbursement of a portion of the property expense. This direct payment program allows for an immediate stimulus in local economies.

Said Energy Secretary Steven Chu: “These payments will help spur major private sector investments in clean energy and create new jobs for America’s workers. It is part of our broad effort to double our renewable energy capacity in the next few years and make sure that America leads the world in creating the new clean energy economy of the future.”

In previous years, the tax credit has been widely used. It is considered a successful incentive for encouraging the development of renewable energy. In 2006, approximately $550 million in tax credits were provided to 450 businesses. The rate of new renewable energy installations has fallen since the economic and financial downturns began, as projects had a harder time obtaining financing. The Departments of Treasury and Energy expect a fast acceleration of businesses applying for the energy funds in lieu of the tax credit.

To expedite implementation of the program, Treasury and Energy are today making available the terms and conditions, guidance, and a sample application [applications not yet being accepted, btw] at http://www.treas.gov/recovery/1603.shtml so that companies can prepare successful applications in advance of the launch of the web based application in the coming weeks – yet another tool designed to facilitate the timely flow of program funds to eligible businesses.

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Nice, quick Green, Inc. summary here.

Here is an excellent blog entry from Mind The Bridge.

“The American Recovery and Reinvestment Act, passed last February 2009, pours over $65 billion into renewable energy, energy efficiency and greentech financing of which 6.5 billion for R&D. It is a real “Green New Deal”: The most significant effort in public spending in science and technology after the launch of the Apollo Program. And «it only costs the equivalent of a couple of months in Irak» as a blogger commented on the New York Times website. A big part of these dollars is already profiting Silicon Valley start-ups and research centers, which are leading the way through future technological development.”

It continues…

“The most important incentives deployed by the Stimulus Package are the following:

• A large sum for energy efficiency, including $5 billion for low-income weatherization programs; over $6 billion in grants for state and local governments; and several billion to modernize federal buildings, with a particular emphasis on energy efficiency.
• $11 billion for “smart grid” investments.
• $3.4 billion for carbon capture and sequestration demonstration projects (also known as “clean coal”).
• $2 billion for research into batteries for electric cars.
• $500 million to help workers train for “green jobs.”
• A three-year extension of the “production tax credit” for wind energy (as well as a tax credit extension for biomass, geothermal, landfill gas and some hydropower projects).
• The option, available to many developers, of turning their tax credits into direct cash, with the government underwriting 30 percent of a project’s cost.

For more details, I found the DSIRE database very useful to navigate the complex space of federal and state incentives for renewables and efficiency.”

In Silicon Valley, the following companies are eyeing these funds.

“Renewable Power Generation : Thin Film Solar photovoltaic
Solyndra is the first company to receive an offer for a U.S. Department of Energy (DOE) loan guarantee within the Stimulus Package. Solyndra, a Fremont, California-based manufacturer of innovative cylindrical photovoltaic systems using thin film technology, will use the proceeds of a $535 million loan from the U.S. Treasury’s Federal Financing Bank to expand its solar panel manufacturing capacity in California. Also in the thin-film sector, Heliovolt is looking into the Stimulus Package for the development of its technology and production capacity. It is a CIGS thin-film PV panel manufacturer that uses a fraction of semiconductor material used in traditional silicon cells, significantly slicing costs while at the same time achieving performances comparable to traditional silicon cells.

Transportation: Electric Cars and Biofuels
Tesla Motors, Inc. is awaiting word on a $350 million loan application to the Department of Energy that would allow the electric carmaker to build the Model S sedan, which is expected to cost $57,400. Tesla is a Silicon Valley automobile startup company focusing on the production of high performance, consumer-oriented battery electric vehicles. In the biodiesel space, Aurora Biofuels uses proprietary technology developed at the University of California at Berkeley, to produce biodiesel feedstock from microalgae. Based in Alameda, California, Aurora’s technology achieves yields that are 100 times higher and at significant lower costs than traditional bioethanol production methods.

Energy Efficiency:
Serious Materials, a leading sustainable building materials company based in Sunnyvale, CA, announced that it fully supports the American Recovery and Reinvestment Act energy efficiency provisions. “We are already opening plants to meet the Recovery Act demand and hiring what may be hundreds of workers this year.” The company’s products such as SeriousWindows and SeriousGlass can reduce heating and cooling energy costs by up to 50%. Under the Recovery Act, homeowners can receive federal tax credits for “qualified energy-efficient improvements,” which include windows, doors and skylights. The new tax credits are for 30% of the cost of eligible products up to a limit of $1,500.

Efficiency of Infrastructures: Smart Grid Management Systems
Lumenergi, Inc., a Newark, CA based start-up is emerging rapidly in a space populated by large corporations. Lumenergi manufactures advanced and price-competitive dimming electronic ballast for fluorescent lighting that, combined with a proprietary lighting control system, is able to achieve energy savings in the order of 70%. In addition, Lumenergi’s system is Demend Response ready, allowing utilities to save energy at peak loads. This provides a huge opportunity as lighting accounts for 23 percent of all electricity consumption in the U.S. and 50 percent of electricity used in high-rise buildings. Coupled with rebates and grants that are increasingly being offered by utilities or state energy offices, Lumenergi estimates that a customer could get a return on their investment in only two years.

With billions of dollars from the Recovery Act flowing into smart grid investments, pushing utilities towards efficiency, and funding energy efficiency retrofits of commercial and governmental building, Lumenergi and other technology start-ups in Silicon Valley are getting organized to make the most out of federal and state funding.”

Click here to read the full article.

Michael Giberson

Wind power has been subsidized by state and federal governments in the United States because it is seen as clean and renewable, and perhaps even because wind power is seen as glamorous. Consumers pay higher electric rates and taxpayers pay higher taxes to support these subsidies, and it is a quite reasonable public policy question to ask whether the benefits are worth the costs. (Of course wind power is not the only energy technology subsidized by government policy.)

The primary external benefits from expanded wind power production comes from emissions avoided due to the reduced use of fossil-fuel fired electric generation, predominantly natural gas and coal. Which fuel is displaced, however, depends in large part on where the wind power project is located and what time of day the wind power is put onto the grid.

Conventionally, an estimate of reduced emissions might be made through an elaborate production cost modeling exercise, comparing overall use of different input fuels against scenarios featuring different levels of installed wind capacity. It is one useful approach, but it would be good as a reality check to test such estimates against actual data. Two recent estimates of fuel displaced by wind power rely on data analysis to get their results.

A relatively straightforward approach to this estimate was taken by Monitoring Analytics, the external market monitor for the PJM market, in preparing “Estimated Marginal Fuel Displacement By Wind Generation in PJM.” The chart was posted online without accompanying documentation, but folks at Monitoring Analytics tell me their estimate was derived from market data on wind power output by hour combined with data on marginal generation by fuel type by hour. As the chart nearby indicates, about 75 to 80 percent of the wind-produced power in PJM displaced coal-fired power. (Coal is the orange portion of the bars.)

Joseph Cullen took a more data-intensive econometric approach to estimating the fuel displaced and related emission reductions in ERCOT due to wind power. Cullen ran regressions on the output of each non-wind generating unit in the ERCOT market against wind power output to identify the actual responsiveness of each generator to changes in wind power. (I’m over-simplifying his methods. See his paper for details.) In ERCOT, for the time period analyzed, Cullen estimated that about 80 percent of the time wind displaced gas-fired generation and about 20 percent of the time wind displaced coal-fired generation.

One of my policy objections to the production tax credit approach to subsidizing wind power is that it offers the same subsidy per MWh output without respect to the environmental benefits provided (if any). Therefore it tends to be more attractive to the developer to invest where wind power output will be high – i.e. West Texas, among other places – and the external benefits relatively muted – instead of where the external benefits would be high, as in PJM. So much wind power capacity has been added in West Texas, relative to the current grid capability, that wind power capacity in effect just displaces other wind power generation during high output periods.

Why should consumers and taxpayers subsidize that?

From a commercial point of view, it certainly makes sense to build wind power where wind power output will be high. I’m not opposed to smart commercial activity. I don’t see that public policies should subsidize it. Rather, public policy should be oriented at achieving external benefits in a cost-effective manner.

Consumers and taxpayers will end up getting more for their money from policies that put a price on the externality.

Michael Giberson

Last week the New York ISO filed proposed tariff changes with the Federal Energy Regulatory Commission to revise how it treats wind power generation in its markets.  Under the NYISO’s current rules, wind power generators are not treated as flexible resources.  When the transmission system is overloaded, other generators can be asked to back down but wind power would not be reduced under most circumstances.  (Under current rules wind power can be backed down in extraordinary cases, via a cumbersome process, and sometimes generators back down voluntarily due to low prices.)

Under the proposed rules, wind power generators would be treated as flexible resources by the real time market system for output levels from zero up to the forecasted wind power output level.  The practical effect would be to allow the system to back down wind and non-wind generation in comparable fashion as needed to resolve congestion on the transmission grid.  Wind power generators would submit energy bids into the market like most generators and the ISO market would use the bids to work out the least cost method for resolving congestion.

While the change could result in wind power generators being directed to reduce output more frequently than under current rules, the NYISO said the change would likely increase the overall amount of wind power taken by the system. Under the current, manual procedures for directing reductions in wind power output, it is hard to get just the right amount of power off the system. The NYISO indicated that sometimes more power has been taken off the system for a longer period than was strictly necessary. In addition, even under voluntary curtailment by wind power generators due to low (and sometimes negative) prices, sometimes more power has been taken off the system longer than was needed to resolve the problem.

Both symptoms of the cumbersome approach now used have resulted in more work for the system operator and a less efficient supply of power.  The proposed changes should serve to more finely target any needed reductions in output, allowing a more efficient use of wind power when it is available.

Even with the proposed tariff changes, the NYISO expects that most of the time it will take all of the wind power available to the system. Of course, whether this remains true will depend on the pace of further wind power additions relative to the transmission improvements, if any, needed to support those additions.

The changes represent another step in the direction of the normalization of wind power resources in integrated regional power markets. The rules for wind power will never exactly be the same as the rules for, say, a combined-cycle combustion gas turbine, but then the treatment of that very flexible natural gas unit isn’t exactly the same as the treatment of a less flexible coal-fired steam turbine.

The market design goal should be to maximize the gains from trade produced through the regional power market. The process of adapting rules to the diversity inherent in the generation and demand-side resources available to the system should be undertaken with that goal in mind.

(ASIDE: Elsewhere I have been critical of the way that production tax credits available to wind power generators can distort the efficient operation of power markets. There was some talk about this issue in the recent FERC technical conference on integration of renewable resources, and I suspect I’ll have more to say on the issue in a few days when the transcript is online.

Some critics of current wind power subsidies may object to any normalization of the treatment of wind power so long as the subsidies continue, but I don’t think it desirable to try to fix market rules to compensate for the harmful effects of federal tax policy. Rather, market design should aim to maximize gains from trade given the larger legal and policy framework which the markets must operate in, and opposition to wasteful subsidies in the tax code should be directed to the legislative bodies responsible.)

Michael Giberson

If you thought power prices in ERCOT’s West region were interesting in 2008, keep an eye on the prices in 2009. (For background see my earlier post on negative prices in ERCOT West for 2008. Note on updated data here.)

Late 2008 saw a few developments of note for the region:

• Almost 2000 MW of wind power capacity was added to ERCOT from September to December, most of it in ERCOT West.
• When ERCOT updated its zonal boundaries last Fall, a few dispatchable generators – coal and gas units – were moved from ERCOT West to the ERCOT North region.*
• Natural gas prices, which ranged above $10 per MMBTU last Summer, are now below $5 per MMBTU.
• The recession, and particularly the drop in oil and gas prices, will tend to reduce electric power demand throughout the state.

(*There are technical reasons justifying the change in zone boundaries, which wasn’t without controversy, but combined with the first bullet point the practical effect is that the West region prices will be even more reliant on intermittent wind power output.  ERCOT reviews zonal boundaries every year.)

How does this all shake out?  Safe to say that electric power prices in ERCOT generally, and ERCOT West especially, will be much lower this year. Peak prices will be kept down by lower demand and low natural gas prices.  Offpeak prices will be lower and more volatile because of the confluence of all four factors.

The key to producing negative power prices is subsidized wind power output in ERCOT West net of local load, compared to the transmission system’s capability to deliver the excess power out of the area.  Lower load combined with more wind power capacity indicates a more volatile price situation.

Will ERCOT West see more frequent negative prices this year?

Yes.  In fact they already have.

In January 2008, ERCOT West was faced with negative prices about 8.3 percent of the time; in January 2009 the region faced negative prices 12.5 percent of the time.  This increase in the number of negative priced periods resulted despite a drop in average wind speed in the area.  (At the Abilene Regional Airport, near the heart of the wind power in the area, the average wind speed in January 2008 was 12.1 mph, while in January 2009 it was 10.7 mph.)  Less wind, but more frequent negative power prices.  Not surprising given the substantial increase in wind power capacity, and not yet a comparable increase in transmission capacity.

So far, February 2009 has been a little windier than February 2008 at the Abilene Regional Airport.  While I haven’t examined February price data yet, I wouldn’t be at all suprised to see that February 2009 shows even more frequent negative prices than those of February 2008 (negative prices 18.8 percent of the time).

Michael Giberson

Last November I posted remarks on the frequently observed negative prices for power in ERCOT’s West region. In the post, which analyzed data from January through November, I linked the negative prices to the wind power capacity relative to the transmission capacity, and to the effects of the Production Tax Credit and other subsidies available to wind power producers in Texas.

I recently extended the data set to include all of 2008 and have updated the charts in the original post. As expected at the time of the earlier post, November and December did see a return of frequent negative prices (which had almost entirely disappeared from mid-June through mid-October.) All told, about 14 percent of ERCOT’s 15-minute pricing intervals fell below zero.

The charts are reproduced below along with a new chart showing the average price each day over the year. The unweighted average price for ERCOT West for the year was a positive $53.34. Unfortunately for wind power producers in the region, their output was higher during times that the price was low and their output was lower during times that the price was high.

The charts were derived from data provided through the ERCOT website, on their “Balancing Energy Services Market Clearing Prices for Energy Annual Report” page.

Frequency of negative prices in ERCOT West, 2008

Frequency of negative prices by price bin, ERCOT West, 2008

Daily average prices in ERCOT West, 2008

Michael Giberson

What is with all of the negative power prices in the West region of ERCOT?

In the first half of 2008, prices were below zero nearly 20 percent of the time. During March, when negative prices were most frequent, prices were below zero about 33 percent of the time. After mostly taking the summer off, negative power prices were back to near 10 percent in October.

[Chart at left shows the number of 15-minute intervals each day that had prices below zero from January through October, 2008.

UPDATE: Charts now revised to include all 2008 data. Contact author to receive full size chart.]

This seems a little crazy. During these negative price periods, suppliers are paying ERCOT to take their power. Consumers (at least at the wholesale level) are getting paid for using power, and the more power consumers use the more they get paid. These prices are a big anti-conservation incentive. You could, as a correspondent put it to me, build a giant toaster in West Texas and be paid by generators to operate it.

In fact most of the regional power markets that are integrated into systems operations (so-called RTOs and ISOs in the U.S.) will produce a negative power price now and then. On the margin, a power supplier should offer power into the market at approximately the net marginal cost of supply, at least in a competitive market. These offers are typically at positive prices and the market will produce a positive price.

Infrequently, a power plant might choose to bid below the short term marginal price in order to stay in the market and avoid shutting down. It can be economically rational for operators of less responsive generation units to offer negative prices in order for it to avoid the costs of shutting down for just a few hours and then start up again when load increases – think coal-fueled or natural gas steam turbine. When energy load is very low, near zero or negative prices can result.

This isn’t the cast in West Texas. Instead, the negative prices appear to be the result of the large installed capacity of wind generation. Wind generators face very small costs of shutting down and starting back up, but they do face another cost when shutting down: loss of the Production Tax Credit and state Renewable Energy Credit revenue which depend upon generator output. It is economically rational for wind power producers to operate as long as the subsidy exceeds their operating costs plus the negative price they have to pay the market. Even if the market value of the power is zero or negative, the subsidies encourage wind power producers to keep churning the megawatts out.

Evidence from market data suggests that wind power producers will accept prices down to about negative $35 MWh before they shut down, since marginal operating costs are very low for wind power we can conclude that the subsidies are worth about $35 – $40 for each MWh of wind output. [UPDATE: Chart now includes data through December 2008.]

Subsidies do this sort of thing – distort the market and lead to waste – and of course to some degree distorting the market is just what is intended when policymakers offer a subsidy. Only usually it isn’t so easy to see the evidence of the waste created by the subsidies. Wind turbines that operate more hours require more maintenance, so these hours spent producing negative-value electric power do consume real resources. At the same time, the conventionally-fueled generation that is forced offline temporarily will also face additional “wear-and-tear” and require additional maintenance because of the effects of shutting down and then restarting the machines. This extra wear-and-tear and extra maintenance also represents wasteful use of resources due to PTC- and REC-subsidized power production.

The subsidy for renewable power may be defended as compensation for avoiding the environmental costs associated with power produced by conventional means, but in this case the link between the payments and the possible reduced emissions effect is tenuous. In Texas the PTC is probably offsetting natural gas generation most of the time, perhaps a relatively efficient combined-cycle gas unit, but maybe an inefficient old steam generator. Sometimes the PTC will displace coal-fired generation. The environmental benefits will vary dramatically depending upon just which kind of unit is displaced by the subsidy, but the cost of the policy is the same. Surely there are more targeted and effective ways of achieving environmental goals.

A second possible defense for the renewable power PTC is that it will spur enough growth in the industry to allow progress in research and development and economies of scale to reduce costs in the future. I think these learning and economies of scale arguments are much abused in renewable policy discussions – treated as if they are somehow automatic if we only spend enough resources now. If learning by doing and economies of scale were automatic, the U.S. auto industry would now be a paragon of efficiency. (A paper on “Learning Curves For Energy Technology and Policy Analysis“, by Tooraj Jamasb and Jonathan Kőhler is on my “to read” list, but I haven’t read it yet.) In the wind energy case, the industry is led by huge international corporations like General Electric, Siemens, and Gamesa. These companies and many others have been in the business for years, and in some cases decades. This is hardly a case of an “infant industry” that needs a handout to grow to maturity.

Maybe there is a public good argument buried in this line of thinking, but like the externality argument my sense here is that some alternative approach would more effectively achieve the desired public policy goals.

I don’t see any easy approaches for Texas. The federal PTC is the main subsidy, and localized evidence of waste due to the PTC in part of Texas in unlikely to derail U.S. Congressional support. Even if more detailed examples of widespread waste could be produced, I’m not sure it would overcome the coming Congress’s warm fuzzy feelings for renewable power. Possibly Texas could take-away the Renewable Energy Credit for wind power generated at negative prices, and that would slightly reduce the waste. But the boom in wind power construction in Texas has already greatly reduced the value associated with a REC in Texas, so taking it away altogether wouldn’t do much. And really, the negative prices in ERCOT’s energy markets are only an especially visible indicator of the waste created by PTC-based distortions, any excessive investment in renewable power or production from existing wind power units at below-cost prices is wasteful.

To be clear, I’m not arguing that wind power or other renewable power projects are inherently wasteful. The policy design is at fault, not the technology. It is the policy that needs repair. Also, I don’t have an estimate of how significant this problem is. Maybe the waste is in the hundreds of thousands of dollars, but could be higher or lower. There may be more significant problems to work on. But the PTC is a key element of renewable power policy, and it is troubling that it causes waste.

Economics provides some guides for fixing the policy: if an externality is the problem, then tax the externality and compensate the harmed parties; if the goal is additional learning, don’t tie the payment to per unit output, tie the payment to progress toward the learning goal.

Renewable power industries are pushing for further expansion of the PTC. Before Congress agrees, it ought to try to find less wasteful ways to achieve intended public policy goals.

It took a financial crisis, but the U.S. Congress has finally extended the investment and production tax credits that are so vital for the cleantech industry. Congress had long fought over how to pay for the renewable energy tax credits and voted against them eight times this year, but with a $700 billion bailout going to Wall Street, what’s another $18 billion for clean energy? The tax breaks bundled into the bailout include incentives for solar, wind, clean coal, cellulosic biofuels, plug-in hybrids, geothermal, carbon sequestration, marine renewables, fuel cells, and energy efficiency and conservation.

The renewable energy industry has been quick to voice its support of the House’s vote. But the American Wind Energy Association, for example, while acknowledging that the credits will boost energy security and fight global warming, said it’s already thinking about “working next year with a new Congress and Administration to fashion a serious long-term clean energy policy,” since the bailout only extends the production tax credit for wind for one year.

The solar industry was luckier and eked out an 8-year extension for the investment tax credit. Roger Efird, Solar Energy Industries Association chairman and president of Suntech America said in a statement: “By passing this bill, Congress has finally given the solar energy industry ‘policy certainty’ that will attract investment, expand manufacturing and lower the cost of solar energy to consumers.”

Akeena Solar CEO Barry Cinnamon hopes to see an upswing in the solar market almost immediately. “With an eight year extension of the solar investment tax credits and a complete removal of the residential cap for homeowners investing in solar systems – our customers can now realize a full payback of their solar investment in five years instead of 10, delivering a 20 percent return on investment, which in today’s economy is the very best investment homeowners can make,” Cinnamon said in an emailed statement.

The bill also boosts incentives for plug-in electric vehicles, offering up to $7,500 for cars and $15,000 for heavier trucks. “Now automakers and car buyers will no longer see higher up-front costs as a showstopper. In the centennial year of GM’s founding and Ford’s Model T, the auto industry can now enter a century of plug-in cars,” Felix Kramer, founder of The California Cars Initiative, said in a statement.

The saga of the renewable energy tax credits may have a last-minute happy ending. The Senate is set to vote on a new iteration of the $700 billion financial bailout package, which now includes extensions for the renewable energy tax credits. The Senate has scheduled a vote on the newly revised bailout for 7:30 p.m. ET tonight.

The Senate and House have been deadlocked over renewing the production and investment tax credits, which are vital for the solar and wind energy industries. The ongoing bone of contention has been how the energy package would be paid for; the details were being hashed out when Congress became swept-up by Treasury Secretary Henry Paulson’s controversial bailout package. With the new legislative priorities and impending elections, it didn’t look hopeful that Congress would be able to pass both the bailout and the energy package before adjourning. In closed-door sessions, the Senate decided to bundle the renewable energy tax credits with the bailout package, aiming to kill two birds with one stone. Like Thomas Friedman said, we’ve got to green this bailout, for the good of both our financial and cleantech sectors.

It’s not at all clear how the House will react to the Senate’s new, greener bailout. The House dramatically failed to pass the bailout on Monday and has refused to renew the energy tax credits without stipulating how to pay for them. Bundling two unpopular proposals could backfire.

But already Wall Street is responding and Barron’s notes that solar stocks are up on this news. This follows Monday’s crash which hit solar stocks especially hard. But in a week that saw the largest one-day losses and gains on Wall Street, these ups and downs seem almost routine. We’ll be tuned into C-SPAN tonight to see if cleantech tax breaks can help save the economy.

East Bloomfield (Ontario County) adopts wind ordinance

The Daily Messenger (8/28) reports that

Tipping its hat to the town Planning Board members and critics who have jousted with them during the drafting of a windmill law, the Town Board on Monday unanimously passed a revised version on its second attempt.

Henderson (Jefferson County) wind project under consideration

From the Watertown Daily Times (9/2)

A fledgling investment group is eyeing the town as a location for a wind power project.

Ronald J. Scrudato has talked to town Supervisor Clyde E. Moore and one landowner. He represents an investment firm so young, it’s name isn’t set yet. But so far, it’s called Delfea and it is based in New Jersey.

Herkimer County conflict allegations

From the Utica Observer-Dispatch (8/30)

At least one Stark Town Board member and three town Zoning Board of Appeals members have signed leases with the developer behind the Jordanville Wind Project, according to Herkimer County property records. Stark town officials said they have been paying close attention to these potential conflicts of interest and have followed legal advice to make sure they haven’t done anything wrong.

Jefferson County wind project tax breaks discussed, criticized

From the Watertown Daily Times (8/31)

Money doesn’t grow on trees, but it may grow on windmills. The developers of the four proposed wind farms in Jefferson County could capitalize on tax breaks and incentives at the federal, state and local levels through their projects. Opponents say the subsidies take taxpayer money and give it to those who already are rich.

Hammond (St. Lawrence County) wind ordinance

Councilmen conflict described in the Watertown Daily Times:

Two town councilmen won’t vote on a proposed wind farm ordinance, because they’ve signed contracts to lease their own land to a wind developer.

Orleans (Jefferson County) wind ordinance

Residents seek increased regulation, as reported in Watertown Daily Times:

Residents continue to push for tighter restrictions on wind turbine placement through amendments to the town’s zoning law.

Jiminy Peak ski resort (Massachusetts)

This is not strictly speaking a New York story, but with a chill in the upstate air of late, this InformationWeek story on the success of a single turbine at a popular destination for New York ski enthusiasts seems worth a mention. With New York’s recent net metering expansion legislation being enacted, one would expect to see businesses and farms in New York begin to enter the distributed energy sector like this ski resort successfully has:

Jiminy Peak, a western Mass. mountain resort, marked the one year anniversary on August 15 of flipping the switch and connecting its 1.5 megawatt GE wind turbine to the grid. The turbine, nicknamed Zephyr, is now generating a full third of the ski resort’s power. But getting there wasn’t exactly a breeze.

When it comes to renewable energy, it seems we have a new Do-Nothing Congress up on Capitol Hill. The Senate yesterday failed once again to renew the investment and production tax credits that facilitate millions of dollars of private funding into solar and wind energy projects. Set to expire at the end of this year, investors are already pulling back from financing solar and wind projects for fear that Congress won’t provide the coveted long-term extension.

At stake are the country’s burgeoning solar and wind energy industries. A report from Navigant Consulting on behalf of the American Wind Energy Association (AWEA) estimates that the expiration of the tax credits will cost the solar and wind industries a combined $19 billion and roughly 116,000 jobs in just one year. All of this comes as the Department of Labor is expected to issue a report putting the total number of jobs lost so far this year at over 500,000.

On the positive side, the AWEA is expected to announce in its second-quarter market report that the U.S. has surpassed Germany in wind energy generation to become the world’s leader. An AWEA spokeswoman tells Earth2Tech that while Germany still has more installed capacity than the U.S., an estimated 22,000 megawatts to our 17,000 megawatts as of 2007, the U.S. is windier and is producing more actual power. Add to this estimates that the U.S. will add another 6,000 megawatts of capacity this year to Germany’s 1,600, and the U.S. should be able to solidify its spot as the global wind leader by the end of 2008.

But all of that explosive growth could come to a screeching halt if Congress doesn’t provide the industry with some regulatory certainty. And this means extending the tax credits far longer than one year, which was the length of the proposal voted down yesterday. With Congress heading into a long August recess on Friday, it doesn’t look like we’ll see a definite extension any time soon.

Graph courtesy of AWEA.

GE Energy Financial Services, a unit of GE, recently released a study estimating that a federal tax incentive set to expire Dec. 31 2008 for wind energy projects more than pays for itself through tax revenues from the projects’ income, vendors’ profits and individual workers’ wages. The study – released at the American Council on Renewable Energy’s Renewable Energy Finance Forum in New York – estimated that wind farms built in 2007, supported by the production tax credit, carry a net present value benefit to the US Treasury of $250 million.

According to the study by GE Energy Financial Services, wind projects that went into operation last year generate federal income tax revenues from the projects, individual workers’ wages, vendors’ profits, and land leases. And they also provide federal tax revenue after 10 years, when the production tax credits expire. In addition to those federal tax revenues, the wind projects generate an estimated $6 million per year in local property taxes, $15 million annually in state income taxes on wages and profits during construction and $1.5 million per year in taxes while operating. Using a model developed by the National Renewable Energy Laboratory, wind farms built in 2007 in the United States created more than 17,000 construction-related jobs and 1,600 long-term operations- related jobs. In addition, the new wind farms provided major environmental benefits, avoiding approximately 10 million metric tons of carbon dioxide emissions annually, equivalent to taking 1.8 million cars off the road, GE estimates. The GE study does not analyze the wind industry’s economic effects on other energy sectors.

In one of the last measures taken by the 109th Congress, an important federal policy for promoting the development of renewable energy received a one-year extension. The production tax credit (PTC) provides a 1.9-cent per kilowatt-hour (kWh) benefit for the first ten years of a renewable energy facility’s operation. The PTC was set to expire on December 31, 2007, but due to the efforts of a coalition of clean energy supporters—including UCS—it was extended for one year as part of the Tax Relief and Health Care Act of 2006 (H.R. 6408). Strong growth in U.S. wind installations is now projected through 2008.

The legislation extending the PTC provides a one-year extension  through December 31, 2008 of the 1.5-cent/kWh credit for wind, solar, geothermal, and “closed-loop” bioenergy facilities (Adjusted for inflation, the 1.5 cent/kWh tax credit is currently valued at 1.9 cents/kWh). Other technologies, such as “open-loop” biomass, incremental hydropower, small irrigation systems, landfill gas, and municipal solid waste (MSW), receive a lesser value tax credit. 

Everyone of us should contact our legislator and demand that the Production Tax Credit be continued for the foreseeable future. Let’s provide the private market place with monetary incentives so that private enterprise can help free us from foreign oil.

All riled up from reading about the risk of the renewable energy production tax credit not being extended past the end of this year, I set out to see what I could do to help, as a citizen. I quickly found out, it is not easy, being a full-fledged citizen in America. I thought there would be one website for all citizen directed activism, a clearing house listing all the issues at stake, with a clearly outlined process for each, including petitions, automatic links to representatives in my district, model letters to send, and suggestions for other initiatives. What I found instead are some bits and pieces, here and there:

• On the Petition Site, part of Care2, you can sing a petition letter.
• On Neutral Existence you can access the contact info for your local representatives
• On We Can Solve It, you get tips on how to prepare for a visit with your representative

If you know of any other resources, please share them in your comments.