Wind power experts: All things being equal, industry can compete

By Tovin Lapan

Friday, May 9, 2014 | 2 a.m.

When wind power experts get together, their biggest source of concern is all the hot air and dithering from Congress.

In 2012, more electricity was added to the grid from new wind power projects than any other source. Uncertainty about a federal tax credit, however, made the gears of the industry’s growth grind to a halt in 2013, and the slowdown persists today as Congress debates the reinstatement of the credit.

In a Thursday morning forum on the future of community-based wind projects at Windpower 2014, the annual convention of the American Wind Energy Association, panelists were in agreement that a key federal tax credit is needed to keep momentum. Alternative models to making the economics work for investors exist, but they would need to be approved and implemented to replace the tax credit, the panelists said.

Large or small, financing for wind power projects is highly dependent on the production tax credit that expired at the end of 2013.

“The biggest hurdle right now for wind power is getting the production tax credit extension for a two- to three-year period. It’s crucial to being able to develop more projects. It’s hard to start new projects right now without the credit,” said Chris Diaz, a vice president at Seminole Financial Services, an investor in wind power projects.

The production tax credit offers a tax break for the amount of electricity generated. It has been renewed annually the past few years, and the rate of new wind turbine installations has ebbed and flowed along with the credit, which draws an estimated $15 billion in investment annually.

Industry experts say uncertainty over the credit temporarily stunted wind power’s growth. The industry saw a 92 percent drop in installations, down from a record 13,131 megawatts in 2012 to 1,087 in 2013. One megawatt can power approximately 250 homes for a year.

On April 3, the Senate Finance Committee approved a $13 billion, two-year renewal of the credit within a tax package, but the House has yet to take up the issue and several lawmakers are fighting the renewal.

Those in Congress against an extension of the credit, such as Sen. Lamar Alexander, R-Tenn., say the industry should “stand on its own” and the credit is a waste of taxpayer dollars.

Defenders of the credit, such as Sen. Chuck Grassley, a Republican from Iowa, which gets more than a quarter of its electricity from wind, say wind power helps conserve the environment, lowers electricity bills and can compete without the tax credit as long as the tax incentives for gas and oil companies are also eliminated.

Bob Crowell, chief development officer of Own Energy, said wind turbine technology is advancing quickly, and if gas prices continue to increase, wind power could be very competitive in a few years.

“Unsubsidized, we are neck and neck with the other guys,” Crowell said. “If all the subsidies go away, we are up there with everybody else except for maybe large hydroelectric. But there hasn’t been a major hydroelectric project in a long time.”

The issue is finding investors who see enough of a gain and not too much risk in wind power. As a result, small projects (less than 20 megawatts) are hard to finance since there is not a large pool of investors for wind projects and they will find better returns from the larger wind farms.

“Investors want to see a return, and the (electricity purchaser) wants the best price. You have to be able to compete with the big guys,” said Mike Kelly, vice president of new business ventures at Tri Global Energy.

Kelly said that moving forward, other options could provide the investment needed for wind power projects, which are capital-intensive at the beginning in order to secure the land, perform necessary studies and then purchase the turbines and other equipment, but relatively cheap to operate after they are up and running.

One method the panelists agreed had potential is master limited partnerships, in which one partner, the limited partner, provides the capital to the publicly traded partnership and receives periodic income distributions from the cash flow. The general partner is responsible for managing the venture’s affairs and receives compensation based on project performance. Right now, the federal government limits the use of these partnerships to certain businesses, such as oil and gas exploration and transportation, but the law could be expanded to include the wind industry.

“It wouldn’t break my heart if the production tax credit went away as long as it was replaced by something else,” Kelly said.

The U.S. is second in total wind power capacity globally, with more than 60,000 megawatts, enough to power 15.3 million homes. Nevada, with one utility-size wind farm that produces 152 megawatts, generates just 0.7 percent of its electricity from wind.

New technology is helping. According to the Department of Energy, the cost of wind energy has dropped 43 percent in the past four years. The DOE announced new targets for the percentage of electricity coming from wind power earlier this week at the conference. Today, about 4 percent of our power comes from wind, and the new goals are to reach 10 percent by 2020, 20 percent by 2030 and 35 percent by 2050.

The American Wind Energy Association is the national trade group for the U.S. wind industry and has approximately 1,200 members. This is the first year the annual convention, which was held at Mandalay Bay Convention Center from Monday through Thursday, was held in Las Vegas.