When nearly 20,000 wind energy businesses gather in one place to buy and sell goods and services, the question of the U.S. market outlook becomes an important part of the equation.
Rob Gramlich, AWEA Senior Vice President of Public Policy, led a discussion panel at the WINDPOWER 2011 Conference & Exhibition yesterday with a variety of industry sector representatives to discuss long-term prospects and the potential for federal policy to alleviate uncertainty in the U.S. market.
Gramlich kicked off the panel with an update about the status of the current market, the need for an extension of the federal wind energy production tax credit (PTC) and the opportunity for other policy market drivers like renewable energy standards in the states. He observed that while American wind power capacity installations have grown into the mainstream—providing 35 percent of all new electric generating capacity over the past four years—the disruption caused by recurring expirations of the PTC is evident in a comparison of the on-off years. The looming expiration date of the PTC in 2012 is a hurdle to be overcome.
The panel also focused on the decrease in the cost of wind, especially as it competes with natural gas, the abundant supply of which, due to shale gas fracking, has affected the power market. According to Tim Stephure, Senior Analyst with HIS Emerging Energy Research (EER), although wind is more and more affordable related to other forms of energy generation, in the absence of a merchant market, the key drivers are going to be a national renewable electricity standard (RES) or statewide portfolio standards. EER analysis suggests that a national RES or Clean Energy Standard (CES) could gain passage in the U.S. Congress by 2013, with a benchmark of a 15% renewables standard by 2025.
“An RES or CES is going to take time,” said Stephure. “It will go a long way over the long term to boost the amount of renewables … and we don’t think Congress is going to want to see this industry slow down.”
The Director of Business Development at Gamesa Energy, Tracy Stoddard, encouraged developers to consider flexibility in their business models for building projects in a market that is currently constrained by the reluctance of utilities to sign Power Purchase Agreements (PPAs) for electricity from wind farms. Although Gamesa is primarily an O&M manufacturer, it has also been a project developer since 2002. He discussed the philosophy of a developer as being responsible not simply for building projects, but finding commercial solutions for potential customers, and promoted some creative ways for stalled projects to get back on track.
The panel also discussed the market prospects for other forms of generation like new coal, natural gas and nuclear energy. In Akin Gump Strauss Hauer & Feld LLP Partner Ed Zaelke’s presentation, he covered the use of price hedging contracts in lieu of power purchase agreements. He urged utilities and regulators to consider not only the current costs of energy generation, but also the environmental risks and long-term stability associated with them.
“If we can assume that demand will increase by two percent every year, and thus 40 percent in 20 years, that means we’ll need to produce 400,000 MW of electricity over the next 20 years,” Zaelke said. ”We’ll need an additional 20,000 MW per year and I’m not sure people are going to want that to come from new coal or nuclear energy or natural gas. Natural gas has a real risk right now. It’s cheap today and maybe will be for years to come … but if I were a utility or a regulator, I’d think very hard about putting all my eggs in the natural gas basket.”
The long-term prospects for the U. S. market are promising, as the benefits of wind are strong, and both the demand for power and power prices are expected to increase with the country’s economic recovery.