Despite stiff competition from natural gas prices, wind energy is still attracting new investors Stateside – and Irish firms are among them
CYNICS PROBABLY reckon Disneyland in California was an appropriate choice of venue for 15,000 energy professionals to gather for the annual American Wind Energy Association (AWEA) showcase. They regard the potential of wind power as a fairytale. But it's starting to become a reality, even in the seemingly oil-obsessed US market.
Just as internet protocol (IP) took over from traditional twisted copper to become the basis of our current phone, cellular and internet communications, US wind is having the same struggle to break through.
That said, it's a battle it is winning. With mandated renewable power standards in 30 states (plus another eight with non-binding targets), federal tax credits/subsidies driven by the Obama administration, the backing of Wall Street, increasing Chinese investment, and a full-on PR campaign, American wind is challenging the entrenched oil and gas vested interests.
Wind's big problem today is natural gas pricing. Unlike in the EU, which offers legislation-backed national renewable energy fixed feed-in tariffs (FIT), individual state and utility prices are based on the lowest fuel cost available. That gives the power to natural gas, currently near all-time lows.
Surprising many commentators, natural gas pricing has effectively decoupled from oil pricing. This is partly due to the abundance of shale gas offering decades of reserves. While not being environmentally friendly in relation to its extraction, it is considered economical.
As a result, the US wind market, though subsidised, has become less profitable and more risky. Success requires strong industry knowledge, in terms of understanding turbine technology, optimising site selection, and knowing which utilities are issuing power purchase agreements (PPAs) in states that have the grid transmission lines to deliver the energy to population centres.
One new investor in renewable energy is Google. It invests to avail of production tax credits (PTCs) that benefit profitable tax equity investors.
Such tax credit subsidies constitute a key area about which AWEA's PR machine is keen to dispel misconceptions by providing attendees with a nine-point reminder entitled How to Talk to a Wind Sceptic. The topics it tackles include: consumer prices for energy vs fossil fuels; bird safety (it seems rare eagles are not particularly attracted to turbines after all); reliability of wind as an energy source; sound of spinning turbines; shadow flicker and epilepsy; property values; aforementioned energy subsidies vs fossil fuel subsidies; and finally, the potential of wind to realistically meet a significant portion of the nation's energy needs using a tiny fraction of its land.
Gas prices aside, the largest immediate storm on the horizon is the periodic cancellation of tax credits that allow developers to get an immediate refund worth at least 30 per cent of the capital cost of wind farms. These are likely to be ended after 2012, particularly under a Republican-led Congress. Developers who start construction of their projects by the end of this year have the option of receiving the cash value of their tax credits from the US Treasury within 90 days of completion. Industry lobbyists are hopeful that they will be able to persuade Congress to extend the tax credits past 2012, but they are facing strong headwinds due to the pressure on Congress to reduce massive federal budget deficits.
This is not stopping already ensconced top tier developers who are doubling down and cherry picking key strategic projects to green-light. "There are 15,000 people here, 25 per cent down on last year, who are attempting to do business with 12 key players. It creates a very interesting dynamic," says Keith Martin, a tax equity lawyer at Chadbourne Parke.
In April, California governor Jerry Brown signed into law the most aggressive renewable target in the country, raising it to 33 per cent of energy supply by 2020. The three main utilities in California supply an average of 18 per cent currently from renewables. Another 21,000MW of new renewable capacity is needed to meet the higher target. This positive signal is fuelling a lot of activity in neighbouring states to serve California's needs.
The Irish are active too, with Eddie O'Connor's Mainstream Renewable Power recently selling one of its Illinois-based sites, 107MW Shady Oaks, to Goldwind USA, potentially opening the door for similar deals involving Chinese turbine technology manufacturers. NTR's Wind Capital recently won a hard-fought agreement with Kansas-based utility Westar. Fergal Broder's LotusWorks is doing well in Oregon (which also services California) and is branching into geothermal energy as well. Also visible are Montanafocused Gaelectric and ex-Airtricity Declan Flanagan's Lincoln RE in Chicago.
John Brereton of Denver-based Wind Prospect Group is raising equity for a 600MW development project across sites in New Mexico, Colorado, Nova Scotia and New Brunswick in Canada. He says: "It's all about knowing your business and believing in the fundamentals. We've picked strong wind sites, situated close to existing capacity capable transmission lines or planned build-outs that ultimately serve large population areas such as California, Colorado and New England. So if we keep our costs down and are prepared to be reactive and flexible, we know that we can attract the right strategic investors."
