“Wind energy is one of the major American success stories.” –Energy Secretary Chu
The wind industry has been splashed throughout the media of late, the debate continuing about whether or not to extend the production tax credit (PTC). But with opinions from both sides of the argument woven throughout these reports, it’s tough to get a real handle on the situation. Well, this week I had the pleasure of listening to a webcast about the wind industry put on by the U.S. Department of Energy where Energy Secretary Dr. Steven Chu and Colorado Senator Mark Udall spoke and answered questions from the audience. It was very informative, so I thought I’d share what I learned. If you’re interested in watching the full webcast, here it is:
The bottom line is that wind technology is a plentiful and viable fuel source for the United States.
The perception of many is that wind energy, and really all renewables, is more expensive that energy derived from fossil fuels. People assume they must choose between inexpensive fuel and renewable energy. But Dr. Chu insists that this is a false choice. With technological improvements and increased investment options, wind energy prices over the next 10 years should decrease from about 7.2¢ per kilowatt hour (kWh) to about 5¢ per kWh. Wind technology has improved remarkably in recent years, and it is expected to continue improving over the next decade. Better designs, better efficiency, higher wind towers, and lower maintenance costs are all in the pipeline, and our current energy distribution system has the capacity to handle an increased influx of wind energy. All of this simply means that wind energy can be a competitively priced fuel source.
In the mean time, Senator Udall reported that Colorado residents were willing to pay a bit more for the benefits provided by wind energy, saying those costs are “well worth the investment.” Not only does wind allow for rural revitalization, job creation, and cleaner air, it also evokes tremendous worker pride in the machines that they have so carefully constructed. He also highlights the national security benefits of domestically-produced wind energy, although that same argument can be made for domestic fossil fuel production as well. Senator Udall supports an “all-of-the-above” energy approach, which includes coal, nuclear, solar, wind, and geothermal fuels, but Colorado recently passed an amendment requiring that 30% of the state’s energy be provided by renewables by 2020 (awesome!).
So what about the PTC? First of all, what is it? The PTC provides a 2.2% tax credit (not exemption) on each kW of wind energy produced (so only actual output is credited). The argument is that the PTC helps engage producers and utilities, while also allowing small-scale producers to enter the marketplace. In fact, the American Wind Energy Association estimates that the PTC has helped incentivize more than $15 billion in private investment in wind farms every year. Can you believe that? That tremendous level of investment is what enables continued technological progress and increased capabilities. Losing this credit would certainly be a major setback for the wind industry as a whole.
Senator Udall is ardently campaigning for the extension of the wind PTC, but he also highlighted a number of other market-based incentives that could increase investment in the wind industry. He specifically recommended the master limited partnership, an investment opportunity that allows for public investment in a limited partnership. This investment vehicle is currently available for fossil fuels but not for renewables. Secretary Chu stated that if master limited partnerships were extended to the wind industry, it would significantly reduce the costs of financing, thus making wind less costly. The interest on financing would decrease from 10-15% to 5 or 6% — one half to one third of current interest rates! Initial capital outlays are actually one of the largest costs for wind energy, which makes sense if you think about it. The fuel itself (wind) is free; it’s production and installation of the equipment that captures and transmits wind energy that make up the majority of the costs. If the wind industry is given investment capabilities equal to those of the fossil fuel industry, wind energy will become increasingly less expensive and more competitive.
So what are the main takeaways from this webcast?
- Wind technology is continuously improving, and the costs of wind energy are expected to steadily decline.
- Wind energy provides a number of benefits, including rural revitalization, job creation, cleaner air, and increased national security.
- The PTC should be extended so that investment in the wind industry continues, thus enabling the continuance of the aforementioned improvements and benefits.
- The wind industry should be afforded a fuller range of investment opportunities, including master limited partnerships.
“This is happening. This is our future,” says Senator Udall of wind and other renewable forms of energy. He believes that renewables are the “next big thing,” and so do I.