How to Fix... Wind Energy

If you want to see which way the wind is blowing in alternative energy these days, check out Europe. More specifically, look five miles off the Irish coast, in the Saint Georges Channel between Ireland and England. That's where a division of GE, led by Fast 50 winner Thomas Wagner has built a wind turbine field to demonstrate the future — and power — of renewable energy.

In effect, each of the seven turbines represents the world's biggest windmill, with a wingspan almost as wide as two 747s. They are designed to withstand corrosive salt water, shifting sand, pounding waves and muscular wind. And they can be operated remotely to maximize efficiency.

Wind power is the fastest growing energy source over the last ten years, but Europe, not the U.S., is leading the way, with more offshore fields than anywhere else. Given the concern for our dependence on foreign oil, you'd think the idea would be catching on. So here's today's "How to fix" project: What's the most effective way to market or pitch offshore wind power plants in the U.S.?

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10 Comments

  • John Thaller

    I keep reading about the power transmission issue and all the nay sayers out there that it is too expensive. Yet, every day I wonder how then did we ever install literally millions of miles of power transmission lines all throughout the US. Yes, millions of miles. And how did we also install many hundreds of thousands if not millions of miles of telephone wire, and similar numbers in cable TV wire, now all being replaced with fiber optics.

    This transmission problem excuse is a smoke screen in my mind. It can be done. And oh by the way, most has to be installed anyway if we are going to increase our capacity. As for the age of the system, I don't really buy that either. Wires, transformers, and many other components are replaced as needed as they "wear out". In my local area, they replaced all the poles and wires for several miles just last summer, putting in much higher poles to allow for installation of a higher voltage line.

  • John Thaller

    I am not sure where Gordon Edge got his information about the shores of the US. NJ, Delaware, Virginia, Maryland have all been working on getting off shore turbines installed. Many of the projects have passed the necessary legislation to allow this. In NJ, they are moving ahead to install Phase I with about 300 turbines between 15 and 20 miles off shore, with an additional 2000 possible.

    Yes, progress towards alternative energy is slow, way too slow, but still progressing. The US will soon pass 30,000 megawatts installed (yes, we only get about 25% of that in actual power). This is up from 22,000 megawatts last year. By the way, a coal fired power plant only outputs about 25 to 40% of it's rated capacity as well, and many are shut down during low demand periods, so when comparing cost to install per kwh, make sure this is done apples to apples.

    Solar panels by the way are coming down in price, many are at or below $500/panel (200watt). This is down from $700 to $900/panel a year ago. Progress is being made.

  • John Thaller

    I am not sure where Gordon Edge got his information about the shores of the US. NJ, Delaware, Virginia, Maryland have all been working on getting off shore turbines installed. Many of the projects have passed the necessary legislation to allow this. In NJ, they are moving ahead to install Phase I with about 300 turbines between 15 and 20 miles off shore, with an additional 2000 possible.

    Yes, progress towards alternative energy is slow, way too slow, but still progressing. The US will soon pass 30,000 megawatts installed (yes, we only get about 25% of that in actual power). This is up from 22,000 megawatts last year. By the way, a coal fired power plant only outputs about 25 to 40% of it's rated capacity as well, and many are shut down during low demand periods, so when comparing cost to install per kwh, make sure this is done apples to apples.

    Solar panels by the way are coming down in price, many are at or below $500/panel (200watt). This is down from $700 to $900/panel a year ago. Progress is being made.

  • John Thaller

    I am not sure where Gordon Edge got his information about the shores of the US. NJ, Delaware, Virginia, Maryland have all been working on getting off shore turbines installed. Many of the projects have passed the necessary legislation to allow this. In NJ, they are moving ahead to install Phase I with about 300 turbines between 15 and 20 miles off shore, with an additional 2000 possible.

    Yes, progress towards alternative energy is slow, way too slow, but still progressing. The US will soon pass 30,000 megawatts installed (yes, we only get about 25% of that in actual power). This is up from 22,000 megawatts last year. By the way, a coal fired power plant only outputs about 25 to 40% of it's rated capacity as well, and many are shut down during low demand periods, so when comparing cost to install per kwh, make sure this is done apples to apples.

    Solar panels by the way are coming down in price, many are at or below $500/panel (200watt). This is down from $700 to $900/panel a year ago. Progress is being made.

  • Gari N. Corp

    Tax equity has got MUCH cheaper in recent years. Still at the mercy of the tax authorities, but I'm not convinced your premium is that great

  • Marnie Vint

    It seems to me that if you could show that the facilities are actually as wonderful as claimed, it wouldn't be so tricky to sell them. All this painful strategizing suggests that the problem is with the product itself. See www.aweo.org for some criticisms of the whole business.

  • Gordon Edge

    Some advice from Europe: your best bet is to exploit your vast onshore wind resource before putting a lot of effort into offshore. The sea depth off both east and west coasts of the US increases rapidly the further away from the coast you get, and the deeper the water the more expensive the project. Apart from a few spots such as Nantucket Sound, which our friends at Cape Wind are valiantly trying to develop, the commercially exploitable opportunity is quite small. Over here in Europe (and especially in the UK), the onshore potential is much more limited than in the US, plus the North Sea has quite large areas of relatively shallow water. Ally that to a shrinking offshore oil and gas sector with skills that can be transferred to offshore wind, then the pitch is quite simple. The benefits are more difficult to see in the US when you can carpet the Great Plains with wind turbines and power virtually everything at low cost (apart from the investment required in transmission, which is still manageable).

    Gordon Edge
    Head of Offshore
    British Wind Energy Association

  • dave

    There is a massive wind farm project slated for development five miles off the coast of Martha's Vineyard. It is being fought by the local powerbase with their large coastal compounds. Not in my back yard... THAT is a big back yard!

    D

  • Wolfgang Reitz

    Great in-depth comment to review the issue from a financial point of view as posted by Mohammed. Energy is a vast and controversial topic where renewable sources still lag far behind non renewable ones. A lot more investment is needed to support the global development of alternatives and unless the right platforms are in place, fossil fuels will continue to provide the main source of energy needs.
    A change in this would require a paradigm shift in everthing from government mindset through to public perception inclkuding particularly big oil companies who. Will we wait until there is no turning back and face drastic consequences or will we find a gradual form of transition? That should be the primary question to be addressed rather than the ones that still remain stacked high on the agenda.

  • Mohammed Alam

    The Production Tax Credits (PTC) is a major financial incentive providede by the Us government to eligible renewable energy priojects, including wind power. Following are the key structural issues in the PTC that seriously deforms the market for equity in US wind power projects:

    1.According to the Section 45 rules, owners of qualified renewable energy facilities that are individuals, S Corporations or closely held C Corporations are subject to passive loss rules. These rules specify that losses and credits from a passive investment may only be used to offset income from other passive investments. This prevents such taxpayers from using the PTC to offset non-passive income such as salaries, dividends and interest income. The passive activity rules do not apply to large corporations. Essentially, the passive loss rule shuts off majority of the markets to invest in renewable energy projects.

    2.According to the Section 45 rules, the taxpayer claiming the PTC must be both the owner of the plant and the producer of the electricity. Per this year’s PTC extension package, however, this restriction has been relaxed only for certain biomass projects. Such transferability restrictions make efficient and economical financing solutions (i.e., leasing) unavailable to renewable energy projects. Plant owners who cannot use the tax credits cannot transfer them to other companies through lease financing.

    These structural restrictions make the market for equity in renewable energy projects oligopolistic, which increases the price for equity by more than 100%. While equity returns paid in comparaable tax equity markets without transfer restrictions are in the 7% - 9% range (i.e., wind power investments in Canada and low income housing investments in the US), US wind power developers are forced to pay 15% - 20% return to tax investors. To accommodate this additional return requirement, the PPA prices need to be higher.

    The structural restrictions in the PTC, create market power issues. Almost 80% of wind projects in the US are owned by four companies, most of who are unregulated subsidiaries of utilities. Given the lack of competition, the price of tax equity for renewable energy projects is more than 100% higher than comparable market prices.

    If the PTC is streamlined so that the market for tax equity is fully competitive (i.e., the leasing and passive loss requirements are relaxed), a typical wind power project will be economically viable even at a PTC level of 1.4 – 1.5 cents / kWh . This is because no subsidy will be required to pay for the above market return to the tax equity investors. This may actually reduce the tax burden on the Federal government while helping renewable energy growth.