STRATEGIC WIND ENERGY INITIATIVE
Currently, the United States obtains approximately 85% of its energy from fossil fuels, which emit large quantities of the atmospheric heat-trapping greenhouse gas carbon dioxide (CO2) when burned. The U.S. also derives 55% of its electricity from coal, the fossil fuel with the highest CO2 content per unit of electricity produced. From a global perspective, the U.S., with 5% of the world's population, is responsible for 23% of world CO2 emissions. If the U.S. is to provide leadership in dealing with the serious threat of global climate change, it must begin now to make a meaningful transition away from over-reliance on fossil fuels toward broader use of environmentally-benign energy resources.
Wind energy, which produces virtually no CO2 emissions, has been long recognized as an abundant potential source of electric power. A detailed analysis by the Department of Energy's Pacific Northwest Laboratory in 1991 estimated the energy potential of the U.S. wind resource at 10.8 trillion kilowatt-hours (kWh) annually, or more than three times total current U.S. electricity consumption. Given this vast, virtually untapped clean energy resource, and the fact that wind power is one of the lowest-cost power generation technologies, large scale wind power development should be among the highest U.S. priorities for consideration in meeting national CO2 reduction goals.
However, notwithstanding wind's very large potential, inherent constraints limit the amount of generation from any energy source that can be brought on stream within the near to medium term. Accelerating wind energy's contribution to our electric generation portfolio will require proactive steps.
The purpose of this paper is to examine wind energys capability to reduce U.S. electric sector emissions of carbon dioxide by the year 2010, to set forth a Strategic Wind Energy Initiative consisting of the policies needed to realize that capability, and to summarize the value to the U.S. of moving decisively to implement those policies.
The United States is currently expected to fall far short of reducing CO2 emissions to 1990 levels by the year 2010, according to projections from the Energy Information Agency (EIA). In fact, emissions in that year from the electric utility sector alone (which produces about a third of the nation's overall CO2 emissions) are predicted to exceed those in 1990 by some 548 million metric tons (MMT).
Every 10,000 MW of wind installed can reduce CO2 emissions by approximately 33 MMT annually if it replaces coal-fired generating capacity, or 21 MMT if it replaces generation from the U.S. average fuel mix. The American Wind Energy Association (AWEA) estimates that wind energy, if encouraged vigorously, could reach 30,000 megawatts (MW) of installed generating capacity in the U.S. by 2010 (compared to current capacity of 1,700 MW). If this target is achieved, wind would reduce national CO2 emissions by 100 MMT annually, or more than 18% of the 548-MMT excess [based on displacement of coal-fired generation].
A Cost-Effective Option
Wind technology provides an outstanding opportunity to cut carbon dioxide output at an extremely reasonable cost. Wind costs are expected to be among the lowest of generating technologies by early in the next century, when most of the new wind capacity would be installed. Wind energy is already within a cost-competitive range if its cost is examined on a true life-cycle basis over the lifetime of a typical wind plant. The levelized cost of power from a wind project is now about 4.5 cents/kWh, compared with levelized coal plant costs of about 3.9 cents/kWh.
The cost of avoiding carbon dioxide emissions with wind technology is currently about $6 per ton avoided, and will decline even further over the next decade, perhaps even to zero if wind achieves cost parity with fossil fuels, as the industry is now seeking to do. The goal for wind technology is to have winds total costs equal to the variable cost (i.e., the fuel and O&M costs) of its fossil fuel competitors. That goal can be reached within 5-10 years if a high growth path for wind is chosen. Over recent years, wind technology has consistently beaten predictions about future cost improvements.
30,000 MW--An Achievable Goal?
To reach 30,000 MW by the year 2010, installed wind capacity would have to expand at a compound growth rate of 25% annually. This rate is achievable, but must be stimulated by policies that are steady and consistent so that investment in new production capacity can be made as needed. We know that it is achievable because:
European domestic policies have fueled strong market growth in Europe and elsewhere --the U.S. can do the same for its domestic market while also encouraging continued rapid growth in the global market.
New wind projects can start going up within one to three years after new policies or incentives encouraging wind are put in place. Wind turbines themselves are modular and are composed of factory-built components which are already mass- produced or can be mass-produced when a market develops. Industry experts compare the manufacture of wind turbines to that of trucks, and expect manufacturing capacity to ramp up rapidly to respond to market demand.
The Price of Inaction
Should the necessary policy support for wind not be forthcoming, development would lag, resulting in AWEA's "base case" projection, which forecasts cumulative installations of 7,875 MW for the U.S. by 2010. This still assumes very moderate but clear policy changes to encourage development of wind projects in the U.S. However, 7,875 MW of wind capacity makes only a small contribution to achieving CO2 emissions reductions in 2010, a date by which substantial progress needs to be made if the U.S. ever hopes to stabilize emissions at 1990 levels. It is therefore essential to take more significant policy steps so that AWEA's "high growth" scenario, under which wind reaches 30,000 MW installed by 2010, takes place.
Cutting greenhouse gas emissions can go hand in hand with economic growth in clean energy industries--if we provide the right incentives.
For example, small investments in the form of tax incentives for wind can provide big dividends in cleaner air and economic development. A federal commitment to purchase a small, but ever-increasing, amount of renewable energy would set the example for states and businesses to do the same, and encourage the adoption of a minimum content standard for electricity generation from renewables. Assisting developing nations in their desire to purchase U.S.-made renewable energy technologies will slow the rate of emissions increases worldwide while creating jobs here at home.
However, renewable energy comes in a variety of forms; there is no "one-size- fits-all" provision that can meet the needs of all renewable, or even all wind, technologies. Offered below is a series of policy options aimed at reducing domestic and international greenhouse gases through reliance on wind energy technologies. Taken together, these policies comprise a proposed Strategic Wind Energy Initiative.
Building the Domestic Market
1. A 10-year extension of the existing wind energy production tax credit (PTC).
The PTC provides an inflation-adjusted 1.5 cents/kWh credit for electricity produced from a new wind facility for the first 10 years of its existence. The purpose of the credit is to provide equitable tax treatment for wind in comparison with tax breaks provided for its fossil fuel competitors. The PTC is scheduled to expire in less than two years (i.e., plants built after June 30, 1999, will no longer qualify for the credit), but financing and permitting requirements for a typical wind plant take two to three years lead time. Therefore, investor uncertainty regarding the PTC's continued existence is already drying up financing and halting project planning, just as wind stands to assume a new and more competitive role in the domestic energy industry. The Congressional Joint Committee on Taxation has estimated that a five-year extension of the credit would cost $156 million over the next 10 years.
2. A federal Renewables Portfolio Standard (RPS) of 5% by 2005 and 10% by 2010 should be included within federal electric utility restructuring legislation.
The RPS is essentially a "minimum content requirement" for electricity from renewable sources as a percentage of all electricity generated in the U.S. Generators of electric power would either have to use renewables to supply part of their generation, or buy tradable credits from the owners of renewable energy projects located anywhere in the U.S. The Tellus Institute estimates that a 10% RPS in 2010 would add approximately $1.30 to a typical monthly household electricity bill. The RPS is already included in some form in four major utility restructuring proposals in Congress, and should be coupled with a System Benefits Charge (SBC) to provide funding for emerging renewable generation technologies (such as photovoltaics and small wind turbines) and with legislation requiring disclosure of electricity generation fuel sources.
3. A federal agency renewables purchase requirement, steadily increasing over time.
An Executive Order should place a minimum renewables content requirement similar to the Renewables Portfolio Standard on electricity used by federal agencies. This is an immediate action the Administration could take to demonstrate a serious commitment to reduce greenhouse gas emissions. By 2005, agencies should be required to obtain 10% of their electricity supply from nonhydro renewable resources.
4. A Small Turbine Investment Tax Credit (STIC).
This provision would create a new 30% tax credit for business users of small wind energy equipment (no greater than 50 kW capacity). An STIC would stimulate the U.S. domestic market for small turbines, increasing equipment production volumes and reducing production costs. Currently, about 70% of U.S.-made small turbines are exported to more than 75 countries. Due to low energy prices, full expensing of business energy costs, and no applicable federal incentives, the domestic market for small wind turbines is limited to a few remote, high-value, off-grid applications. But small wind turbines have great potential to displace highly-polluting diesel systems and in even moderate wind regimes will be the least-cost option. The cost of this credit is estimated at $4.3 million over five years.
5. A federal commitment to multi-year spending of $60 million annually for wind technology development.
Working with the Department of Energy, the U.S. wind industry has achieved cost reductions of more than 80% over the last 16 years. During that time, industry has developed an effective working relationship with the Department that is yielding increasing dividends, but that is jeopardized annually by threats to reduce or eliminate DOE wind program funding or to gut the program through changes in authorization language. Increasing the wind budget from the fiscal 1998 level of $33 million to $60 million and seeking a multi-year authorization would strengthen the program, allowing further efforts aimed at core research activities, better technology validation, more focused turbine research, and the development of a more comprehensive testing and certification program. Experts believe the cost of wind equipment can be reduced by another 40% from current levels, which would greatly expand its potential market.
6. "Net Metering" for renewable energy systems of 1 MW or less.
In 16 states, consumers can install small, grid-connected renewable energy systems to reduce their electricity bills using a technique called net energy metering. Under net metering, consumers feed excess electricity generated by their renewable energy systems back to the grid, in essence running their electric meter backwards. At the end of the billing period, the consumer pays for the net amount of electricity supplied by the grid at the regular retail electricity rate. The purpose of this provision is to incentivize small renewable energy installations.
7. Establishment of renewable energy as a "must take" resource within utility power pools.
A series of "power pools," which aggregate the electricity from individual power plants as needed and parcel it out to demand centers over the utility transmission network, oversee electricity distribution in this country. The rules for these pools are being rewritten as the utility industry is restructured and may, intentionally or unintentionally, discriminate against intermittent power sources like solar and wind. For example, one pool has already proposed that power transactions be scheduled 24 hours in advance, something that cannot be done with wind plants, whose output varies from hour to hour. This provision would ensure intermittent resources access to the market by requiring that electricity from renewables is "taken"--or purchased--first, with the seller paid only the prevailing market price for that particular hour. The "must take" provision would be subject to some necessary limits based on the amount of power the pool is handling during any given hour and its ability to absorb the amount of intermittent power that is offered.
Selling U.S. Technologies Abroad to Achieve International Emissions Reductions
8. A strengthened existing Export/Import Bank program to more effectively support wind development around the world.
CONTINUED ON NEXT PAGE -->Written by: American Wind Energy Association
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