Rising fuel prices and improved technology are spurring more interest in wind energy. Concern over climate change is also helping wind gain favor as a clean power source. But wind-farm projects can be a tough sell to nearby residents. Randy Swisher, executive director of the American Wind Energy Association, joins OnPoint to talk about wind power tax incentives in the energy bill and where wind fits in the current energy and environmental picture.
Mary O'Driscoll: Welcome to OnPoint. I'm Mary O'Driscoll. Today we're discussing the opportunities and challenges facing the American wind energy industry with our guest, Randy Swisher, executive director of the American Wind Energy Association. Randy, thanks for joining us today.
Randy Swisher: Thanks for the opportunity.
Mary O'Driscoll: Thanks. Where is the wind energy industry right now as far as size, investments, you know, new projects coming online. I know with the tax bill that came out last year, it extended the tax credits for wind energy production. It really helped spur some new projects, and you also have FERC starting to look at ways to connect and make it easier for these projects to get connected to the grid. So what is the state of the wind energy industry right now?
Randy Swisher: Well, the wind industry's been the fastest growing energy industry in the world for the last decade. Within the last five years, we've seen a market for wind really start to develop here in the U.S., and we're expecting this year to be the biggest year in the history of the wind industry in the U.S. So about 2,500 megawatts of new wind energy development this year. You know, that's enough electricity that we expect from that to serve about 750,000 average American homes. So it's, you know, we're still small in terms of what we provide to the electric industry overall. But it's starting to become -- let me just say that there seem to be more utilities and more energy companies coming to the wind industry every day. It's been growing very rapidly.
Mary O'Driscoll: What do you attribute this to? I mean was it any policies? I know that a lot of states are now pursuing renewable portfolio standards, which are starting to bring some interest to the wind energy industry, and to other renewable energy industries. Is that what it is? Or has been a combination of things or what?
Randy Swisher: It's a combination of things. I think the single biggest factor has been the declining cost of wind compared to competing fuels. Our costs have continued to decline, you know, every year for the last 20 years or so. And at this point, a lot of utilities looking around at their different resource options see wind able to meet their needs in a competitive way compared to new gas or new coal fire generation. You compare that -- I mean the other factor has been dramatically higher costs for new gas, and coal prices have gone up quite a bit as well. So we're looking increasingly attractive, just on a straight economic basis compared to what -- to the fuels that are available to utilities. And then the other factor that you mentioned, state policy has played a big role. We now have 18 states plus the district that have a renewable portfolio standard or renewable requirement in place, and the number of megawatts driven by that -- it's not that that's a huge number, but having the state requirements in place in first Minnesota, then Iowa, and then Texas, starting about 1998-99 and 2001, drove a couple thousand megawatts of new development and, more importantly than that, the cost of that power was very competitive, and it helped educate utilities around the country to how cost competitive wind could be today.
Mary O'Driscoll: OK. I wanted to get to that point. The cost competitiveness, really, is it driven more by the tax credits that are available, or would you have this kind of development if the tax credits were not available?
Randy Swisher: Credit's a very important incentive for the wind industry. And clearly you take that away, that would have a very significant impact on the market, and that's why, because the credit has expired three times in the last six years, that's why you've seen this sort of up and down nature to the market for wind, and it's been extremely detrimental. We're looking for a five-year extension to the credit, if that's possible. But we need that kind of stability. It's an important -- just communicating to investors, literally, there are billions of dollars of investment waiting to come into the wind industry. If we had a five-year credit, watch out. I mean the growth that we've seen -- the growth has been 24 percent per year on average for the last five years, and if we had any kind of stability in the market over the midterm five years, there would be really dramatic growth for this industry.
Mary O'Driscoll: Well, you said you're looking for a five-year extension of the tax credit. I believe the House energy bill that's on the floor this week is only one year. Are you hoping to be able to get that through during the rest of the negotiation process?
Randy Swisher: Well, what I've described is what we hope, what we think the industry really needs, what I think a growing number of policymakers on the Hill recognize, as well. You can't have one- and two-year extensions to a credit and think that investors are going to be comfortable with that kind of short-term viewpoint. We've got major manufacturers around the world that are prepared to invest in manufacturing facilities here in the U.S., and they've held off on doing that, because they don't have enough lead time to know that that investment can be safely recaptured. So, you know, I think it's in the best interests of the U.S. to provide that kind of certainty. If we really, you know, if we want to incentivize this if we really want to see it grow to achieve its potential, there needs to be more stability to the market over a longer period of time.
Mary O'Driscoll: I was going to say that there was an announcement shortly after the tax bill was approved late in the fall that was part of the corporate tax bill that you got the extension or the renewal and the extension, because it had expired. That, as soon as that was passed and signed into law, several announcements were made for projects that were expansions of existing projects or projects that had been put on hold, and so that they were scrambling to take advantage of it, because it now expires at the end of this year. I mean what does that do? Do you have others that are hoping that, you know, if you get a little longer extension, that they'll come on, too? Or is there always going to be this kind of mad scramble for -- to get projects going before the next extension expires.
Randy Swisher: I hope we're not going to have this kind of mad scramble, because it's not a very rational way for any industry to grow. The ironic thing about this year, which is a record year, is that the single biggest constraint on the size of the market is turbine availability. With a 15-month extension to the credit, manufacturers really were not given enough time to get their manufacturing lines operating at the level necessary to serve the demand. So, if we'd been given two to three years even, you would see enough -- you would have seen enough turbines manufactured to serve a much larger market. This'll be a record for us, but it could have been even bigger.
Mary O'Driscoll: Right, oh, that's very interesting. Well, I wanted to -- while we're talking about the House energy bill that's being debated this week, there's a provision in there that would curtail National Environmental Policy Act review for wind turbines and other renewable projects. Is NEPA review holding up any of these wind projects at all? I mean is this a problem that you were looking to have addressed in the energy bill?
Randy Swisher: This is not something that, you know, most projects are done on private land, so it's not a huge issue. I think there's one particular project that -- the Cape Wind Project offshore Massachusetts -- that is subject to NEPA review, and, you know, certainly, we're very concerned about that project, because there's been quite a few people that have spoken out in opposition to the project. I think the project is very important to the future of the wind industry. It's the first major offshore project, and the opposition to the project has not been on any kind of scientific basis. People basically don't want to look at turbines that are sighted six miles offshore. You know, we're not talking about a huge blot on the horizon. Barely visible. But what that would represent in terms of new, clean energy for the region serving a -- providing a substantial portion of the electricity for the state of Massachusetts. I think the tradeoffs, you know, some visual impact versus a very significant contribution to our clean electricity needs. It's hard for me to see these tradeoffs as leading any direction other than, yes, this project makes sense.
Mary O'Driscoll: To get it approved. Well, you brought up the Cape Wind Project. I wanted to ask you about that in the light of that they -- wind projects generally get a mix of support and opposition, because wind energy is clean. It's renewable and that kind of thing. Yet, you know, for this offshore project -- I believe it's what? 130 turbines? And opponents don't like the project's noise and appearance. They're worried about its effects on the ocean floor, migrating birds, navigation, fishing, and tourism. How in, you know, 30 seconds, I mean can you expand on what you were saying before? How can you explain to us why those concerns are unfounded?
Randy Swisher: Wind turbines are not noisy. You know, no one is going to hear the project from the shore. I've slept, you know, on the grounds of a wind farm and didn't hear the turbines all night. You know, so noise isn't a significant issue, particularly in that context. There -- as part of the environmental review, and there have been something like 4,000 pages of environmental impact and other studies that have been done for this project. You know, no significant environmental impacts have been identified for the project. You know, that is not the issue. The issue is a few people who do not want to look at the project and, to me, that's not the basis for opposing a project that has such benefits to offer.
Mary O'Driscoll: Yeah, well, this is kind of the problem that happens with just about any kind of a construction program, though, isn't it?
Randy Swisher: That's true.
Mary O'Driscoll: People don't want to look at power lines. People don't want to look at smokestacks and, you know, they have various effects on health and that kind of thing. But can you blame them for not wanting to have to look at these things?
Randy Swisher: Absolutely not. I think, you know, each of us, you know, in our own neighborhood, in our backyard, are going to be uncomfortable, perhaps, with any kind of new development, new project. And, certainly, people have that right. I think the way these decisions get made, though, is generally on the basis of, you know, it's a community process. It's a state process. Whatever the review is, the community has the opportunity to weigh in and certainly in communities where wind is not wanted, you know, we're not going to -- we won't be there, because there are plenty of other places where people welcome the economic and other development -- the new jobs that a major wind project brings with it. And, you know, frankly, the opposition that we've seen to wind project development is the exception rather than the rule.
Mary O'Driscoll: Right.
Randy Swisher: We have, you know, scores of projects that are moving forward, really being welcomed by people in the local community for all the obvious reasons.
Mary O'Driscoll: OK, well, I wanted to -- now there's a recent MIT study, or survey showed that many people are supportive of renewable sources of energy, such was wind and solar. But, when informed of their higher cost, their support falls off. Researchers noted that wind power "has generated considerable local opposition in spite of widespread recognition that wind energy would mitigate climate change as reflected in our survey and others." So how do you get over that? How do you get over that kind of public perception hump as far as wind energy is concerned?
Randy Swisher: There are a couple different issues that you mentioned. One is cost. You know, wind has higher cost. I think one of the things we've seen is that that cost differential between wind and competing fuels has really diminished to the point where, you know, I mean the experience in Texas has been that, today, wind is the cheapest source of new generation. Now, that's not the case in a place where you've got more modest winds. But wind can be the cheapest source of new power in some parts of the country. And then you'd mentioned some of the other issues. Life is filled with tradeoff. You know, and you simply have to look at all the benefits that wind brings and weigh those against the potential cost. The impacts of wind energy development pale in comparison to fossil and other conventional forms of electricity generation. There are some local impacts, primarily visual impact. You know, people do see these projects, and you can't get away from that. I happen to think they're beautiful, you know, but beauty's in the eye of the beholder. And everybody, you know, everybody will respond in different ways, but, you know, we found in a lot of areas like, you know, western Pennsylvania, where a few projects have gone online, have really enormous interest within the community, a lot of tourists coming just out of fascination with this technology. So I think, you know, people are oftentimes fearful of change, fearful of, you know, something new.
Mary O'Driscoll: Yeah.
Randy Swisher: But a lot of people are also very excited about what this technology brings with it.
Mary O'Driscoll: OK, I wanted to know -- the Federal Energy Regulatory Commission, as I mentioned at the outset of the program has gotten quite active in recent months on efforts to ensure that renewable energy projects can get access to the grid. The commission just issued a proposal -- a proposed rule on pricing and grid connection. They just did this last week. Can you explain that for us? Just what those proposals will do for the industry?
Randy Swisher: There's been -- we've been active at FERC, the Federal Energy Regulatory Commission, for about the last three to four years. It's been a very long dialogue, helping to explain sort of the fact that wind is different than other technologies. You know, you can't simply flick a switch and have a wind turbine start generating a certain amount of power. Wind is what we call dispatched by nature. You know, it's really when the wind blows, the electricity is there for the electric utility, and when it isn't, you know, the wind power is not. So, typically, the way the electric industry works, a power plant has to tell the grid operator how much electricity they're going to be providing in advance. You know, you can't do that to great detail with wind. But, you know, wind should not, because it's different, should not be denied access to the market simply because of that fact. Wind needs a certain kind of change in the rules that will accommodate its nature. That doesn't mean, you know, kind of special exceptions that are going to impose heavy costs upon the grid. Wind is certainly willing and able to pay its way. But it means changing the rules to accommodate this new technology in the same way that the grid rules were changed when nuclear power was being introduced. In the same way with some new fossil generation. Different technologies require different rules to accommodate them. And that's really what we're dealing with, with wind. And FERC has recognized that. I think one of the things about the current commission is that they recognize the importance of making sure that the market is open to new technology and to new competitors and making sure the market rules work so that these new technologies are able to compete.
Mary O'Driscoll: OK, yeah, and how much wind energy, wind power are we looking to come online this year? You said 2,500 megawatts?
Randy Swisher: 2,500 megawatts, roughly.
Mary O'Driscoll: Yeah, roughly, so -- and that's a record?
Randy Swisher: That is, by far, a record, yeah. The single biggest year we've had in the past was less than 1,700 megawatts, so, yeah, it's big.
Mary O'Driscoll: Right, and so a lot of these projects that are coming on -- wind is not exactly, I guess the best wind power sites are not exactly close to the load centers or the, you know, the cities where everyone is using all the electricity, so that's part of the reason why you need some of these new interconnection rules, because it will make it a lot easier. You just can't put a wind power plant -- a wind farm at, you know, outside of Los Angeles or something like that. So --
Randy Swisher: That's right. That's right. Wind is transmission dependent.
Mary O'Driscoll: Right.
Randy Swisher: We're typically at a distance from where the electricity is consumed, so transmission and sort of the electric market rules which govern the electric industry are particularly important to us.
Mary O'Driscoll: OK, and so when do you expect this rule to take effect? Do you think this is -- it's only in the proposed stage. It will take a while to kind of work through the regulatory process?
Randy Swisher: Actually, there are a series of different proceedings relating to different elements. One of the things that they're dealing with is a so-called -- we've proposed a grid code, which is basically interconnection standards that would be placed upon wind that would ensure that wind is a contributor to the reliability of the grid, and performing, sort of a good citizen on the grid, as opposed to being a problem that diminishes the reliability of the system.
Mary O'Driscoll: Oh, is that to help the utilities feel a little bit better about it?
Randy Swisher: Exactly, exactly, and it's really -- it goes back to the blackout of 2003, which raised a lot of concerns about the reliability of the system, and it was just clear to us that this new technology needs to meet certain standards, so that electric utilities and grid operators are confident about increasing percentages of wind on the grid. You know, that's our intention. Wind is going to be an increasingly important player in the electric industry. But to do that, you know, meeting certain standards, as a grid participant, are important.
Mary O'Driscoll: OK, well, that's about all we have time for today. I'd like to thank our guest, Randy Swisher, executive director of the American Wind Energy Association, for joining us today. I'm Mary O'Driscoll. We'll see you next time on another edition of OnPoint.
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