The U.S. Senate recently passed a $170 billion corporate tax bill that included $14 billion in tax incentives for energy producers. A part of these tax incentives includes the restoration of the wind production tax credit for another three years. The wind tax credit of 1.8 cents per kilowatt-hour expired on Dec. 31, 2003, impeding development of new wind power projects across the nation.

The corporate tax bill includes $9 billion in tax breaks for the oil and gas industry. It also would encourage the development of an Alaska North Slope pipeline to transfer natural gas to the continental U.S. by ensuring price support if the price of natural gas falls below a certain threshold, and includes other favorable tax treatment for the proposed project. The bill also contains tax breaks to encourage development of clean coal technology and renewable fuels.

Next Steps

While the passage of this Senate bill is a good development for wind energy proponents, it will also need to pass the House of Representatives and receive the president's approval before it can be implemented. The House will craft its own version of the corporate tax bill. House Ways and Means Committee Chairman Bill Thomas (R-CA) is expected to finalize his committee's version of the bill in the next couple of weeks, and could bring it to the full House for a vote before the July 4th recess.

Whether the House version of the bill will contain the wind power production tax credit remains unclear. House GOP leaders have dubbed this week as “energy week,” and are preparing a media and legislative blitz to bring focus to the stalled energy bill. Specifics for energy week are not clear, but many energy industry lobbyists say House floor votes on the energy bill itself and opening the Arctic National Wildlife Refuge to oil and gas exploration are possible.

Whether the wind production tax credit becomes a reality will probably hinge on which piece of legislation contains it. If the House, includes the tax credit in their version of the corporate tax bill, passage of the tax credit is almost a certainty since the tax credit was also in the Senate's version of the bill, and a presidential veto is highly unlikely.

If, on the other hand, it is included as part of the energy bill, the tax credit's passage is doubtful. The House's energy bill (H.R. 6) passed last November, but it fell two votes short in the Senate—a margin that grew by one Republican vote after Senator John Ensign (R-Nev.) said he would not vote for the bill again because of its nuclear waste language. A Senate vote last month on S. 2095, a revised version of the energy bill, fell five votes short.

The wind industry has been through similar regulatory setbacks. The tax credit, first adopted in 1992, expired in June 1999. It was renewed six months later in December 1999. It also expired in December 2001, and was re-implemented in March 2002.

Wind industry backers say the gaps have created a roller coaster in U.S. wind production growth because companies become fearful of investing in the alternative energy source. Even so, the industry says that production costs have dropped 80 percent over the last 20 years, while the sector grew by 25 percent from 1998 through 2002.

In the meantime states are also enacting policies to require renewable portfolio standards. New Mexico, for example, has approved a law requiring the state's major utilities (El Paso Electric, Xcel Energy, and the Public Service Company of New Mexico) to derive 10 percent of the electricity they sell from renewable sources by 2011. The law reiterates a mandate passed down by the state's utility regulators in 2002 that requires utilities meet a 5 percent renewable power threshold by 2006. Approximately 15 other states have similar standards, including California and Texas.

“We needed to jump start this process now to keep up with what other states are already doing and to show everyone we are serious,” says Herb Hughes, a commissioner at the New Mexico Public Regulatory Commission.

Challenges

Even with government mandates, the challenges facing a significant expansion of wind power production are significant. Critics cite the intermittent nature of wind power as a detriment, and question whether the resource can be integrated into the bulk power network. These critics note that the demand for power is for firm power in on-peak periods, and given wind power's intermittence and the difficulty with forecasting its generation, it does not meet this demand.

Critics also point out that wind power is relatively more expensive than other energy sources. The largest wind turbine produces approximately 1 MW of electricity per hour, and can run upwards of $2 million to build and install. That is about two to three times the capital cost of regular coal or gas fired power plants on a per megawatt basis. And without the U.S. federal tax credit, wind producers would need to add 1.8 cents/kWh to the cost of wind power. If they include a form of back-up generation, this could add an additional 1.0 cents/kWh or more.

There are also transmission issues associated with wind power. Wind generators tend to be sited in remote areas, far from loads, so they are likely to face higher costs when transmission is congested. Being remotely located, they will also face charges for transmission-related energy losses that are higher than other generators.

Wind power can also cause electrical power surges in the grid system that are both unpredictable and uncontrollable. This can add considerable costs to electrical transmission because the transmission lines must have the additional capacity to handle the wind surge or spike loads.

And now, wind power is receiving criticism regarding an often-overlooked phenomenon that could have a negative impact on the proliferation of wind projects—wind turbines operating in icy conditions. Icing and aerodynamic imbalance could have serious implications on the life of wind turbines according to a report titled “Wind Power Production in Cold Climates,” which is now circulating in Wisconsin where the public service commission was forced to relocate homeowners living close to utility-owned turbines because of noise.

Those conference papers, re-issued in 2000, claim that the life of such turbines could be reduced from 50-90 percent. Despite the risks, 400 wind turbines totaling 500 megawatts have been installed at “hostile” sites around the world, critics say. It's not just a theoretical hazard: Three wind farms in the United Kingdom were reportedly closed in 2000 for safety reasons, all of which were tied to cold weather that resulted in metal fatigue in the turbine towers, they add.

While wind power may be a good idea, it still has a number of issues to address before it is truly as competitive as power generated from coal and natural gas. The role of wind power for the time being will be to supplement traditional forms of energy—not replace them.

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