A mighty optimistic wind estimate fuels EPA rule

Source: Peter Behr, E&E reporter • Posted: Monday, August 10, 2015

A strong, sustained growth of U.S. wind power, a cornerstone of the Obama administration’s Clean Power Plan, is achievable but faces stiff economic and political headwinds, according to government and private analyses.

The plan issued Monday predicts that zero-carbon renewable energy — primarily wind and solar power — will supply 28 percent of total generation capacity in 2030, the compliance period’s end year. The draft rule a year ago projected 22 percent as the estimated renewable power capacity share, and the higher contribution from renewables is key to the deeper cut in greenhouse gas emissions that the new plan requires (ClimateWire, Aug. 4).

The expansion of wind power in the United States has hinged on a crucial federal tax incentive that Congress has not renewed. The federal production tax credit (PTC) has allowed wind generation to compete with fossil fuels and nuclear power.

“The short answer is yes, the PTC is essential,” said Rob Gramlich, the American Wind Energy Association’s senior vice president for government and public affairs. “It’s true that wind is increasingly cost-competitive, but recent experience and studies such as NREL’s recent one show that development would fall significantly without the PTC,” Gramlich said, referring to a National Renewable Energy Laboratory analysis.

In releasing the final CPP, U.S. EPA air chief Janet McCabe said the agency’s analysis shows that wind power can expand throughout the CPP compliance period, from 2022 to 2030, even if the tax credit is not renewed.

If the PTC is not renewed, however, it will fall to state officials implementing the CPP to close any competitive gap between wind and other plan options — natural gas, solar, energy efficiency and conservation.

“Carbon benefits of wind aren’t taken into account until 2020. The Clean Power Plan will change the economics in the 2020s, increasing the value of carbon-free energy,” Gramlich said, but that doesn’t help project development now. “The value of carbon-free energy will vary based on a number of factors that are hard to predict, such as whether states pursue rate-based or mass-based approaches or choose this or that resource portfolio. It is very hard to put a dollar on that value now.”

To demonstrate the potential of wind and other renewables to help bring down power plant carbon emissions, the CPP calculated a trend line based on actual increases in renewable energy sources since 2010, and projected those historical growth rates forward to 2030. Onshore wind dominated the calculation of the increased supply of renewable energy generation in megawatt-hours.

But the past five years have been a feast-or-famine cycle for wind power because Congress has twice let the PTC lapse, and that raises questions about whether wind power can keep on a strong growth path without the tax subsidy. (The credit was 2.3 cents per kilowatt-hour in 2013 for a utility-scale project, for the first 10 years of a unit’s operation, with an alternative investment tax credit option.)

Two numbers were key in the CPP wind power analysis. EPA noted that wind generator capacity grew by an average 6,200 megawatts a year since 2010, the equivalent of adding three new nuclear power reactors. In the very best year in that span, 2012, wind capacity jumped by a head-turning 13,131 MW with the PTC in place, EPA reported in a CPP technical support document, “Greenhouse Gas Mitigation Measures.”

Then the PTC lapsed, and new projects plummeted 92 percent in 2013, totaling just 1,087 MW capacity. A hard push by the industry and its supporters got the PTC restored until the end of 2014, and new projects added 4,854 MW wind capacity last year.

An EPA official, not speaking for attribution, said the purpose of the wind power trend analysis was to demonstrate “that the technology was achievable at a reasonable cost,” a showing EPA is required to make. “It’s an illustration of the future,” but not a prediction, he said. “Our analysis suggests it’s possible for new renewable energy to penetrate greater than it does today.”

Cases for wind growth

A number of high-level government studies and third-party analyses of electric power regions agree that the United States has not approached its potential use of wind energy.

An Energy Department study, “Wind Vision,” says nine states are getting more than 12 percent of their annual electricity generation from wind: Colorado, Idaho, Iowa, Kansas, Minnesota, North Dakota, South Dakota, Oklahoma and Oregon. Iowa and South Dakota get more than a quarter of their in-state generation from wind.

Lawrence Berkeley National Laboratory’s “2013 Wind Technologies Market Report” cited a DOE study charting how wind power could reach 20 percent of generation capacity by 2030 through a steadily rising trend of deployment. To hit that path, annual installations would have to hit 16,000 MW of new capacity a year in 2017 and thereafter.

Current projections for wind-power growth without the PTC aren’t close to that level. The “Wind Vision” study reported a variety of projections for wind-power growth through 2025 without the PTC: Lawrence Berkeley National Laboratory, 3,000 to 4,000 MW per year; American Wind Energy Association, 2,400 MW per year; and Bloomberg, 2,000 MW annually.

Last month, the Senate Finance Committee voted 23-3 to approve a two-year extension of the PTC and an investment tax credit alternative, along with dozens of other expired tax incentives and subsidies, sending the measure to the full Senate. The measure has some bipartisan support from strong wind-power states, but is opposed by some conservatives as corporate welfare, and its future is uncertain. Exelon Corp., the largest nuclear power operator, says its Midwest plants are undermined by Great Plains wind generation that can offer power at night at negative prices because of the PTC.

EPA notes that the cost of new wind units continues to drop, improving its prospects without the PTC. Economists commonly rank the costs to deliver energy from different fuels by calculating their “levelized cost,” which estimates in the cost per kilowatt-hour of building an operating generating plant over its expected lifetime.

DOE, in its “Wind Vision” report, noted that the levelized cost of wind declined by more than 33 percent from 2009 to 2013, “and in some markets, wind power sales prices are competitive with traditional fossil generation.”

An U.S. Energy Information Administration report says a better view of the competitiveness of fuels — for example, new wind power versus new natural gas combined-cycle units — comes from comparing the levelized cost of each energy source with its value, based on the cost of generation from the energy source it replaces or “avoids” (such as coal-fired generation). On that basis, EIA says, natural gas has an advantage over wind that shrinks in the future but doesn’t disappear.

The tax cost of the proposed two-year extension of the renewable power PTC and investment tax credit (through the end of 2016) was calculated at $10.5 billion over 10 years by the Joint Committee on Taxation.

Richard Sedano, principal and U.S. programs director of the Regulatory Assistance Project, which advises states on energy and environmental regulation, said, “States have a significant capacity to drive renewable power into their electric systems.

“We know there is a massive amount of low-cost renewable energy in some parts of the country that remains untapped. Long-term contracts for renewable power are coming in at lower prices, so maybe that premium isn’t as big as we think it is.

“We see that the RPS [renewable portfolio standard] is a tool that is still getting used and stretched in a few states. It is there for all states. In some states, it has become a partisan issue, and that may take it off the table. It is the tried and true way of putting a thumb on scale and creating room for renewables. There is the feed-in tariff, which really does the same thing,” he added.

“My sense is there are lot of ways to comply with the Clean Power Plan without saying ‘subsidy’.”