Wind industry’s future in question as tax credit nears end

Source: By K Kaufmann, The (Palm Springs, Calif.) Desert Sun, USAToday • Posted: Monday, May 14, 2012

  • Machinist Jose Tovar works on windmill parts at Enxco's North Palm Springs, Calif., facility. Enxco owns and maintains hundreds of windmills in the Coachella Valley area.Machinist Jose Tovar works on windmill parts at Enxco’s North Palm Springs, Calif., facility. Enxco owns and maintains hundreds of windmills in the Coachella Valley area.
PALM SPRINGS, Calif. – For the past 30 years, the windmills of the San Gorgonio Pass in Southern California’s low desert have spun out a living history of the wind industry’s increasingly efficient and skyscraping abilities to turn the region’s brisk breezes into electricity.

Today, vintage 65-kilowatt machines from the early 1980s — blades still turning on spindly, lattice-work towers — bump up against 3-megawatt giants topping out at more than 400 feet.

The desert-landscaped area off Interstate 10 that greets visitors driving from Los Angeles to Palm Springs is also dotted with rows of towers now bare and bladeless — the sign of a wind farm no longer in operation but not yet replaced.

And they may not be.

The end of a key federal tax incentive for the wind industry could put a damper on much-needed wind turbine replacement efforts — known as repowering — just as many of the region’s iconic windmills are hitting the upper limit of their 30-year lifespan.

The credit provides wind developers a tax break of 2.2 cents per kilowatt-hour for the power they generate from utility-scale wind projects for the first 10 years of production. It’s set to expire Dec. 31.

For the pass — one of three pioneering wind sites in California, along with Altamont in the north and Tehachapi near Los Angeles — the loss of the credit could mean the region will lag behind other, more modern projects in the works to meet California’s renewable energy goals.

The state is committed to producing 33 percent of its power from wind, solar and other renewable sources by 2020 — a law that helped California lead the nation with 921 megawatts of new wind installations last year, according to the American Wind Energy Association.

Only 55.5 megawatts of that total — from two repowering projects — were in the pass.

In the latest figures on the first quarter of 2012, a single 49-megawatt project in the pass accounted for 10 percent of 490 megawatts installed statewide. The rest were in Tehachapi.

Why so little wind development in the pass, when industry experts across the board agree San Gorgonio is still one of the best spots for wind energy in the state?

“The pass is nearly built out now if one considers transmission constraints, the limited availability of large parcels of land in sufficiently windy areas, hillside development restrictions, and habitat conservation,” said Fritz Noble, director of real estate development for Wintec Energy of Palm Springs.

“There might be another 150 megawatts of either repowered projects or greenfield projects,” said Noble, whose father, Wintec CEO Fred Noble, put some of the first windmills in the pass in the 1980s.

Others such as Florian Zerhusen, CEO of wind developer WKN USA, see the region’s combination of top wind and rows of old turbines as an enormous opportunity — and a bit of a mess.

“Today’s technology can replace that,” said Zerhusen, whose company will soon start building two 3-megawatt machines in North Palm Springs.

“When you look at the pass and you have a reliable wind source, it’s up to industry to go in and optimize it.”

Pass makes sense

A combination of geology and weather make the San Gorgonio Pass the prime wind region that it is.

It is one of the deepest mountain passes in the U.S., where the intersection of warm desert air and cooler air from the Pacific Coast produces the kind of stable winds needed for wind development.

“We operate the same windmills in the Altamont as we do here,” said Wintec’s Fritz Noble. “A local windmill produces twice the energy as one in the Altamont.”

The total number of turbines in the pass right now is something of a moving target, due to the ebb and flow of new and repowered projects and farms currently out of commission.

The pass covers about 5,500 acres, of which 3,589 acres are public land, according to the U.S. Bureau of Land Management.

The agency’s most recent head count puts about 1,080 turbines on federal land in the pass — worth more than $1 million in annual rental fees — while estimates of the total number of turbines run around 2,500 machines.

Southern California Edison buys almost all the power from the pass — about 800 gigawatt-hours in 2011. That accounts for 5 percent of all the utility’s renewables.

One gigawatt-hour equals 1 million kilowatt-hours. The average home in California uses about 6,700 kilowatt-hours per year, according to figures from the U.S. Energy Information Administration.

While Edison produced about 20 percent of its power from wind, solar and other renewables last year, the company will have to up its green power by two-thirds to hit the state-mandated 33 percent target by 2020.

Repowering more projects in the pass could provide Edison and other utilities better reliability and a potential increase in production. As far as hitting the state’s 2020 goal , wind looks to be the cheapest.

Wind power costs an average of 8 and one-half cents per kilowatt-hour, according to 2011 figures from the California Public Utilities Commission.

Comparable figures for photovoltaic solar — 15 cents per kilowatt-hour — were only available for projects of 3 megawatts or less.

Whether San Gorgonio stays competitive — as solar and natural gas prices continue to fall — depends on extending the production tax credit, many industry experts say.

“Without it, there will be little development in the U.S.,” Fritz Noble said. “Remember that this credit only levels the playing field; all sources of energy are subsidized.”

Lisa Linowes, executive director of the Industrial Wind Action Group, a watchdog organization based in New Hampshire, argues the end of the tax credit need not be fatal. She sees new wind installations as more dependent on state renewable energy laws than the tax credit.

And like all renewables, wind faces competition from plunging natural gas prices, she said, so an end to the credit could push the industry to be more efficient.

“They’re not under the gun to do better projects, not when the federal government is promising they’re going to get this added revenue stream,” she said. “There’s no question there will be a transition in the wind industry. It’s not going to collapse; it will become a better market.”

Not all repowering projects may qualify for the credit, but eight months ahead of its expiration date, wind developers across the country are rushing to complete their current projects, while putting a hold on anything after 2012 — new or upgrades.

Florida-based NextEra Energy recently completed one repowering project in the pass, replacing 115 old 360-kilowatt machines from the 1990s with 33 sleek, new 1.5-megawatt machines. The new windmills stand 340 feet.

The company’s two other San Gorgonio wind farms have turbines dating from the late ’90s that fall into the black hole of post-2012 projects that company officials recently announced are off the table pending the production tax credit’s future.

Much depends on wind tax credit

Prospects for an extension of the production tax credit appear mixed. On one side, with wind farms sprouting in red and blue states across the country — Texas leads the nation in sheer numbers of turbines — the credit in and of itself is an issue with rare bipartisan support.

But, with climate change and renewable energy incentives increasingly seen as wedge issues in the 2012 election, advocates on both sides of the aisle have yet to find a way to get any bill extending the credit through Congress.

The latest efforts, which would fund an extension of the credit by slashing subsidies for fossil fuels, have run into predictable opposition.

V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies in Sacramento, thinks a post-election, one-year extension of the credit may be possible, though it’s not the long-term solution. The incentive needs to be reformed and eventually phased out, he said.

“Whatever we do, it ought to be transparent so we know how much we’re paying and how much it costs and what we’re getting,” he said.