INVESTORS BET ON U.S. WIND

A mighty wind?
Ronan Farren, June 24, 2011 (Irish Times)

"Despite stiff competition from natural gas prices, wind energy is still attracting new investors…Just as internet protocol (IP) took over from traditional twisted copper to become the basis of our current phone, cellular and internet communications, US wind is having the same struggle to break through…[but] it’s a battle it is winning…

"…With mandated renewable power standards in 30 states (plus another eight with non-binding targets), federal tax credits/subsidies driven by the Obama administration, the backing of Wall Street, increasing Chinese investment, and a full-on PR campaign, American wind is challenging the entrenched oil and gas vested interests."

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"Wind’s big problem today is natural gas pricing. Unlike in the EU, which offers legislation-backed national renewable energy fixed feed-in tariffs (FIT), individual state and utility prices are based on the lowest fuel cost available. That gives the power to natural gas, currently near all-time lows…[Surprisingly,] natural gas pricing has effectively decoupled from oil pricing…due to the abundance of shale gas [reserves]…While not being environmentally friendly in relation to its extraction, it is considered economical.

"As a result, the US wind market, though subsidised, has become less profitable and more risky. Success requires strong industry knowledge, in terms of understanding turbine technology, optimising site selection, and knowing which utilities are issuing power purchase agreements (PPAs) in states that have the grid transmission lines to deliver the energy to population centres."

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"…[P]roduction tax credits (PTCs) that benefit profitable tax equity investors…constitute a key area…Gas prices aside, the largest immediate storm on the horizon is the periodic cancellation of tax credits that allow developers to get an immediate refund worth at least 30 per cent of the capital cost of wind farms. These are likely to be ended after 2012, particularly under a Republican-led Congress. Developers who start construction of their projects by the end of this year have the option of receiving the cash value of their tax credits from the US Treasury within 90 days of completion…[Extension] of the tax credits past 2012…[faces] strong headwinds due to the pressure on Congress to reduce massive federal budget deficits.

"This is not stopping already ensconced top tier developers who are doubling down and cherry picking key strategic projects to green-light [including those in and near California, whose Govenor just] signed into law the most aggressive renewable target in the country…Another 21,000MW of new renewable capacity is needed…"