Wind-Powering Pennsylvania. . . at the Tipping Point?

In "The Tipping Point," Malcolm Gladwell posits that small things at critical times can ignite markets, tipping them into the mainstream. With the right conditions, an apparently insignificant factor can spark the fire and lead to market acceptance.

There is so much action these days in the burgeoning Pennsylvania wind power industry that it raises a question: have technology, good policy, capital formation, and markets all come together to make wind power a self-sustaining asset in generation portfolios of the mainstream of the energy industry? Not yet, but we may be at a tipping point, where little things can make a big difference, one way or the other.

AEPS and Industry Dynamics

Passage of the Alternative Energy Portfolio Standard (AEPS) of 2004 was a big thing and by itself might be spark enough. Platts Analytics, a division of McGraw Hill, forecasts 3600 MW of wind generation capacity will result. That is enough to power a million and a quarter homes, equivalent to the residential customers of PPL, Pennsylvania 's second largest electric utility.

How the rules implementing the Act are developed by the Pennsylvania Public Utility Commission (PUC) and the Department of Environmental Protection (DEP) can be viewed as a small thing, a bureaucratic detail. But in real terms, these rules could be decisive - the tipping point. (See "Keeping the Portfolio Standard Promise," for our take on good rulemaking.)

But good regulations alone probably won't be enough. The dynamics of the market place are also important. And looming ahead, there are two factors that could tip the balance the wrong way: a regulatory driver that inadvertently damages the voluntary market and the emergence of local opposition to wind farm siting.

Where's the Action?

Seems like everywhere. A total of 6740 MW of wind is installed across the country but the American Wind Energy Association is forecasting 2000 MW of new capacity by the end of 2005. That's a big jump from the 389 MW built in 2004. But of course, last year was most noted for poor public policy, thanks to an on-again off-again Production Tax Credit (PTC). It was a great lesson in how poorly executed policy can destabilize a market and damage a young industry.

Pennsylvania developers are now scrambling to finish projects in 2005 to qualify for the PTC. At least two new wind farms will be completed this year in Pennsylvania , bringing to seven the number of operational wind farms in the Keystone state, totaling a minimum of 180 megawatts. Wind developers, the utilities and landowners are also seriously prospecting for new sites to build their pipeline of projects.

And the field is expanding. In September, AES, the $8 Billion global power producer, made its entry into the market with an equity investment in US WindForce, a developer active in Pennsylvania . The end of December marked the purchase of Atlantic Renewable Energy by PPM Energy, which is owned by Scottish Power and may be interested in sending pounds sterling across the Atlantic to build wind power in Pennsylvania and the East. Atlantic Renewable has been the most successful developer in the East generally and in Pennsylvania specifically. And in January, AES announced the purchase of Sea West, one of the largest developers with over 850 MW under its belt.

The Spanish wind-energy company Gamesa Corp. announced in January that it would manufacture wind turbine blades from a facility to be built in Ebensburg, 20 miles from Johnstown . Previously, in September 2004, Gamesa announced its headquarters and East Coast development offices would be in Philadelphia . Those offices are now open and the Ebensburg plant is under construction, scheduled to turn out blades before the end of 2005. Gamesa is projecting a $40 Million investment in Pennsylvania facilities and several hundred MW of Gamesa owned wind farms. Approximately 1,000 jobs will result from Gamesa's various investments in Pennsylvania .

The Gamesa investments would not have happened without the active support of Kathleen McGinty, Pennsylvania 's Secretary for Environmental Protection. A $9.31 Million package from the state closed the deal. It includes $1.9 Million in grants, $1.17 Million in tax credits, a $5.85 Million loan, and $390,000 in job training funds.

Secretary McGinty also managed to redirect $10 Million in alternative fuels money as seed capital into the Pennsylvania Energy Development Authority and to announce another round of Energy Harvest Grants.

On the consumer front, the PECO Wind product completed its first nine months in the market. According to the National Renewable Energy Laboratory of the US Department of Energy, this program, jointly managed by Exelon and Community Energy, immediately became one of the top in the country, with 10,000 customers. And they hope to sign up as many as 40,000 customers.

Institutional buyers, including colleges, government buildings and businesses, are even greater buyers of wind energy. Their voluntary purchases were essential to making Pennsylvania the leader in wind power installed in the East.

On a broader front, the biggest power market move is Exelon's filing on February 4, 2005 to merge with PSEG of New Jersey. If approved, the merger will create the largest electric utility in the country with $25 Billion in revenue, further expand Exelon's already dominant nuclear fleet, and make the firm the major market power in the Delaware Valley on both sides of the river. The PUC will approve or reject this merger at the same time it will implement the AEPS.

When PECO merged with Chicago based Unicom in 1999, PennFuture intervened on behalf of the environment and the consumer. PECO agreed to a settlement including over $20 Million in funds to encourage clean energy development, with wind energy as the greatest beneficiary. The wind subsidies have been successfully deployed, to great advantage. But the bank is now empty and in need of refilling. Other states have much larger clean energy funds that are permanently funded by directing a very small portion of electric rates to financing renewable energy and energy efficiency. Pennsylvania must compete for wind investment with states that have such large clean energy funds. Pennsylvania wind still needs some help to compete not only in the consumer market but also against vastly greater public funds in competing, neighboring states.

Thus is the state of wind power development in Pennsylvania under a voluntary market, before the advent of the regulatory portfolio standard. Not bad at all.

Opportunity or Threat?

Transforming Pennsylvania to a clean, safe and secure power market and creating jobs in this new technology sector requires a regulatory driver that works in synergy with the voluntary market. How the rules are written to implement Act 213 should enhance the opportunity, but poorly executed rules can destabilize the emerging market.

Market confusion is a considerable threat. If institutional buyers believe their purchases do not encourage any more generation than that required by law, especially if they are paying a premium price, they will likely discontinue voluntary purchases. The AEPS has penalty provisions, but they do not take effect until the rate caps are removed from the various electric distribution companies, which for most occur at the end of this decade. Until that time, the voluntary market provides the only reliable driver.

If the utilities take a wait-and-see position, quite possible for some, they will not contract for long-term power purchase agreements, and the market for new wind farms will go on hold. This can be followed by a rush to market towards the end of the decade, supply and demand imbalances, and pricing chaos. Orderly market development is needed, not chaos.

The voluntary market will foster an orderly development and can assure that wind power in Pennsylvania grows to its free market potential, not capped by an upper limit imposed by government regulation. The voluntary and regulatory market drivers should be allowed to work in synergy.

Birds, Bats and Not In My Backyard

The wind farm poster child for NIMBY (Not in My Back Yard) is the Cape Cod project with the celebrities and environmentalists weighing in on both sides of the issue. The 3,800 page Draft Environmental Impact Statement (DEIS) released by the Army Corps of Engineers on November 8, 2004, shows that Cape Wind will produce compelling public benefits with positive environmental and economic impacts. But for those who oppose that development and others because they don't like the "viewshed" changes, no report showing protection of habitat and wildlife will ever meet their standards.

Recent news articles have pointed out other local concerns, including potential and actual bird kills, noise, visual, property values and more. While most bird problems have been solved with new designs and technology, surprising large bat kills at the Mountaineer project in West Virginia has everyone puzzled and searching for answers. The wind industry is leading the way to determine what caused the bat kills and how to prevent reoccurrences.

PennFuture takes seriously concerns about wind power development. All parties need to act responsibly. The wind industry and clean energy advocates must choose and support good sites, provide accurate information to the public, and be prepared to mitigate impacts. Projects bringing societal good usually have local costs. Those costs may be far less than the alternative technologies, but those technologies have the comfort of the known and accepted. While every means of generating electricity impacts the environment and local communities that host facilities, clean, fuel-less wind power is on balance far superior to conventional generation technology.

Local opposition can, in many cases, be prevented or diminished. When opposition has taken hold, too often one or more of the following mistakes has been made:

Inadequate, poorly presented, and/or incomplete information was provided to the local community. At present, there is no approved Pennsylvania Technical Guidance for evaluating wind farms. PennFuture intends to work with the regulators and industry to develop Pennsylvania specific guidance and mitigating tools. It is also essential to consider the public health and environmental impacts of alternative forms of generation when making decisions. The risks and problems to local communities are usually deemed insignificant once those same communities learn of the serious and life-threatening health problems that result from continued use dirty coal-powered generation.

Societal benefits are publicized, but local costs are not recognized. In cases where the local community pays the costs for delivering benefits to the greater public benefit, it should receive adequate compensation. This can be financial or as measures taken to mitigate impact to a more acceptable level.

Failure to counter the Not in My Back Yard argument. Here there are several approaches. The first is better communication to consider the impacts of the alternative sources of power. Second is passage of time to allow the unknown to become in vogue, or at least accepted. Beauty is in the eye of the beholder, and many consider wind towers breathtakingly beautiful icons for a clean energy society. Last, and the toughest, regulators and community leaders must be willing to stand up for the common good.

So 2005 will be the tipping point if the AEPS is fully implemented so that it works synergistically with the voluntary green power market; if Pennsylvania has adequate funding in its Energy Harvest program or sustainable development funds to compete with neighboring states; and if unreasonable opposition to good wind power development is not allowed to prevail.

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