Attendees to the WINDPOWER® 2009 conference heard five industry leaders discuss tax credits, energy policy, and the future of wind power in the U.S.
One of the main events at the recent WINDPOWER® 2009 was a panel discussion with five significant figures from the wind-power industry. Topics covered the existing state of affairs, the grid, energy policy, the potential size of the market, and more. Moderator James Walker, Vice Chairman of the Board of enXco led the discussion with GE Energy’s Vic Abate, VP for Renewables, former U.S. Army General Wesley Clark now VP Director at EMergya Wind Technologies, and Ditlev Engel, President and CEO of Vestas Wind Systems A/S. They were joined by Declan Flanagan, CEO of Climate & Renewables N.A. Inc, and Invenergy CEO Michael Polsky.
Moderator James Walker: Vic, tell us about GE Energy’s advantages and investments in windpower and how the administration in Washington DC views this industry.
GE Energy’s Vic Abate: First of all, our company has an advantage in that it can tap the technology from the traditional side of power generation. In fact, we have invested millions of dollars in thermal technology and skill sets that apply to wind turbines.
With regard to the administration and our political leaders, they are looking to this industry to lead us out of the recession and build an alternative energy economy of the future. That sounds terrific.
But look at the industry over the last three years. Probably one of the most challenging stages in that period is that the industry grew from 2.5 GW to 5 and soon will hit 10 GW. But it shut down in the fourth quarter (of 2008) because of the financial crisis. So the activity going out today is really the industry backlog, which are commitments and projects in place. For the next set of deals or build-outs to happen, we need a renewable energy standard and utilities investing in renewable energy if we are to hit the goal of 25% by 2025. So the next phase of this industry must be built around the renewable-energy standard and utilities investing in alternative energy.
Technically, that is doable. Once the country is committed to that path, those on this panel will work with utilities to solve the grid integration issues you hear about. But without a strong market commitment, this industry could be living on its backlog over the next few years. What happens after that is anyone’s guess.
The U.S. is the only developed country that does not have a long-term strategy. I think it is clear the administration is with us, and I think the next 12 to 24 months will set the odds for this industry over the next 10 years. So it’s critical we are all united in the message, and you’re seeing that here at AWEA (American Wind Energy Association).
James Walker: General Clark, you have a lot of experience with strategic level decisions. How important is the renewable energy standard. Then tell us what is it like to enter the market at this time?
Emergya Wind Technology’s Wesley Clark: We have to create demand for this kind of energy, so the renewable electricity standard is absolutely essential. And I hope everyone in this audience has been in contact with his congressman and senator and told them how important it is to support the standard. We have to do it.
We’ve had too much stop-and-go government policy. We need a period of continuity. A year ago we talked about the production tax credit. At the time, instead of an extension, we got a stimulus plan, another tax credit, and a cash grant. We love it.
Wall Street is just beginning to recognize that this completely changes the wind-financing market. Now an entrepreneur can go in and offer something that not only big insurance company’s and banks can have, but actually private equity can look at. We need to stabilize on that through the period that the renewable energy standard is passed into law – cap and trade will be here – but keep the capital markets stable. Let financial stability stay out there four to six years because that is the investment proviso we need.
And one other thing to do: We have to power the incredible entrepreneurial energy of America. In this audience there are hundreds of people who if given wind turbines and financing would put those wind turbines to work. Let me ask the audience, if you’re an entrepreneur looking to put up wind turbines, stand up and let us see you. (About 200 in an audience of about 1,500 stood up.)
Combining the entrepreneur energy with that of the power companies, that is, big industry with small entrepreneurial talent, and you can’t hold America back. We just need a government that is with us and makes this a sustainable business. Let the investment community have a plan and use all this talent we have in America.
James Walker: Ditlev, you’ve been in this industry since its beginning and now you’re a global company. What is your perspective on the industry?
Ditlev Engel: The first thing we all have to appreciate is that setting tough targets is not a hindrance but an opportunity. I read a book called From Good to Great that expressed the idea of a BHAG, a big hairy audacious goal. This is really the way to move forward, to move ahead in significant manner. The job is about recognizing what technology can do. It’s about understanding that the amount of money needed to develop the wind industry is nothing compared what has been done in the past in the established energy industry. So I think that what we are hearing from the new administration is that it recognizes that things as they are, are not an option.
Why do I say this? If you look at the numbers coming out of international agencies, this is not about next month or the next six months. It is about something long term. We all know that the energy crisis is much larger than the financial crisis. Even if you get growth, you will get an increase in electric power consumption of about 60% over the next 25 years. This challenge needs to be solved now. It is not about the gas price next month. It is about something as vital as energy security. It is about making new energy. But it has to start by challenging ourselves. Therefore, a higher goal will bring better innovation and faster.
James Walker: Declan, how critical is a long term energy policy?
Climate & Renewables’ Declan Flanagan: You are asking about the prescription for success in this industry. Energy is a policy driven industry, always has been and always will be. Renewable energy needs a policy that is long term, stable, and predictable, and then you’ll see investment follow. So three words you will hear a lot at this convention are: renewable energy standard. That sets the type of policy that will drive investment in this industry. The market created by a renewable energy standard will drive capital.
The technology works and the resources are there. All the building blocks are in place. People always realized wind power presents good environmental policy. People in the U.S. also see its good industrial policy. It produces good jobs that don’t move around. We want to buy equipment in the market where it is installed – logistics is a key part of this. So we must take all that and evolve passive support into active support in a clear long term policy and a renewable energy standard. We won’t get it perfect the first time. It will be tweaked as it goes. But that is what we need as quickly as possible. Now is the opportunity.
James Walker: Michael, what are the key market drivers that we need to make progress? Is there a sustainable business model for wind power in the U.S.?
Invenergy’s Michael Polsky: At last year’s convention, everyone on the panel agreed that renewable energy is all about policy. And the reason you need a policy is because we have infrastructure in this country that needs to be rebuilt. For that to happen, we need a policy. We have a policy for clean air and water, even one for a highway system. When you invest in infrastructure, you need a policy on which to execute. The good part about renewable energy, what gets me excited, is that it’s energy that lasts forever and benefits many generations, so the key is investing up front. This would be most sensible. A lot of people say that this is not a free market, to dictate what we have to do and what kind of energy we use. That is a very simple argument because sometimes the free market simply cannot sense long-term situations. If it were up to the free market, we would never have the clean air or water acts, or highways. We’d be living in the dark ages. A free market can only deal with execution, not long term policy. For renewable energy, we need a long term energy policy. And the way to do it is through a renewable-energy standard.
Unfortunately, renewable energy takes some business from oil, gas, and coal. There are forces in the marketplace that don’t want renewable energy to succeed. But it makes sense for this country to have a certain amount of energy to come from renewables, so I feel that until we have an appropriate policy, this business will not reach potential or move forward. I urge everyone to contact their representatives to form a policy.
James Walker: One thing the new administration is looking to this industry for is to restart the economy with green jobs. Vesta, GE, and others are on the front line of doing that. I’d like to hear a report from Colorado. Where do you see wind power taking us today?
Ditlev Engel: We have been doing business in the U.S. for many years and are the second largest supplier of wind turbines in the U.S. But because of a lack of policy, we’ve been holding back and so have suppliers. Not because of the market, but because of the short term view. We have 1,500 people in the U.S. and have invested $1billion in Colorado where we are building a whole plant that is coming on stream with 500 new jobs. So things are changing. Now we will have a 100% U.S.-based supply chain. So when President Obama spoke of 5 million green jobs, we know from other countries around the world that requires a long term view and then things follow. So we are excited about it. People tend to forget that some of the best wind resources on this planet are in this country. It’s a bit like going to Saudi Arabia with all its oil, and hearing that it decided not to drill. It’s a huge opportunity.
James Walker: Wesley, how is your company being treated by Wall Street?
Wesley Clark: We’ve got plans established, with a 300,000 ft2 plant. I wish we had $1 billion because we need to make a massive commitment. But to be honest, our investors in Holland, just as they do in Denmark, look at this country and ask, why can’t you put a long-term policy together, or why does it change every 24 months? People don’t make decisions like that and so we’ve had a catastrophic failure in this industry. I hope I’m not offending the big company’s here, but remember in Houston last year? Electricity was running through the audience and we were waiting anxiously for the renewal of the production tax credit. Everyone said not to worry about it. It will be renewed and everything will be great. Two weeks later, it didn’t. And the financial market shut down, just like that. Wall Street bankers said, “We’ve seen this play before.” Investment bankers saw the non-renewal of the production tax credit as stop-go policy. So they closed down until the tax credit was extended. That was in the middle of the banking crisis. So we’ve got a market that has been frozen and is just now opening up. I think people all over the world, and certainly our company, are ready to go in the U.S. But it would certainly help if the U.S. passes the renewable energy standard and we see the determination in policy to keep the stimulus bill in place. That 31 Dec 2010 end date is approaching like a freight train. And I know there are skeptics out there who will say, “The stimulus package has been in place three months now. How many new wind turbines have been installed?” Well, basically, none. It’s getting started. But put the tax credit in place and leave it. We are bringing 800 jobs to Arkansas. All we need is the policy to go with it.
James Walker: Vic, next year may only be a $0.5 billion market for new equipment. As a manufacturer, you can’t quickly bring in whole crews, or lay off 75% to cut costs. Tell us a little about lag time and what it takes to make a manufacturing decision?
Vic Abate: There are two points here. Let’s start with a manufacture perspective. There are a lot of professional jobs in question. Over the last 18 months in our headquarters in Schectanady, NY, we have opened a service center with over 500 solid professional jobs. They are going to manage production of 1,000 to 1,200 units. So when we talk about jobs we talk a lot about new wind stocks. The fact is, after getting 1,000 MW running means somebody has to keep it running, so investing in the fleet is really a domestic job. The other point: look at equipment and logistics. They are a significant part of the cost. The policies you hear about here are going to drive globalization. The fact is, GE has about 15,000 jobs tied to this space, between us and our suppliers. Equipment that is assembled is done here, domestically, and that makes good economic sense.
Relative to lead times, over the last 18 months, we opened two other factories, one in Iowa where the President gave his Earth Day speech. But those were projects in the works for several years. This is something that when you make a commitment for nearly $1 billion you’ve got to get a return on the investment, and that is where manufacturing argues for a stable policy.
James Walker: Declan, the President mentioned the grid in his inaugural address, so the message is getting through to the chief executive. How close are we getting to the ceiling in the transmission system, and how much energy do we need to keep this engine of progress going?
Declan Flanagan: Let me make a few comments before addressing the transmission-grid issue. As an owner and operator, our objective is to deliver the cheapest energy that we can. We have to source the equipment locally and it’s one of the biggest levers we have to drive down long term costs, drive down logistics costs, and take out project-execution risk so we know equipment is coming from as close as possible to where we want to install it.
A standard policy will bring more investment and that will drive down costs further which is better for everyone. It’s absolutely key to buy as much as possible in the U.S. And we can because of the commitment others have put into facilities.
And what will we be building? Technician and operator jobs are never going anywhere. They will always be here. So it’s positive feedback to get the policy right on investments.
On the transmission grid, again, you’ve got to ask the President for a policy. This transmission system is not just for renewable energy, but for serving commercial, industrial, domestic demand, our transmission system needs new investments.
Renewables will be the technology of the future but there will be more nuclear and coal plants. Gradually, a new entrepreneur going to come into the market to bet their future on those being the technology for the next 50 years, so we need to reengineer the grid with renewables being the dominant supply as we move forward. The grid will allow getting power from where it’s generated in the middle of the country to where most of the demand is. But it’s also important to recognize that ‘perfect is the enemy of the good.’ We need momentum in this industry. There are lots of incremental and less complicated investments needed to keep the industry moving, to grow the number of megawatts installed each year.
Let’s not slow the incremental investments needed to take care of short term contracts. We need momentum and its important we don’t spend too long figuring out details of the near term.
James Walker: Michael, I understand that we estimate about 30,000 MW of headroom in the physical system, but accessing it is difficult. As an independent developer, you’ve had to fight to get on the utility grid. Talk about how we could get four years of activity out to the existing system.
Michael Polsky: We have to significantly expand the transmission grid even though it still has some capacity to carry more power. The problem we see, as a developer, is a constant fight. It takes years to get approval to get connected to the grid. Even when connected, there is difficulty transmitting power. People understand that to build a wind farm you have to have an electrical grid with system operators. The systems are backlogged with requests for transmission services. A lot of people apply for transmission service that don’t have real projects, while we have so much we really don’t have the resources. So we have to revamp our system in a way that renewable energy has access to the grid and in a reasonable period.
We have talked about future transmission, but there is a lot to be said for connecting to the grid. In some regions, it takes four or five years to get access to the grid. This is a major headache. This reemphasizes need for a renewable energy policy. With a steady policy everything else falls into place.
James Walker: Assume we get this long term policy. Can we get to 20% wind, 30,000 MW by 2030? How big can this market get?
Vic Abate: This is something the DOE report, which I think is a milestone in this industry, talked about: 20% by 2030. At the time it came out, one out ten people agreed with it. Now even the President is talking about 25% by 2025. The math we did on the 20% report talked about scaling the business. Just to give you a couple numbers. In 2005, we were producing 10 turbines a week. Last year we were making 13 a day. So in a relatively short period we were able to scale the business, maintain quality, and keep reliability. Getting to 20 or 25% means producing a turbine every 20 to 25 minutes in the next few years. This is becoming a mass production and domestic economic agenda.
There is tremendous competition. You see it in many organizations and conferences with over 20,000 attendees. Even autoworkers are trying to get to the industry. With an administration behind us and the right policy, the industry is poised to deliver. There is no technology challenge we cannot solve. There are a few bumps in the road but as Michael said, this is something the innovation will get us over. The key point is that to hit a 25% wind-power goal by 2025 must be aggressive early and that is something where the devil in the details. I would ask everyone here to understand the details of the policy afforded by the next 10 to 15 years. Hitting these targets means installing about twice as many turbines annually as were installed in 2008. So you’ll see double the expansion in some incentives.
James Walker: In the last 12 months the U.S. installed about 19,500 MW. China and India are installing at about the same rate as the U.S. Looking at the opportunity, what do we tell our politicians and friendly trade partners in Europe and Asia?
Ditlev Engel: First of all, someone said if we can dream it you can do it. So the first thing is to show that we can dream it, and what the possibilities are, and get the rest of the world going. In the E.U., the target is 20% renewable energy by 2020. China has a 50% renewable-energy goal by 2020 and just announced it will do about 20,000 GW. So I think wind produces about 1.5% of the energy in the U.S. today. We also have to be brave enough to admit where we have to go. There will be a big conference in Copenhagen in December. Denmark is about 20% powered by wind today. So it is just a question of getting started and thinking long term.
James Walker: I get the consensus that to meet goals, most important is a long term policy and that the first step is a renewable energy standard, then a pricing mechanism. Regarding those issues, what would you tell the public, this audience, and Mr. Obama.
Michael Polsky: One more pieces of good news because it’s important that 20% or 30,000 MW is achievable. Just a couple examples. The nuclear industry started in the late 1950s and in 20 to 30 years produced 20% of the nation’s energy. Until the 1980s, we did not use natural gas for power generation. But 20% now comes from natural gas and in less than 20 years. Renewable energy needs no fuel. We don’t need coal, we don’t need uranium, we don’t need natural gas, just capital investments. This is the easiest one and that comes from policy. If we have a policy we can execute and we can have 20% in 20 years.
James Walker: Wesley Clark, you get the last word.
Wesley Clark: The last word is a dirty word: politics. A lot of us think if you can reason through a problem, you can find a reasonable solution. We can handle global warning and think about climate change, expand manufacturing capacity. All that is doable. You can get good policies if you’ve got good politics. So I’d like to say to the audience that if you come to this convention, you must support AWEA. You must take some of the political responsibility onto your own shoulders. There is no magic involved. There is a lot of economic benefit to being in wind. That is why you are here. There is also economic benefit if you are in the coal industry, so if you are to tilt the balance in favor of wind, have got to have the right thoughts about wind policy, and you have to take some action. So let’s support AWEA, and Jim Walker’s effort, and let’s write our congressmen and senators, and talk to our governors all across this country. Because if they hear the popular voice, you will get the good policy and that will get the 20 to 30% wind energy in 20 years.
Editor’s note: While transcribing this copy I edited comments into proper English and to make the point I thought the speaker was trying to make. If I misunderstood a remark then responsibility for that is mine alone.
Filed Under: Policy
Mahesh Bhave says
Great discussion, Wind conference, true, yet I wish there was some discussion of cross impact with commercial solar.
David Blankenship says
Thanks Paul for the writeup – I really enjoyed the presentation/discussion by the CEO’s at the Chicago Wind Energy Conference. I came all the way from Costa Rica to be there – AWEA did an outstanding job putting it together.
David Paul Blankenship