Government in the power business

Pleas came from manufacturers and developers in the U.S. wind power industry requesting that the U.S. Government extend the PTC.

07/09/2012


As an analyst covering the global generators market for IMS Research, recently acquired by IHS  Inc., I recently had the privilege to attend Wind Power 2012 in Atlanta, Ga., and Power-Gen Europe 2012 in Cologne, Germany. While both conferences were well attended and very educational, it was clear that the prevailing theme at each event was the power that government policy makers have over the power generation industry.  

At Wind Power 2012 the pleas came from manufacturers and developers in the US wind power industry requesting that the U.S. Government extend the PTC (Production Tax Credit). The PTC is a federal renewable electricity production tax credit that gives wind power producers a $0.022/kWh tax credit for electricity generated by qualified energy resources and is set to expire on December 31, 2012.

The PTC has been around since 1992 but has expired and been renewed several times in between, creating boom or bust cycles within the wind industry. Each time the PTC was allowed to expire, the following year showed at least a 75% drop in wind capacity installations according to the American Wind Energy Association. The uncertainty created by whether the PTC will be renewed is already affecting turbine component orders for wind generators and converters, for the second half of 2012 with 2013 orders being almost non-existent in the U.S. market. Many manufactures have started layoffs and some estimate that as many as 40,000 US jobs in the industry could be lost.

Whether you agree with energy subsidies or not, globally they are here to stay for the foreseeable future, with fossil fuel subsidies still receiving the lion’s share of government funding. It appears to me that the main issues are caused by the market uncertainty created by the on-again, off-again way the US government goes about its business. If the U.S. truly wants to hit their targets for renewable power, a clear long term plan to get there needs to be put in place.

At Power-Gen Europe 2012 the conference had a similar feel due to the controversial policy to rapidly phase out nuclear power in Germany. After the 2011 tsunami and subsequent nuclear disaster at the Fukushima Daiichi nuclear power plant in Japan, Germany shut down eight of their older nuclear power plants and swiftly put a plan in place to close the remaining nine by 2022.

During a Plenary Session titled “German Power Policy – Solution or Illusion”, a panel of power industry experts shared their views and concerns about the German power policy. Some on the panel considered the decision by Chancellor Angela Merkel to close down so many nuclear plants so quickly a “knee jerk” reaction. While most agreed that moving toward renewable power was good for the future of Germany, there was also talk about the lack of leadership and vision from the plan that government policy makers had laid out.

The plan is to phase out all nuclear power over the next decade and increase its share of power from renewable sources from 20% to 35% by 2020 and 50% by 2030. The size of this undertaking is enormous, and the current Eurozone economic crisis isn’t going to help matters. Not to mention the substantial amount of investment needed to pull it off will have to come from somewhere.

Offshore wind power off the coast of the North Sea will have to play a key role in reaching that goal. One of the major hurdles discussed in the session was the required improvement of Germany’s power grid to get the power from the North, down to the more densely populated South. The final destination has been set by the German government, but the road will have to be paved by the sweat and hard work of the German power industry.