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PTC Lives Again Mark Ohrenschall Con.Web, October 29, 2004

Wind Energy Tax Credit Extension Will Spur Wind Development,
Mostly for Projects Well Advanced

The recent extension through 2005 of the federal wind energy production tax credit will spur wind power development in the Northwest and beyond, with some ventures already moving forward.

But the relatively short length of the PTC renewal is likely to most affect projects already far along the development trail, according to wind industry sources, who nevertheless praise continuation of this vital subsidy. Wind farms must start producing electrons by year-end 2005 to qualify for the 1.8 cents per kilowatt-hour tax credit over 10 years, and that means time is growing short.

"We effectively have 14 months and counting," said Terry Hudgens, chief executive officer of PPM Energy, at an Oct. 19 green power conference in Seattle. He listed equipment manufacturing arrangements, permitting and power sales contracts as among necessary precursors to building wind. "If we don't get our positions all nailed down in the next two, three months, these projects will not fit the … schedule to be operational in late 2005."

PPM Energy is among entities that have announced specific wind development plans, following the Oct. 4 signing by President Bush of federal tax legislation including the PTC extension. PPM will construct the 75-megawatt-capacity Klondike II wind farm in north-central Oregon, and is negotiating a long-term power sales agreement.

Elsewhere, Portland General Electric and PacifiCorp officials told the Oregon Public Utility Commission Oct. 19 their utilities are pursuing wind power deals that could meet the 2005 PTC deadline.

Another planned Northwest venture, the Wild Horse Wind Power Project in Central Washington, also is targeted for a 2005 debut.

Other projects may yet follow.

PTC Extension
The wind PTC expired at year-end 2003, which led to a "sharp drop" in new installed wind capacity in the United States, according to the American Wind Energy Association . In 2003, the country added nearly 1,700 MW of wind capacity, but 2004 expectations are for less than 500 MW.

A PTC extension had been considered in Congress for some time, and it passed as part of House of Representatives Bill 1308, approved by the House and Senate in September, and approved by Bush Oct. 4. It applies to wind projects that begin operations in 2004 (retroactively for projects earlier this year) or 2005.

"Even though there is a tremendous amount of bipartisan support for the extension of the PTC in Congress, it had been held hostage for lots of other issues," said director Rachel Shimshak of Renewable Northwest Project. "At least we got clarity on another year.

"Quite a lot of activity could happen in 2005" as a consequence of the renewal, depending on circumstances, she said.

Among the chief variables for projects to meet the PTC deadline are transmission and power sales agreements, permitting approvals and equipment purchasing arrangements, according to sources.

"Unless things are pretty much ready to go by January ... I wouldn't think [a wind project] would necessarily happen next year," said Jeff King, senior resource analyst for the Northwest Power and Conservation Council.

Manufacturing bottlenecks are possible, according to Shimshak. "I have been told by some of the developers that they're hoping to be able to negotiate [power sales] agreements now, so that they can order turbines and be assured turbines will be available for construction in 2005," she said. "As you can imagine, everybody in the whole country is doing the same thing ... it puts a tremendous drain on the turbine manufacturers."

GE Energy on Oct. 18 announced contracts for more than 750 MW worth of its turbines for new 2004-2005 U.S. wind projects, including unspecified ventures in Idaho and Oregon. Steve Zwolinski, head of GE Energy's wind energy division, in a news release called the PTC extension "a tremendous impetus" for the U.S. wind industry.

Northwest Wind Perspectives
One potential beneficiary of the PTC renewal through 2005 is the Wild Horse Wind Power Project, planned for up to 220 MW capacity at a site about 15 miles east of Ellensburg.

Puget Sound Energy in September announced a non-binding letter of intent with developer Zilkha Renewable Energy to acquire the project (see Con.WEB, Sept. 30, 2004 ).

"Obviously the extension of the PTC is a good thing, and elicited sort of a collective sigh of relief from developers and renewable energy advocates alike," said Zilkha project development manager Chris Taylor. But, he added, "Everybody's pretty frustrated it's only for another year, and it comes so late this year ... For 2004 it's really too little, too late. For 2005, I think there's a lot of projects that are going to be aiming in under the wire."

That includes Wild Horse, Taylor said. "We're working hard to make that happen, to get that project lined up for 2005 completion." Wild Horse is under permitting review by the Washington Energy Facility Site Evaluation Council ; final approval would probably be needed in the second quarter next year to finish Wild Horse by year's end, Taylor said. "We're working hard with Puget, EFSEC and the [Kittitas] County to make that deadline, and I think it's fair to say that all those parties understand that timing."

Portland-based PPM Energy will build the 75-MW-capacity Klondike II wind farm in Oregon's Sherman County, and a 100-MW-capacity wind farm in Minnesota, a company news release reported Oct. 5--the day after Bush inked the PTC extension. PPM controls 830 MW of wind capacity, and, "With the addition of these new and pending projects, that number will swell to more than 1,200 MW by the end of 2005, well on target toward PPM's goal of at least 2,000 MW online by 2010," Hudgens said in the release.

Meanwhile, Oregon's two major investor-owned utilities are working on wind deals that could qualify for the renewed PTC.

"The fact it was only extended such a short period of time will cause everybody in the industry to push hard in terms of taking advantage of the credit. PacifiCorp is going to be one of the entities pushing hard," Mark Tallman, who oversees PacifiCorp power purchasing, told the OPUC Oct. 19.

PacifiCorp announced in August seven leading unidentified projects from its February solicitation for up to 1,100 MW of additional renewables capacity by 2010 (see Con.WEB. Aug. 31, 2004 ). Now, Tallman said, the utility has broadened its review to 15 (also publicly unknown) proposals, of which about eight could launch in 2005. "Our next steps will be to focus on these near-term opportunities," looking at permitting, transmission, financing, resource deliveries and other project elements. He said he anticipates the list of eight will quickly shrink, and PacifiCorp hopes to complete negotiations for selected projects by year's end. The IOU is looking for 100 MW of added renewables capacity in 2005. PacifiCorp will turn its attention to other renewables prospects after it clarifies the 2005 situation, Tallman said.

PGE received 900 average megawatts of wind energy proposals through an all-source resource solicitation, said Jim Lobdell, vice president of power operations, also to the OPUC. PGE's integrated resource plan calls for 65 aMW of wind (about 200 MW of wind capacity).

The utility is "in active negotiations with several developers" that could lead to wind farms spinning out electrons by the end of 2005, he said. "It's premature at this time to discuss specifics of any project." Lobdell did note PGE is "exploring various financing and ownership models in comparison to a standard power purchase agreement," and is also discussing "scalability" with bidders.

The region's largest operating wind project, the nearly 300-MW-capacity Stateline Wind Energy Center, is unaffected by the PTC extension. Developer/owner/operator FPL Energy has Oregon-approved plans to expand Stateline by up to 184 MW, but first it needs to sell the additional power, said local FPL official Anne Walsh.

"The PTC is definitely an incentive for wind power development and with its [renewal] passage there'll be new projects that FPL is currently pursuing and will be constructed … not necessarily, though, in the Pacific Northwest," she said.

The tax credit is "very, very high" on the list of wind project fundamentals, as a means to significantly lower costs, Walsh said. But so are transmission, good wind resource and, of course, a market for the power. "If you have a PTC in place and don't have transmission access, that doesn't do any good," she said. "They all are important.

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