How the renewable energy industry copes with the loss of incentives this year will test its maturity and the success of the stimulus funding.
In many ways, the renewable energy industry is facing a pivotal moment as the 1603 grant program is set to expire this year, the $2.3 billion for the 48C advanced manufacturing tax credit has already been allocated and the Department of Energy has completed its work of handing out more than $36 billion in its loan guarantee program.
Solar projects taking stimulus funding may have grabbed the headlines, but wind has been the real winner from the Obama administration’s flagship grant program meant to fill the void in tax equity that usually funds the renewables industry.
This article is part of a week long investigative series on the state of the wind industry. For more coverage, check out the Wind Rush tag on the site, and follow and participate on pressing industry issues in the Groups tab of Breaking Energy.
But of that $9.6 billion of the $787 billion stimulus funding under the stimulus, solar projects accounted for 22,060 of the 22,747 projects funded. Wind projects only accounted for 481 of the projects (around 2%), but took $7.647 billion of the grant allocations compared with $1.447 billion for solar.
“The administrative side of it is all around the solar program but the wind is what is really driving it, said Mike Reno, alternative energy leader at Deloitte Tax LLP. “We really think our goal was to incentivise alternative energy clearly the investment in wind is what’s driving that.”
“There’s a lot of talk of solar because of the number of projects, but it accounts for 6% additional energy produced through this program. That’s fascinating. When you talk about wind, it’s a good story… The wind projects are the really big projects and the solar ones are a bunch of little solar panels on people’s roofs.”
The Top Five
A very crude filter of the Treasury’s list of 1603 awards will show that the top five grants for wind projects went to:
- E.ON Climate & Renewables North America: $542,528,725.00 in 2011
- Windy Flats Partners: $218,482,326.00 in 2010
- Pattern Gulf Wind: $178,004,264.00 in 2009
- Streator-Cayuga Ridge Wind Power: $170,115,870.00 in 2010
- FPL Energy Illinois Wind: $138,854,047.00 in 2010
Bridging The Gap
E.ON Climate & Renewables North America began operating in 2007 in the US after it bought a subsidiary of Airtricity, an Irish green power generation company. It now has 1,920 MW installed at 13 wind farms across the United States, with a further two additional wind farms in late stage construction totaling 300 MW.
Although many of the 1603 grants were awarded to specific projects, the $542.53 million awarded to E.ON Climate & Renewables North America appears to have been awarded to the company in general. The company did not supply more detailed breakdown of the 1603 allocation.
Patrick Woodson, the chief operating officer at EON, says that the 1603 filled a financing gap at a critical time for the industry. “The grant program fulfilled a specific purpose,” he said. “After the financial crisis there simply wasn’t an appetite out there in the lending community or the ability to fund these kinds of major projects. So the grant program bridged the gap by taking the place of what had traditionally been held by the financial community.
“Now a lot of those banks are back and strong and able to lend again. We very much want to see a return to the tax credit.” – Woodson
Other wind projects in the top 5 for 1603 grants include Windy Flats Partners, Streator Cayuga Ridge South and FPL Energy Illinois Wind.
Windy Flats Partners received $218.48 million for its 500 MW project in Goldendale, Washington, 400MW of which was placed into service at the end of 2009. Cannon Power Group, a clean energy developer based in San Diego, financed the project using the federal stimulus funding and the pre-payment of $500 million by Southern California Public Power Authority of a 20-year block of power from the project.
FPL Energy Illinois Wind LLC is a subsidiary of NextEra Energy, based in Juno Beach, Florida, which generates 18,866 MW of electricity, 44% from wind. But its project in DeKalb County, Illinois, has faced fierce local opposition, attempting to remove the 217.5 MW plant.
The 300 MW Streator Cayuga Ridge South wind farm in Livingston County, Illinois, was placed in service in the spring of 2010.
No One Expects The Spanish Wind Developer
Iberdrola Renewables, the Spanish project developer, has a portfolio of nearly 3,500 MW of wind power in operation across the US. Iberdrola Renewables is part of Iberdrola Renovables, the largest provider of wind power in the world, with more than 10,000 MW of wind power in operation in 23 countries.
In the first three quarters of this year, Iberdrola Renewables had four projects online, while NextEra does not have a single project listed in the third quarter results from the American Wind Energy Association. Iberdrola Renewables is the world’s largest provider of renewable energy and its 4,700 MW of wind power makes it the second largest developer in the US after NextEra.
Jan Johnson, Iberdrola’s communications director, says that the company has been reinvested money in 21 wind and solar projects so far in the US.
“Our parent company has been very eager to invest in the US in part because of the 1603 program. – Johnson
“This is a market which isn’t very saturated and when the 1603 program was announced Iberdrola Renewables announced that it was going to be investing about $6 billion up until 2012 when the program comes to an end,” said Johnson.
“In the US, Iberdrola Renewables saved or created 9,000 jobs with 1603 that also came at a time when the country and the construction industry in particular needed it most.”
Johnson also says that the preparedness of the European industry revealed its level of maturation as compared with US counterparts.
“The European renewable energy industry was further advanced, obviously companies like Scottish Power serving the UK did not have the kind of oil and gas reserves or even coal reserves that the US has,” she said. “So the Europeans in general had adopted renewable energy and created it through their manufacturing companies such as Vestas and Gamesa and some of the European companies had been far more aggressive in developing renewables before the US in part because they needed to.”
“Europe had been integrating wind and developing wind farms and manufacturing turbines and components for so many years before our industry really entered into the [market].”
Subsidiaries of a parent company publicly listed outside the US do not have to publish financial data such as revenues or tax credits, which the IRS holds as confidential as it would for any private individual or company. Tax credits claimed by European companies ultimately end up on the balance sheets of a company outside of the US.
Although it is clear how much companies have claimed via the 1603, it is impossible to tell how much has been claimed through the PTC, or whether more or less has been claimed through the grant program than is ordinarily claimed through tax credits.
The Local Is The Global
But Steve Sawyer, president of the Global Wind Energy Council, says that the location of company headquarters no longer matters in today’s global market.
“It’s a global business and really doesn’t matter what flag is attached to the corporate HQ. Toyota is now the largest automaker in the US, 30 years ago people were flipping out about that. I don’t think many people give it a second thought these days.”
EON’s Patrick Woodson says: “The idea with the entire stimulus package was to stimulate investment and what you saw was a number of foreign companies like ours who put very significant investments in the US as a result of those efforts to attract capital. That worked exactly as it was supposed to. We could put these projects in the UK, Poland or a number of countries, but instead we invested those dollars in the US.”
But the transparency of the 1603 grant program has made it an easy target for criticism, says Richard Caperton, a senior policy analyst with the energy opportunity team at the Center for American Progress.
“I don’t think there’s any evidence of scandal here,” Caperton said. “To the general public it’s impossible for us to know – that’s one thing that I like about the 1603 cash grant – is that the Treasury actually publishes a list of everybody who gets it. Unfortunately, that transparency makes it easier to attack the program.”