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IT'S A BREEZE: EUROPEAN FIRMS BRING YEARS OF EXPERIENCE TO U.S.WIND POWER MARKET

DBR | 1호 (2008년 1월)
A version of this article was originally published by Knowledge at Wharton
 
European wind-power firms see an opportunity in the United States' increasing interest in alternative energy. Indeed, the inroads that electricity-generating wind turbine technology has made in the U.S. are due in large part to the efforts of companies based in Europe.
 
Even with this activity, wind-power advocates worry that the industry's growth in the United States rests in the hands of the U.S. Congress and the next administration.
 
The Production Tax Credit, or PTC, makes electricity from wind facilities cost competitive with older types of power production, including coal. The credit had been set to expire at the end of this year. It gives producers of wind-generated electricity a federal tax credit of two cents for every kilowatt hour of electricity they produce. The PTC applies to utility-scale energy producers, not small homeowner-sized systems, which receive a different tax incentives package.
 
But even with such tax breaks, investors still see wind energy as somewhat risky. The most technologically advanced wind turbines produce electricity at a cost of about five cents per kilowatt-hour, comparable to a typical coal-burning power plant. Still, the building of wind-powered generating facilities requires investments in the millions of dollars, and lenders have been reluctant to commit funds in the past when it has appeared the Production Tax Credit was in jeopardy. According to the American Wind Energy Association (AWEA), development of new wind facilities has fallen precipitously in years when Congress has allowed the tax credit to expire.
 
The question of how to get wind electricity to customers has posed a thorny issue as well, further slowing adoption in the United States.
 
Still, some U.S. firms are benefiting from the growing domestic interest in wind power. In Michigan, where manufacturing industries have been pummeled by the changing economy, precision machining company K&M Machine Fabricating can barely keep up with orders for its oversized, precision-milled wind turbine parts, according to CFO Gary Galeziewski.
 
GE Wind, a division of the sprawling conglomerate General Electric, has established itself as a U.S. giant in the industry. GE's wind assets were previously owned by Enron, and were acquired on the cheap by GE after the disgraced energy firm's collapse. Now, on a unit-sale basis, GE is the most prolific manufacturer of wind turbines for the U.S. market.
 
In a September report written with the Political Economy Research Institute at the University of Massachusetts, the Center for American Progress took aim at what it described as erratic federal policy. "Lapses in federal production tax credits, occasional one- to two-year extensions, and uncertainty about the future of these credits have led to a 'boom and bust' cycle in the development of wind power," according to the report. The center proposed that "production tax credits for all types of renewable energy should last long enough so that businesses can make sound investment decisions."
 
As it turned out, the Energy Improvement and Extension Act of 2008 was chock full of treats for renewable energy industries. Like many mired legislative proposals, the energy bill found the votes it needed by hitching a ride on the Emergency Economic Stabilization Act -- the $700 billion financial sector bailout. In addition to extending the Production Tax Credit another year, the energy bill authorized $800 million in clean renewable bonds to pay for the tax revenue lost to promote solar, geothermal, biomass and other renewable power projects.
 
Wharton operations and information management professor Karl T. Ulrich predicts, however, that the financial crisis could ultimately sap the willingness of political leaders to pursue more aggressive strategies to promote wind and other renewable energy sources.
 
"The most efficient mechanisms for stimulating the development of alternative energy technologies would be carbon or other green taxes," Ulrich says. "I don't think any economists disagree on this. This is a political problem, not an economics problem. Second best would be a cap-and-trade mechanism for carbon dioxide emissions. Before the credit crisis emerged, I was hopeful that one of these two mechanisms would occur in the next U.S. presidential administration. Now I think it is unlikely either will happen in the next four years."
 
While European nations have leapt ahead of the curve in wind power development, a number of organizations see the makings of a brand new U.S. economy based on sustainable technology and practices. The Center for American Progress report also called for a two-year, $100 billion federal stimulus package to encourage six "green" infrastructure areas, including wind. The report's authors say the program could be paid for in full through a "cap-and-trade" carbon auction in which companies would pay for the right to pollute above a preset standard. The report also claimed that such a program would create two million jobs, as people would be needed to retrofit buildings for energy efficiency, expand mass transit, build and maintain "smart grid" electrical transmission systems, and develop wind and solar power, along with renewable biofuels, to ease demand for foreign oil.
 
Oil tycoon and financier T. Boone Pickens has thrown his weight behind wind energy with what he's calling The Pickens Plan. He's been barnstorming across the Midwest to promote wind energy as part of a solution to the nation's dependence on foreign oil. If wind does catch on, Pickens stands to benefit: He is investing $10 billion to build in West Texas what he says will be the world's largest wind farm.
 
Galeziewski, of manufacturing firm K&M, sees the doors of opportunity still wide open for enterprising firms or individuals seeking entree into wind power. "Ultimately," he says, "it's fun.... Wind is like the wild West."
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