The US has often been the target of environmental campaigners against climate change and global warming. Environmental pressure groups around the world regard its failure to adopt the Kyoto Protocol as a lack of commitment to reducing green house gas emissions and developing alternative sources of energy. While other developed countries such as the UK have introduced national legislation to ensure, for example, that 20% of electricity comes from renewable sources by 2020, the US has relied on state policy to create the market and conditions for the supply of renewable energy such as biomass, solar and wind.

Second place

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Although support, such as incentives and tax breaks for development of the sector may be limited at the federal level, the US represents such a large market that in a recent report by Ernst & Young, Renewable Energy Country Attractiveness Indices, it ranks second, leaving behind many European countries – traditionally the pioneers of environmental technologies. The index takes into account the overall development of environmental technologies as well as individual factors such as supporting infrastructure and the growth potential of individual technologies. “Although the percentage of renewable energy used in the US is much lower than Europe, the market is big and easier to access. The potential for wind, for example, is high – there is plenty of space which some European countries do not have,” says report author Jonathan Johns, a partner in Ernst & Young’s renewable energy unit.

Energy standards

The US ranking is based on a growing number of states with renewable energy standards for electricity, called a renewable portfolio standard (RPS), which requires utility companies to have a percentage of renewable energy in their portfolios and sell it at a cheaper rate to customers. To date, 11 states have implemented minimum renewable energy standards. In September 2002, California enacted the largest RPS in the nation, requiring the state’s three largest investor-owned utilities gradually to increase their use of renewable energy for electricity to 20% by 2017.

As part of the restructuring of their electricity industries, Arizona, Connecticut, Maine, Massachusetts, Nevada, New Jersey, New Mexico, Texas, Pennsylvania and Wisconsin have also implemented a standard. Ohio and Minnesota have renewable energy requirements as well as Oklahoma and Nebraska. Many of these have experienced the development of renewable energy projects, such as wind farms, in depressed rural communities – therefore aiding economic development by creating jobs and money from property taxes.

Wind energy

“Many states are looking at the economic development aspects of developing wind energy as well as the environmental side,” says Christine Real de Azua, communications spokeswoman at the American Wind Energy Association (AWEA). The organisation points to the advantages experienced by North Dakota, a state that has gained from having a high wind energy potential, despite having a small market and less established transmission lines and grids. In 1999 LM Glasfiber, a Danish wind turbine manufacturer and the largest in world, located its US manufacturing plant in Grand Forks, North Dakota, creating more than 100 new jobs. “The closing down of the traditional industries such as mining has created a well qualified workforce and there is a large amount of potential in the state,” says Steen Broust, investor relations manager at LM Glasfiber.

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The success of RPS shows that state law can stimulate new markets for renewable energy while also contributing to economic development by promoting a new sector. George Sterzinger, executive director of the Renewable Energy Policy Project (REPP), an environmental policy research think-tank based in Washington DC, believes diversification into renewable energy will lead to the ‘re-industrialisation’ of the US. It promotes new skills and technologies, which are environmentally sound and will reduce reliance on liquid natural gas.

The organisation works with states that have adopted a RPS and ensures the legislation is correctly implemented, that promotion of certain technologies does not create skills gaps and that local economies benefit from projects and incentives. “Very often the intent is there with the RPS but it is not carried through. We help to see how a project will impact on a state by calculating the number of jobs created by manufacturing of the machinery, installation and maintenance,” says Mr Sterzinger.

Tax breaks

Investment in wind energy has been particularly encouraged through the RPS system and also by the federal incentive, the wind energy Production Tax Credit (PTC). The latter is a tax break on the energy produced by wind. Originally introduced in the Energy Policy Act of 1992, the PTC grants 1.5 cents per kilowatt-hour for the first 10 years of operation to wind plants brought on line before June 30, 1999.

Although wind accounts for less than 1% of the US energy portfolio, the AWEA predicts that it could contribute up to 6% by 2020. European operators, aware of the potential for growth have been particularly active in this area. Out of nine wind energy projects worldwide, Shell WindEnergy Inc has developed six in the US. In a statement announcing the latest and largest project to be located in Brazos, Texas, director of Shell WindEnergy David Jones said: “Shell WindEnergy is committed to being a major player in the American wind sector.”

European investors

Other European operators, such as the Italian energy company Enel, Spanish company Gamesa and PPM, a subsidiary of ScottishPower, have all set up extensive wind farms in the US. PPM and Shell announced the construction of the Colorado Green Wind Project in the town of Lamar in Prowers County, southeastern Colorado, at the end of 2003.

This wind farm spans approximately 11,840 acres, owned by 14 landowners. The project, which is the largest in Colorado, is expected to open early this year and according to Jan Johnson of PPM Energy, will provide up to $2m a year in property tax revenues. The area, traditionally grazing and ranch land, has suffered over the past few years due to drought and a falling population and, says a Prowers County spokesman, the project has helped to diversify the economy away from farming.

However, inconsistencies relating to the renewal of the PTC are seen as damaging to economic development in the states that are benefiting from its emergence. Mr Johns believes the PTC is a key incentive and says confusion as to whether it will be renewed or not is causing investment into the sector to “stop and start”.

The AWEA has criticised Congress for shelving an energy bill that includes provisions for the PTC and a national RPS, which would require 10% of the nation’s electricity to come from new renewable sources by 2020.

“It is impossible for the US wind industry to maintain a steady growth rate in the present climate of uncertainty. Failure to extend the PTC means that contracts are put on hold, workers are laid off and the momentum that had built up this year in the US wind energy market is once again bought to a halt,” says executive director of AWEA Randall Swisher.

Delayed decision

Confusion over the energy bill has already lead to the world’s largest turbine maker, the Danish company Vestas Group, postponing a decision to invest in a manufacturing plant in Portland, Oregon. The company originally chose the northwestern city to take advantage of the wind energy PTC. A spokesman says the decision to halt the establishment of the plant was largely due to the confusion over tax breaks creating “a boom-bust cycle” in the wind industry, therefore affecting the growth of the sector in the US.

The AWEA’s Ms Real de Azua says that Gamesa, the Spanish wind turbine maker, has also put its manufacturing plans on hold due to the federal tax issues, whereas Mr Broust of LM Glasfiber says that the volatility of the US wind energy sector is built into the company’s business plan, even though the ‘boom-bust’ cycle has directly affected the manufacturing base in North Dakota.

Long-term view

However, Declan Flanagan, chief executive officer of Irish renewable energy company Airtricity, does not believe that the PTC issue will affect the strength of the US market: “The PTC may be attractive for smaller companies but as Airtricity is looking at a long term investment, it does not influence our overall business plans.” He adds that Congress has failed to extend the tax before but this has always been resolved. Airtricity, which has offshore developments in Ireland and Scotland, is also concentrating in investing and developing onshore sites in the US. The company has recently entered a strategic alliance with Ridgeline Energy, a renewable energy developer active in the northwest. The joint venture, Ridgeline Airtricity, is developing three wind farms in Idaho and one in Utah.

Quality counts

Mr Flanagan believes that each individual state has an independent approach and that it is down to the “fundamental quality” of the sites. New York State, for example, has set a high RPS to provide 10,000 mega watts over the next decade. This, he emphasises, will mean more investment into the sector.

Ms Real de Azua says Texas has been so successful in implementing its RPS that it has surpassed its targeted levels and attracted investment into some of the largest wind fields in the US. The northwest states are also seen as a particular area for development, with PPM Energy and other major players basing themselves in that area.

Texas and California are good examples where the state has developed and implemented successful initiatives for creating a renewable energy market with large amounts of space, therefore attracting extensive investment into the sector.

Right conditions

To attract investment into the wind energy sector or any other renewable energy, a market needs to emerge, to create demand for the product. This is largely down to creating conditions in which a market can flourish through planning, legislative support and incentives.

The US has taken steps to establish this infrastructure and is therefore is experiencing growth and investment in the sector. The RPS and other incentives “definitely help in attracting investment and economic development,” says Ms Real de Azua. She highlights the Dakotas as an example, where there has been significant investment despite having a very small market.

Recent Federal moves may have slowed the flow of investment for now – however, with an election looming and every presidential candidate supporting the development of a national RPS, the sector can only go from strength to strength.

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