Glacial Melting Threatening Populations Around the Globe

Glaciers around the world are disappearing on an accelerated basis, disrupting water flows upon which humans have depended for thousands of years. These climate driven changes are creating water shortages for entire populations, forcing governments to consider mass migrations in the interest of survival. In most cases, these aggressive reductions in water availability are occurring in places where the resources just do not exist to put adequate alternatives in place in time.

One place where this is occurring is Bolivia, where the existence of 100 million people in the region is threatened with the complete melting of most of the glaciers in the Andes within the next twenty years (according to the World Bank, as reported in the New York Times, December 14, 2009). In 2009, the Chacaltaya glacier, approximately 30 kilometers from La Paz, Bolivia disappeared. Water for La Paz comes from a cluster of nearby glaciers, which have lost 35 percent of their ice mass since 1983. Accordingly, the loss of Chacaltaya is the canary in the coal mine.

The first water migrations have begun, with people moving from Palca, which is in the mountains near La Paz, to El Alto, a fast growing municipality next to La Paz. Farmers and residents of mountainous villages such as Palca, have already begun to see glacial melt drying up in the summers, when water for their farms is crucial for survival. The next phase of water migrations are expected to drive people out of El Alto, where supply will fall below demand in just a few years, due to the combination of decreasing glacial runoff and increasing demand.

This same scenario is impacting peoples' lives in the Himalayas as well, with Himalayan glaciers having lost 21 percent of their glacial mass since 1962. Approximately 2 billion people in India, China and Pakistan depend on Himalayan glacial melt for irrigation and drinking water. With the first Himalayan glaciers expected to disappear by 2035, eventually significantly curtailing agricultural production, the disruption to millions of people's lives will be significant.

These real and current disruptions to people's lives around the globe, tied to massively disruptive climate change, provide a strong argument for significantly increasing the investment in clean energy technologies, and accelerating the deployment of increased efficiency and renewable energy throughout our economies.

Creating Jobs, Strengthening the Economy and Increasing Energy Independance through a Manhattan Style Energy Efficiency Program

The number of households receiving federal aid for heating their homes increased dramatically in the past three years, increasing 43 percent, from 5.8 million homes in 2007 to 8.3 million homes in 2009. According to the New York Times, it is expected that the number will rise to over 10 million in 2010. This $5 billion federal program, known as LIHEAP (Low Income Heating Energy Assistance Program), pays one-half of each home's heating bills. This is a morally necessary expenditure, designed to ensure that people are able to afford keeping warm and healthy, especially given these economically challenging times.

A corresponding program, the federal Weatherization Assistance Program, was budgeted at $250 million for 2009, representing approximately 100,000 homes weatherized per year. Fortunately, in the 2009 American Recovery and Reinvestment Act, the line item for weatherization is $5 billion over an approximate two year period. This increased funding will result in upwards of 700,000 homes being weatherized per year over the next three years, nearly a seven-fold increase. Although this represents an extraordinary increase over the original 2009 budget, it is still too low. Accelerating investment in our country's energy efficiency represents an investment opportunity that will create a large number of jobs, increase disposable household income, while reducing our country's trade deficit, contributing to lower interest rates.

The United States should have a massive Manhattan style national initiative to significantly increase the investment in upgrading our energy using infrastructure, focusing on increasing the efficiency with which we use energy across all sectors of the economy. For example, approximately 115 million homes in the United States use fossil fuels directly or indirectly for heat, including natural gas, oil, propane and electricity. Currently, little is being done to improve the efficiency of the existing furnaces and heating systems in place. We have the resources and technologies available to significantly increase the penetration of geothermal heating systems, solar thermal heating systems, and combined heat and power systems in the residential sector, with extraordinary benefits to accrue to our economy, yet there appears to be little or no national appetite to pursue these technologies.

For example, if we replaced the natural gas furnaces in the country's existing 56 million homes that use natural gas for heat, using high efficiency combined heat and power systems, we would be able to reduce the country's greenhouse gas emissions by approximately 30 percent, while giving homeowners the ability to produce all of their own electricity as a by-product of heating their homes with a much more efficient CHP furnace. It is perhaps an oversight that our country appears to remain fixated on providing massive economic assistance to companies that are too big to fail, and not directing the investment capital where it will do the most benefit - improving the economic well being of our households and small businesses while creating jobs, increasing our energy independence and creating new exportable clean energy technologies through a massive Manhattan style energy efficiency technology development and investment program.

The Sustainable Economy - An Introduction

Our well being, our economy, and our future is inexorably tied to the earth and its natural cycles.  If we are not careful, we run the risk of thinking that our economy and well being is separate from the earth, and lose sight of what is critical to our well being.  Our economy is a measure of transactions that take place in the physical world, transactions focused on the exchange of monetary values and flows that course throughout our society.  These flows of value include a close integration with the natural world, an integration that we have yet to learn how to fully value and integrate with our economic thinking.  It is the integration of the natural world with our economic world that is at the core of the sustainable economy.  Without this integration, at some point, we will lose.

The impact of failure would be extraordinary.  The reach of our economy is huge, with tendrils coursing through the far reaches of billions of people’s lives.  The collapse of our economy would wreak untold havoc on those living on the economic fringes of societies around the globe.  Already, our impact on the environment is creating challenges with the water we drink, the air we breath, and the soil that we till.  The loss of resources upon which our livelihood depends will accelerate unless we adopt policies that take us to a sustainable economy.  We do not have the luxury of migrating to unspoiled lands, as perhaps nomadic tribes once did. 

The greatest danger that we face is the prospect of wars, driven by failing societies and geopolitical tensions brought on by the pain of resource depletion.  In recent years, the term oil wars has emerged, with the prospect being raised that the great epoch of oil wars have already begun.  It has also been suggested that the genocide in Darfur was caused in part by the grotesque reduction in agricultural yields, brought on, as it was by changes in the rain patterns.  These changes in rain patterns, as it has been noted, may have been caused by changes in ocean temperatures.

How value is created and destroyed underlies all survival.  The beauty of our economic system is that it mimics natural feed back loops, encouraging value creating behaviors.  There are three major disconnects with the system, however.  First, the economic system does not distinguish between sustainable value creation and unsustainable value creation.  Second, the economic system does not incorporate the impacts and interplay with the natural world.  Third, it does not necessarily do a good job of distinguishing between drawing upon stores of value, and drawing upon flows of value.   

There have been societies which observe and integrate natural cycles into their own form of economies, managing the careful balances necessary to sustain life and well being.  There have also been societies that have observed their own destructive policies wreaking havoc on their natural environments, and, for certain perhaps enlightened societies, have been able to change their behaviors and pull their own societies back from the brink of self destructive behavior.  Unfortunately, the preponderance of examples is of societies that never realized the self destructive nature of their policies and activities, and fell into oblivion.

Addressing Our Economic Malaise

Our economy has gone through a downdraft, with economic value disappearing due to overreaching economic imbalances, principally in housing, economic disquietude brought on by stratospheric energy prices, which have since subsided, and a radical downdraft in stock markets.  The value of housing has been reduced by about 6.1 trillion dollars since its peak, according to Zillow.  In 2008, according to the Washington Post, the stock market lost 6.9 trillion dollars in value.  

The radical increase in energy prices in the past two years, along with the bursting of the housing bubble and the stock market have caused consumers to pull back in their spending, and caused bankers to focus on their balance sheets, and pull back on lending.   The three industries hardest hit so far are housing related, financial and the automobile industry, beginning with the shift away from larger energy intensive vehicles.  

The current replacement rate for automobiles, based on recent low purchasing levels, implies that people are going to be holding on to their cars for 21 years on average.  Consumers have overshot on the downside, creating the potential for pent up demand to be released.  This represents one kind of force, which is the natural replacement level for products.  Another key force is the American spirit.  The American spirit has existing for several hundred years, giving individuals the opportunity to dream and to realize their dreams.  Not only does life go on, but people want to realize their dreams.  It is time for this yearning to be recognized, put to good use, and encouraged.  

As we move forward through this trying economic time, we must remember to focus on making changes that strengthen our economic well being, keep our eye on the prize, and tap into and encourage the American spirit to shine ever brightly.  Fundamentally, our economic well being is based on the value that we each create every day, both singly and in aggregate.  There are times when the value we create is real, there are times when the value we create is drawn from our natural resources, and finally, there are times when the value we create is based on surges in capital valuations and markets.  These distinctions are critical.  In the long term, an economy will not expand without creating true value at its core.  

Because of the significant size of the downdrafts in housing and the stock markets, it is going to take time for the economy to claw its way back, a process that will be enhanced and aided to a great degree by true value creation.  This is done by individual and collective productivity, innovation and investment in processes and advanced technologies.  It is also advanced by encouraging those kernels of value creation that add value to the economy, and not being dragged down by investing in dying industries and value sapping activities.  Finally, we cannot forget to lend energy and encouragement to our belief in creating abetter future, our collective capacity to succeed, and an unrelenting belief in the value of the American spirit.   

Sustainable Economics and Economic Revitalization

When the disruptive imbalances in an economy are overwhelming in scale, and appropriate resources are not applied to address the imbalances, societies will collapse.  Our current challenging economic circumstance was brought about by the confluence of several significant imbalances that emerged within our economic system.  The adjustment taking place in the economy is significant, and unless we understand he sources of these imbalances, we run the risk of being a republic in decline.  This post takes a look at the key imbalances which have caused our current economic malaise, and considers key actions required to readjust these imbalances.  

Our economy is represented by flows of dollars through millions of transactions every day.  When there are imbalances in our economy, that result in a reduction of the value or quantity of transactions, or when there are dollars that flow out of our system, this creates a dampening effect on our economy.  It is similar to a circulatory system, where the entire system is affected when the coursing of blood is somehow constricted, or when a wound begins dropping down the blood pressure.  If the constrictions or the blood loss is too great, the whole system fails.  Our challenge is to find the constrictions and the wounds, and apply salves as quickly and as precisely targeted as possible.

To establish a sustainable economy, we need to understand the causal factors which created the imbalances, and to carefully construct a system which monitors and mitigates their possible occurrence.  These imbalances are exacerbated by our generally unsustainable approach to resource intensive and extraction activities, as well as our own exuberant behaviors within our created economic realms.  

Energy - The key imbalance that led to our current economic woes.  In no time in the last thirty years have energy price increase such as we have seen not led to a recession, and now is no different.  Individuals, households and businesses saw their energy expenditures for electricity, heating, cooling and transportation increase, drawing their economic resources away from other expenditures.  It is this competition for expenditures that began to take economic flows away from alternative consumer expenditures.  People started doing everything they could, from reducing trips, buying more efficient vehicles and trading off other expenditures.  

This ratcheting up of energy expenditures on the part of households, and the resultant reduction in expenditures impacted not only consumer expenditures, but began to gnaw away at our overall economic vitality, which may have begun to erode the driving forces behind the housing boom.

Energy prices were driven up by increasing global demand for a non-renewable natural resource, which our economy had to suffer through.  We were not able to do anything to address the price growth.        

Housing Boom - The second key imbalance in our system was caused by a multi-year run up in housing prices that outstripped the underlying economic foundation for housing prices.  We saw a significant reduction in credit standards for housing mortgages that created marked upward pressure on the part of buyers, which, coupled with normal growth associated with economic expansion, created a huge overhang in housing prices, and the bubble eventually burst.  

When housing valuations turned around and began to drop, consumer sentiment switched along with a marked reduction in associated economic activity.  Houses were no longer the piggy banks that they have been, and the impact on sentiment may even be more significant, along with reductions in the purchasing of furniture, appliances, etc. associated with home purchasing.  

More recently, with the reduction in stock market valuations of certain banking and financial institutions, has caused those banks and financial institutions to tighten their credit standards while they strengthen their balances sheets by reducing the value of their loan making.  This has created an additional factor further dampening sales in the housing market. 

Financial Leverage - A third key imbalance in our economic system of late is the extraordinarily high levels of financial leverage on the balance sheets of our banking and financial institutions.  This imbalance created a much higher exposure to rick that was not recognized until too late.  Various financial instruments were created that have been very difficult to determine the level of risk carried by the holders of the instruments.  These included credit default swaps and collateralized mortgages and other investments.  

As the performance of these investment instruments began to erode, the various financial institutions began to revalue these investments as significantly lower values, requiring write downs.  The losses and write downs caused stock valuations to fall precipitously for certain institutions with too much risk.  These stock price drops and simultaneous downward adjustments in their balance sheets created a huge problem: these institutions needed to strengthen their balance sheets with capital, while their access to capital was drying up.  Without government intervention, these imbalances due to the writing down of toxic assets lead to insolvency and potential bankruptcy.  

In the absence of public intervention, private financial institutions are going to be rebuilding their balance sheets by among other measures, reducing their loans by increasing credit standards.  

These three imbalances are the core sources of our economic meltdown today, driving fewer house sales, fewer automobile purchases, reduced overall consumer purchases, and constraints on commercial lending, capital purchases, growth and hiring.  The development of solutions to this situation have to explicitly address the causal factors, targeting specific changes in behavior that are sought to pull our economy out.  The solutions will be addressed in the next blog.

Providing Economic Assistance to the Automobile Industry

The American automobile industry is facing a time of unique and extraordinary challenges, with a potentially devastating outcome.  Close to three million jobs are tied to the big three automakers when including 250,000 direct employees, approximately 500,000 jobs with suppliers and several million additional jobs that support both the industry and the suppliers.  

The challenges that the industry is facing include consumers switching away from highly profitable SUVs to more efficient vehicles, the precipitous drop in automobile purchases from approximately 16 million vehicles per year to 12 million per year, the abrupt change in capital markets, and high cost structures related to a variety of agreements in place.

Our purpose is to put America back to work while encouraging innovation that creates sustainable commercial opportunities for all Americans, and strengthens our collective economic well being.   In Germany, as part of the economic recovery plan, the government has provided incentives to consumers to purchase automobiles.  This type of market and consumer driven financial incentives would contribute the fastest towards supporting the industry and encouraging commercial transactions.  

One approach is to provide a direct financial rebate of $1,000 for each American manufactured vehicle purchased that exceeds 30 mpg highway, with an additional incentive of $400 per mpg highway over 30 mpg, to a maximum of $5,000 total combined rebate amount per vehicle.  If this constitutes 4 million vehicles per year, the rebate amounts would add up to approximately $10 billion per year.

Obama's Transformational Clean Energy Plan

Introduction

The importance of clean energy has increased in the Obama administration's plans since the election.  This is due to the central importance of clean energy in the administration's economic revitalization plan.  The central position of clean energy to the economic revitalization of our country is warranted, given the significant economic leverage provided by certain clean energy investments.  This also speaks to the unique role and ability of government, to focus on coalescing forces that would otherwise not be brought to bear.  prioritization / act where others would not act / national security

Obama's Energy Economic Revitalization Plan

There are three energy elements as part of the Obama economic revitalization plan, including a $150 billion investment initiative, a new jobs training program, and incentives to boost the renewable energy sector to create jobs.   A summary of the initiatives follow: 

(1)  Invest In A Clean Energy Economy And Create 5 Million Green Jobs - The Obama administration plans to invest $150 billion over ten years in several clean energy areas, including biofuels, plug-in hybrids, commercial scale renewable energy, low emissions coal plants, and the transition to a new digital electric grid.  

(2)  Create New Job Training Programs for Clean Technologies - Increase federal funding for federal workforce training programs addressing clean energy technologies and skills, including advanced manufacturing and weatherization, to help participants find and retain stable and high-paying green collar jobs. 

(3)  Boost the Renewable Energy Sector and Create New Jobs - The Obama administration s planning on creating new federal programs and expanding existing programs that accelerate the development and deployment of renewable energy to create jobs in the clean energy sector.  Two specific areas identified include creating a federal Renewable Portfolio Standard that will require 25% of American electricity to be derived from from renewable sources by 2025.   The implementation of the federal RPS is expected to generate hundreds of thousands of new jobs.  The other major initiative identified by the Obama administration is the extension of the existing  Production Tax Credit, to eliminate the swings in capital investments in wind and solar from uncertainty by investors in the continuity of the ITC.   

The Obama Energy Plan

The Obama administration has made energy policy a cornerstone of their agenda.  They have developed a comprehensive and detailed approach to enhance America's energy future from a jobs, security and environmental perspective.  It appears that the administration will accelerate the deployment of the plan's initiatives that directly create jobs, sequencing the implementation of the other parts of the plan.  Below is a summary of the plan.  A more detailed synopsis will be provided at a later date.    

• Provide short-term relief to American families facing pain at the pump
  
• Help create five million new jobs by strategically investing $150 billion over the next ten years to catalyze private effots to build a clean energy future
  
• Within 10 years save more oil than we currently import from the Middle East and Venezuela
  
• Put 1 million Plug-In Hybrid cars – cars that can get up to 150 miles per gallon – on the road by 2015, cars that we will work to make sure are built here in America
  
• Ensure that 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025
  
• Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050
  

The Economic Wisdom of Clean Energy

Clean energy offers the best chance we have in this country to take back our future, to create jobs, improve our economy, while enhancing our national security and permanently improving our environment.  The role of government is primarily to secure the national defense, to uniquely act in the collective national interest.  Similarly, the federal government plays a role in numerous other situations where the individual rights need to be protected, or standards of well being need to be upheld, such as economic well being or health.  In times of collective economic woe, the government has a responsibility to do what it can to protect the national well being.  This is one of those times and clean energy is the best vehicles to sustain and enhance our collective well being.

Each dollar invested in clean energy creates jobs, stabilizes and reduces our energy costs, increases productivity, reduces our foreign dependance on energy, creates exportable products and services, enhances our balance of trade, and significantly improves our environment.  The key differentiation with clean energy investments is the significant economic leverage achieved compared to any other investment, known in economic circles as velocity.  In aggregate, any dollar invested by the government usually has one dollar less of velocity as compared to a similar investment by the private sector.  Government begins in a disadvantaged position, caused by the tax effect on money.  Any investment on the part of government, therefore, must really bring unique advantage and not be duplicated in the private sector.  Clean energy fits that paradigm.

This country's clean energy strategy will focus on solutions that are economic, have a large impact, create jobs, increase productivity, improve our balance of trade, and enhance our environment.  The core elements of the three step clean energy strategy include:

1. Electricity - Accelerate proportion of economic renewable electricity, with a principal focus on enabling wind power.
2. Transportation - Accelerate the domestic development of very high mileage plug-in hybrids. 
3. Buildings - Accelerate the adoption of high efficiency end-use central systems, appliances and end-uses, including combined heat and power systems and geothermal heat pumps. 

The first role of government is to reduce the barriers to adoption, by eliminating regulation which discourages or hampers the development of these clean energy sources.  The second role of government is to encourage regulation that enables the development, deployment and adoption of these resources.  This would include tax breaks for developing and deploying these sources of energy.  The third step for government would be to provide financial incentives that directly reduce initial costs, such as tax incentives, rebates and grants.  It is important that the government share of these expenditures be kept low, so as to ensure only the most economic projects are built and that private capital is put to work, leveraging fundamentally scarce public resources. 

The Significant and Understated Benefits of Energy Price Reductions to the US Economy

As the world economy appears to be lurching towards a recession, the energy economy is experiencing its own share of disruptive and confusing dynamics, with significant changes in prices and demand.  Since the middle of July, commodity prices began falling from their peaks, with baskets of commodities down approximately 50% from July, 2008, through October, 2008 based on a review of information provided by Bloomberg.  Similarly, oil prices also peaked in July, 2008, hitting $137 per barrel on a global basis.   Since that time, oil prices have fallen to close to $60 per barrel on the New York Mercantile Exchange futures market.  

The drop in oil prices has a number of important effects around the world.  Notably, here in the United Sates, consumers have seen retail prices for heating oil and gasoline drop as well, relieving the upward pressure on consumer finances that higher energy prices caused.  According the the Energy Information Agency, retail gasoline prices peaked in July at around $4.10 per gallon, and has since fallen to around $2.80 per gallon.  With each automobile owner driving 12,000 miles per year, and average automobile efficiency around 23 miles per gallon, this price reduction is putting an additional $650 in each driver's pocket, and approximately $1,240 per household.  This reduction also applies to heating oil savings for consumers, further relieving consumer burdens.

For the nation's economy, this reduction in prices helps reduce the country's balance of trade due to oil.  On an annual basis, at the July level of pricing, the annual outflow of expenditures on foreign oil was close to $650 billion per year.  At the October level of pricing, the annual out flow is estimated to $285 billion, a savings of $365 billion.  This benefits our countries balance of trade, which helps the value of the dollar, and reduces upward pressures on interest rates.  

For OPEC countries these significant downward adjustment in pricing has significant impacts.  First, revenues are reduced significantly.  For many OPEC countries, oil revenues are the life blood of their country, with national budgets set with assumptions about future pricing and production levels.  As prices go down, OPEC countries are under significant pressure to maintain revenues, by keeping prices and production up.   

These economic benefits associated with energy price reductions are beneficial to the United States economy, and will soften the economic blow that we are receiving associated with the economic meltdown, adding an additional $1 billion per day of spending power to the people of the United States.  

  

The United States: The Saudi Arabia of Wind

Introduction

The United States has the opportunity to meet all of its growing demand for electricity with wind power.  Wind is an economic clean energy source with significant scale, as well as being domestically produced.  It is an important part of our new energy strategy to strengthen our economy, reduce carbon emissions, and enhance our balance of trade, comprised of four fundamental strategies:  (1) Accelerated Renewable Electricity - principally wind as well as biomass and solar; (2) Super Efficient Transportation with plug hyper-hybrids; (3) hyper efficient end-use technologies - focusing on very high efficiency combined heat and power and geothermal heat pumps, along with efficient lighting and appliances; and (4) hyper efficient buildings embracing envelope, controls and systems.  This article focuses on wind.

United States - The Saudi Arabia of Wind

The wind resource in the United States is known as the Saudi Arabia of Wind.  In 2001, Lester Brown of the World Watch Institute referred to the U. S. wind resource as the Saudi Arabia of wind power, identifying three states that could meet 100% of the U.S. electrical requirements:  North Dakota, Kansas and Texas.  Lester Brown was writing an article in response to the Bush energy plan of that time, with limited wind.  He considered it a plan for the early twentieth century instead of the twenty-first century because of its emphasis on coal, and diminishment of wind as a resource.  

More recently, there are two prominent players on the national stage that are referring to the Saudi Arabia of Wind, namely T. Boone Pickens and the former governor of Maine, Angus King. The Pickens Plan is promoting a significant wind development project, amounting to  4 gigawatt wind project, five times larger than any other project.  He is developing is project in the Texas Panhandle.  Angus King uses the term as well, referring to the Gulf of Maine as the Saudi Arabia of Wind.  He is developing a project that is a 5 giga watt project off the coast of Maine.  

According to the American Wind Energy Association, the achievable wind resource in the United States is equivalent to twice what we need, with wind able to provide 10.7 trillion kWhs per year, leveraging just the available resources on land.  Most of this resource would be realized in just twenty states.   Simply put, we have an extraordinary amount of available wind resources to drive our economy forward, creating jobs, clean energy and reducing foreign dependancy for our resources.  

Wind Power Economics

Wind is frequently referred to as being competitive with coal power plants.  There are many factors which come into play, which determine the resulting economics of wind power installations.  These factors include site specific influences, specific wind turbine design and size, as well as state and federal incentives.     

Wind Resource - One of the most critical factors impacting the economics of a specific wind development is the location relative to the wind profile.  Wind profiles are categorized by the quality of the wind, represented by seven classes that correlate to Wind Power Density (watts/meter squared).  It is critical that any wind project seek to maximize the potential energy yield based on the wind profile of each  specific location. 

When characterizing the wind resource, the amount of energy in the wind increases with the square of its speed, such that average wind speed is not an adequate measure of the energy potential in the wind.  Also, the wind speed at which the wind turbine cuts in and cuts out is a critical factor in determining how much of the wind resource is realizable.

Wind Turbine - The choice of wind turbine is important in two principal regards - the size of the turbine and its power curve, i.e., rated output at different wind speeds.  In the past ten years, the average size of wind turbines installed in the United States has doubled, from just over 700 kW in 1997 to 1.6 MW in 2006.  These larger wind turbines are more efficient per unit of energy generated per dollar invested due to scale economies, more efficient designs, lower cut in speeds, and lower manufacturing costs.  In the past two years, however, turbine costs have increased along with increased global demand for wind turbines and increasing commodity materials' costs.         

Production Tax Credit - The economics of wind projects are enhanced by the variety of financial incentives provided at state, regional and federal levels.  One of the important economic contributors in the United States is the Renewable Electricity Production Tax Credit.  The PTC provides tax credits on a per kWh basis for specific renewable electricity sources.  The credit for wind is 2 cents per kWh.  

Renewable Portfolio Standards - Currently, 24 states and the District of Columbia have instituted renewable portfolio standards that require electricity generators to provide a specific percentage of their energy in the form of renewable energy.  These 24 states and the District of Columbia represent approximately 50% of all of the electricity consumed in the United States.  RPS requires electricity suppliers to sell an increasing percentage of renewable electricity, which they can satisfy either by producing or purchasing qualifying renewable electricity, purchasing renewable energy credits, or by paying penalties.  In Massachusetts, for example, retail electricity suppliers must provide a minimum of 4% of their retail kWh sales from renewable sources in 2009.  The required percentage is increasing by 1 percentage point each year without end.  RPS standards result in increasing the demand for renewable energy resources, creating a higher market price for wind power.

Renewable Energy Credits, Renewable Energy Certificates, Green Tags and Carbon Offsets - Global warming concerns have resulted in a range of voluntary and compliance initiatives to decarbonize our energy resources and economic activities around the world.  For wind power developers, the opportunity exists to monetize the environmental attributes associated with electricity production.  These environmental attributes can either be retired or applied to meet social or obligatory environmental objectives.  For example, compliance RECs in Connecticut are about $25/MMWh for Tier 1 renewables, and $45/MWh in Massachusetts.  Solar RECs in New Jersey are about $265/MWh, while RECs in Texas are selling for about $5.25, with pricing reported for July, 2008 as reported by Evolution Markets.  Voluntary REC markets are pricing wind from $3 to $9/MWh in regional and National markets (source: Evolution Markets).

Accelerated Depreciation - Wind projects also qualify for 5 year accelerated depreciation schedules.  

Land versus Water - Water based installations are typically more expensive from a capital installation cost perspective than land based installations, yet offer significant counterbalancing financial benefits.  The cost of supporting an ocean based turbine can result in an increase of about 35% to the total cost.  On the other hand, the wind resource in the ocean is typically greater and more consistent, the projects can be much larger, and can be closer to population centers, reducing transmission losses.  For example, the installed cost per kW could be $1,200/kW on land, while costing as much as $1,500/kW in the ocean.  The favorable aspects can more than outweigh the disadvantages, especially with recent advances in sea based tower designs.  

Summary

The results of these economic drivers is that an unsubsidized wind energy project today can produce electricity for about 4 cents per kWh, as compared to 5 cents per kWh  2000, and 40 cents per kWh in 1979.

Wind power installations in the United States are growing at approximately 35-40% per year, with the current installed based of wind power projects exceeds 20,000 MW, with another 9,000 currently under construction, according to the American Wind Energy Association.    

The US Department of Energy, along with AWEA and others now expect that achieving 20% electricity market penetration by 2030 is achievable, representing approximately 300,000 MW of connected load, according to the US DOE and AWEA. Based on recent trends driving wind power costs down, coupled with the identification of large scale locations favorable for development, it is very likely that we will realize an even greater level of wind power in the United States.  The effect of achieving this level of wind power development will be significant in terms of job creation, electricity price stabilization, and environmental benefits.