Wind Energy Industry in the US and Canada: A Note on the Regulatory

Environment

By: Ved Prakash Tiwari ( 10BSP0052 )

•This case discusses the various policy initiatives undertaken by the US and Canadian governments to promote the wind energy sector. Regulatory environment creates demand for wind energy by making it mandatory for power generators and suppliers to include wind power as a portion of their power supply.

OVERVIEW

The case highlights the importance of regulatory environment for the sustainable development of the wind energy industry.

Issues:

» Understand the importance of wind energy as an eco-friendly and reusable energy source for power generation

» Understand the importance of having a favorable regulatory environment for the development of the wind energy industry

Introduction

• US and Canada are largely dependent on imports of fossil fuel such as oil natural gas to meet their power requirements.

• The fossil fuel reserves are limited in nature and are being continuously depleted with the rise in the consumption.

Consumption of oil

consumption oil

TransportaionElectricity generation

• Development of wind energy helps in gaining self sufficiency in power generation, supplying it at a stable cost, and decreasing GHG (Green house gases) emissions.

Wind Energy Generation in the Us and Canada

country 2003 2003 2004 %change in 2004

%change in 2005

USA 6370 6740 9149 5.81 35.74

CANADA 322 444 683 37.89 53.83

TOTAL 6692 7184 9832 7.35 36.86

Generation Capacity (in MW)

Regulatory Environment

Advanced Energy Initiative in the US

• US mandate an increase in the supply of power from various renewable sources of energy

• Policies such as the production tax credit in the US and wind power production incentives in Canada increase the attractiveness of the wind energy sector as an investment option

• Incentive systems such as feed-in tariffs for suppliers of green power and net metering for power consumers

Renewables Portfolio Standards in the US

Federal renewables portfolio standards (RPS) make it mandatory for all power suppliers in the US to include green power as a portion (greater than or equal to a specified minimum percentage) of their total power supply.

Renewable Energy Credits (REC) are essential to the functioning of the RPS. According to the American Wind Energy Association (AWEA), an REC is a tradable certificate of proof that one kWh of electricity has been generated by a renewable-fueled source

Production Tax Credit in the US

• PTC was created to bring some form of equality to the heavy tax subsidies the coal and gas industries receive for their industry

• The coal industry receives over $3 Billion/year in Federal subsidies for Research, Development and Extraction technologies

• The PTC at 1.8 cents KW/hr has a value of less than $250 million/year for the entire wind industry in the US. This is less than 10% of the coal industry subsidy

Wind power Production Incentives in Canada

• The government of Canada intoduced Wind Power Production Incentive (WPPI)

• The wind farm should be installed between April 1 ,2002, and March 31,2007 .

• The wind farm should install a separate meter at the point of connection with the supply grid.

• The wind farm should feature a minimum installed capacity of 500kw ,except for the wind farms located in northern and remote locations where minimum installed capacity required is 20kw

Feed in Tariffs In Canada

• The owner of the wind energy generation system would receive a fixed tariff , for a 20- year-period for the power supplied to the provincial electricity supply grid .A tariff rate of Can$0.11 per kwh has been fixed for wind power.

Net metering system for power consumers

• As per the net metering system, power consumers are encouraged to invest in small green power generation facilities.

• Excess power is sold to power supplying companies through the supply grids ,thus generating some additional revenue for the consumer

Future Outlook

• Incentive systems will continue to play a vital role in increasing wind power generation capacity in both the US and Canada until the cost of generating wind power becomes competitive with respect to conventional power.

• Analysts opine that if the production tax credit is not extended before it expires it may ultimately lead to an increase in the cost of wind power.