The Institutional Investor Guide to Modern Energy - (Page 13) Co-Published by Vestas ing was held to review progress toward a successor agreement to the Kyoto Protocol. “The Obama administration’s worst nightmare would be something (pact) that they couldn’t sign onto,” says Michael A. Levi, a senior fellow for energy and the environment at the Council on Foreign Relations, in New York. Wind Market Infrastructure A Priority Closer to home, investors will be looking for the emergence of socalled cap-and-trade legislation, meant to reduce pollutants by creating a mandatory cap on carbon emissions from certain industries. It will shape a system under which carbon emissions — measured as a reduction of one metric ton of carbon dioxide or its equivalent in other greenhouse gases — could be traded or auctioned. The final energy bill, expected to reach President Obama by this spring or summer, also could help the wind energy sector by creating a national renewable portfolio standard. Similar to the state renewable portfolio standards now in place in 26 states, this would require utilities to purchase a certain portion of their electricity from renewable sources. The bill should also include steps to improve the country’s transmission grid. The lack of transmission lines are a major impediment for the wind industry, which needs these conduits to move power from turbine farms to existing power grids in urban centers. “Transmission lines are more of an issue for renewable energy because they are frequently sourced in out-of-the-way places,” says Stuart Murray, a director in infrastructure and energy finance at Citi. “And they are costly to build and there is frequently civic resistance.” Another complication surrounding transmission lines is that they frequently cross state borders, requiring approvals from multiple government entities. The $790 billion American Recovery & Reinvestment Act, signed into law by President Obama on February 17, makes about $30 billion worth of provisions for economic development in areas affecting wind power including: new technology projects such as energy efficiency and storage battery technology; tax incentives — including investment credits, production credits and grants — for renewable energy over the next decade; and a broad Smart Grid transmission line investment program. These provisions include more flexible and long-term tax incentives to help wind developers make their projects economically viable and an $80 billion loan guarantee program to upgrade the country’s electrical grid. That would encourage investors to finance projects that would build or upgrade more than 3,000 miles of transmission lines for both traditional and renewable sources of energy. “What we’re looking at is the most important and most generous piece of U.S. legislation ever to support clean energy,” says Ethan Zindler, head of North American research for New Energy Finance in Washington D.C. “What they’re quibbling over is important, but the big picture is that the U.S. government is making an unprecedented move to support clean energy.” The Obama administration’s goal of doubling renewable energy — which it defines as wind, solar and geothermal — over the next three years would translate into added wind capacity of This Special Report was prepared by the Special Projects Department of Institutional Investor. Top 10 New Installed Capacity (Jan-Dec, 2008) 2 12 31 3 4 4 3 ■ US ■ India ■ Spain ■ France ■ Portugal ■ China ■ Germany ■ Italy ■ UK ■ Canada 6 6 7 % 23 ■ Rest of the World Source: Global Wind Energy Council 23,000 to 25,000 megawatts in the United States. Obama wants renewable energy to account for 25 percent of the country’s energy needs by 2025. Last year the industry installed 8,358 megawatts of wind capacity, bringing the energy generated by wind in the country to 25,170 megawatts, according to the American Wind Energy Association in Washington D.C. The top five markets in terms of installed capacity are Texas, Iowa, California, Minnesota and Washington. The industry added 5,200 MW in 2007, more than double the 2,400 MW installed in 2006. Retooling the Tax Credit Adds Marshal Salant, a managing director in the global structured solutions group at Citi in New York: “Republicans and Democrats are both in agreement on a long-term commitment for environmentally friendly sources of energy,” he says. “Wind has to be part of that strategy. But to make wind economically attractive, there has to be a tax credit system that works. The government has to implement a public policy.” President Obama wants renewable energy to account for 25 percent of the country’s energy needs by 2025. The wind energy association supports the plan to extend tax credits until 2012, three years beyond the current expiration date of Dec. 31, 2009. Another provision in both houses would let wind developers or tax equity investors carry back the tax credits to offset tax that was paid as long as five years ago. “For policy purposes, the United States has used tax breaks as a long-standing means to support industries,” says Carl Weatherley-White, co-head of the energy structured finance group at Barclays Capital in New York. “However, even if the tax credit program is expanded, it still does not address the key problem facing the renewable energy industry today: The tax equity market isn’t functioning now and it’s anybody’s guess as to when it will return.” n March 2009 • Institutional Investor Guide to Modern Energy • 13
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