Despite rapidly climbing prices for natural gas and oil, the outlook for a big breakthrough in the widespread use of solar, wind and other alternative sources of power could be reflected in Green Mountain Energy's decision this month to pull out of the Pennsylvania market.
Despite rapidly climbing prices for natural gas and oil, the outlook for a big breakthrough in the widespread use of solar, wind and other alternative sources of power could be reflected in Green Mountain Energy's decision this month to pull out of the Pennsylvania market.
The simple fact is, alternative energy in all its forms is not yet competitive on the price front for everyday users. It only works, even advocates for environmentally friendly energy say, with the help of government subsidies or good corporate citizens who are willing to pay a premium so they can market themselves as being "green."
If there is a bright spot on the horizon, however, it can be seen on the hills at milepost 115 near Somerset along the Pennsylvania Turnpike, where six huge wind turbines that stand 210 feet tall with 231-foot diameter rotors can be seen. It is one of six so-called wind farms in the state that have the capacity to generate 129 megawatts -- enough to power almost 45,000 homes -- with more projected to come on line.
Wind farms are becoming an increasingly common sight on breezy mountain ridges in Pennsylvania in large part because a consortium of 35 of the state's colleges and universities, along with nonprofit organizations and a few companies with environmental agendas such as Giant Eagle, have agreed to buy their output and pay more for it than they would when buying energy from conventional sources.
The experiments in wind power are part of the region's long legacy in energy production.
Western Pennsylvania coal helped fuel a growing nation in the early 19th century and is still a major source of electricity generation. The nation's commercial oil industry also got its start following the success of the Drake oil well near Oil City in 1859.
Natural gas followed when the first commercial well was sunk in Murrysville in 1878. And the nation's first nuclear reactor, designed and built by Pittsburgh's Westinghouse Electric Corp. and managed by Duquesne Light, began producing energy at Shippingport in 1959.
The state's efforts in wind have attracted the Spanish wind energy powerhouse Gamesa Energy, which is establishing its U.S. headquarters in Philadelphia, building a $25 million factory to make wind-turbine generator blades in Ebensburg, Cambria County, and planning a 60-turbine wind farm along the Cambria and Blair county border.
All told, the investments of about $40 million -- including $9.3 million in state assistance -- will substantially increase wind-farm production in the state. Gamesa, the world's second-largest wind-energy maker, also is supplying the turbines for a new wind farm under construction at Bear Creek in northeastern Pennsylvania for Community Energy Inc., of Wayne, Pa.
Community Energy, the lone provider of alternative energy sources to local customers following Green Mountain's exit, develops wind farms and markets power from wind as well as solar and hydroelectric energy. But it charges 2.5 cents per kilowatt hour above whatever Duquesne Light and another regional utility, Penn Power, charge for electricity, a premium it says environmentally conscious consumers and businesses are willing to pay.
Indeed, the construction of wind farms throughout the Mid-Atlantic region have been driven by demand from the voluntary green market, said John Halley, sales director for Community Energy, which also is building a wind farm in New Jersey. "There are so many credible institutional customers that have really made the market here," he said.
Voluntary customers such as Carnegie Mellon University and Duquesne University buy green for reasons that include social and environmental responsibility and as an educational or demonstration tool.
"Most of our interest is in using less electricity, but to the degree that we can't do without power, why not make it green?" said Brad Hockberg, who manages energy for CMU, which spends about $6 million a year on electricity, approximately 11 percent of which is green.
Since 1997, Duquesne has generated 85 percent of its electricity with a natural-gas fired co-generation system that operates something like a jet engine, with the heat it discharges used to warm the campus. The remaining 15 percent is purchased as wind power.
"We feel it's a good thing to be environmentally responsible," said George Fecik, Duquesne's executive director of facilities. "We buy as much (wind) as we can."
Alternative energy is generally defined as any power source that is not based on fossil fuels or nuclear reactions. That includes electricity generated from wind, solar, geothermal, biomass or plant matter, and hydro power. Alternative fuels also can include ethanol from corn, biodiesel made from vegetable crops and methane made from waste or other sources.
Last year, alternative sources accounted for about 6 percent of total U.S. energy consumption, a share that has been fairly stable for years, according to the U.S. Energy Information Administration. Petroleum is by far the biggest source at 40 percent, followed by coal and natural gas and nuclear power.
Standard & Poor's, the rating agency, last week issued a report saying most alternative sources of energy continue to rely on government-related subsidies to be economical and will be difficult to expand without such help.
Tina Vital, an S&P senior equity analyst, said tax incentives in the recently enacted Energy Policy Act of 2005 are providing a short-term boost to some renewable energy projects, including wind. But she said that boost may be too small to finance long-term options to oil and gas.
When and if the percentage of energy provided by alternative sources grows depends on many variables including technology and efficiency improvements, government financial support and state and federal energy policies.
The U.S. tax code currently provides a 10-year escalating tax credit for each kilowatt hour produced by certain renewable projects that start up before the end of 2006. The credit covers wind, biomass -- the breakdown of plant and vegetable matter -- and small hydro and geothermal projects among others, with the goal of attracting investment to improve the technologies and make them more competitive.
In addition, about 20 states including Pennsylvania have directed electricity generators and distributors to add electricity from renewable resources to their power mix over time under legislation referred to as Renewable Energy Requirements.
Pennsylvania's legislation, the Alternative Energy Portfolio Standards Act, took effect Feb. 28 and requires that a certain percentage of all electricity sold to retail customers be derived from alternative energy sources.
Over 15 years, electric generators and distributors must get 8 percent of their electricity from what is termed "tier one" sources including wind, solar, biomass, geothermal fuel cells, coal methane and low-impact hydro sources such as smaller dams with fish ladders.
Another 10 percent must come from "tier two" sources which can include coal waste, municipal solid waste, large hydroelectric dams or energy conservation.
That kind of government help has its critics, of course.
Glenn Schleede, a Virginia-based consultant who has a history of arguing against wind-power projects, says there is "no serious possibility" that renewable energy sources other than hydro power will make a significant contribution toward supplying U.S. energy requirements despite "millions of tax dollars" spent on research and development and other subsidies.
In a phone interview, he also took a jab at the universities who buy green power such as wind, calling it "just another hot topic of the day" for fickle academics and students. He said it essentially takes money away from the pockets of ordinary consumers and taxpayers.
John Hanger, president of the citizens action group PennFuture, argues that every source of energy is subsidized in one way or another by the government, including oil and gas and nuclear power. If all those subsidies -- either direct through tax credits, deductions and low-interest loans or indirect through such government policies such as caps on liability for nuclear plants -- were stripped away, you would see prices rise for both alternatives and fossil fuels.
"There is promise in all of the categories right now. That is substantially driven by the fact that fossil fuels have exploded in price," said Mr. Hanger, who championed deregulation as a former member of the state Public Utility Commission.
Other experts, however, say solar power is too expensive at this point to even seriously consider. "Certainly wind is the most promising because the technology has advanced the furthest and the prices have come down a lot over the last 20, 10 and even five years," Mr. Hanger added.
Mr. Hanger also argues that new wind projects should be compared with the cost of installing new capacity in other technologies, given that older technologies can have the comparative advantage of using existing plants that are fully depreciated or already paid for.
"If you do that, solar is more expensive than any, but wind is actually cheaper than a new nuke or a new gas plant, though not cheaper than a new coal plant but it is getting close," Mr. Hanger said.
Mr. Halley, of Community Energy, said wind turbines have become more efficient and their costs have dropped about 80 percent since 1980 to about four to eight cents per kilowatt hour today, vs. about 38 cents to 40 cents 25 years ago.
The price of turbines, however, has increased in part because of increased demand for them and increased costs of commodities used in making them including steel and copper. Currency exchange factors play a part, too, since most manufacturers are in Europe.
"The fact is the wind industry has grown so quickly that, globally, there is more demand for wind turbines than turbines so manufacturers are raising prices just because they can," Mr. Halley said.
Jay Apt, the former astronaut who now serves as executive director of CMU's Electricity Industry Center and a distinguished service professor in engineering and public policy, has studied the true costs of wind power without subsidies or other credits by focusing on Texas, where state standards have spawned a large industry that could be statistically isolated.
Mr. Apt notes that wind blows only part of the time, so wind energy farms must be tied to other production to meet constant customer demand. Natural gas plants make the most sense because they can more easily be ramped up and down than coal or nuclear power. Solar, he said, costs so much that it made no sense except in smaller off-grid niche applications.
Mr. Apt's studies showed wind was more costly than other sources, but those costs could theoretically be lowered to become more competitive if the costs of building turbines drops. Another suggestion would be to change the costs by instituting a tax on carbon dioxide emissions from fossil fuel plants.
Then wind might run into competitive trouble against emerging clean coal technologies.
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Source: Knight Ridder/Tribune Business News
