Posts

Think Globally, Act: Wind Energy is a Total REC

A wind turbine and an oil rig walk into a bar. The oil rig turns to the turbine and says, “Dude, I think I’m running out. I don’t know what I’m going to do… do you have a plan?” The … Read More

By / August 19, 2008

A wind turbine and an oil rig walk into a bar. The oil rig turns to the turbine and says, “Dude, I think I’m running out. I don’t know what I’m going to do… do you have a plan?” The turbine looks at the oil rig and shrugs, “It’s kind of up in the air.” Many alternative energy critics wonder if America’s economy can truly adapt to the type of overhaul required to supplant oil and coal. The reality is that we have already done this at least three times in our short history. This country was founded as a wood burning economy. Wood gave way to coal, which in turn gave way to oil. Now, nearly a century after prohibition paved the way for Big Oil’s monopolistic infrastructure (a topic which really deserves its own column), we stand at the crossroads of a major cultural and economic shift. The question remains, which energy source is poised to take the reins?

In the late 1970’s Jimmy Carter installed solar panels on the roof of the white house, only to have Ronald Reagan tear them down in his active campaign against alternative energy. Reagan cut the solar research budget proposed by Carter from $124 million in 1980 to $59 million in 1982, and by 1985 he had all but killed Carters dream. Reagan likely had Big Oil whispering in his ear (or his pockets), but there were legitimate economic factors that made this little coup possible. Oil prices plummeted in the early 80’s, drying up the demand for alternative energy. The cold war was doing a great job of diverting the public’s attention and frankly, thinking about the future wasn’t a very American thing to do. In 1985, solar power was just not the answer. Now, twenty years later, green is sexy, and republicans are anything but. The idea of “slapping some solar panels on the roof” seems a whole lot easier, and more sensible than it did 20 years ago. But while eye-opening realities have removed most of the roadblocks Carter ran into, solar still has a few skeletons in its closet. Solar technology has made great strides in efficiency over the past few decades, but it still takes a panel the size of an extra large Ray’s Famous Pizza box to power a single city streetlight. That means a whole lot of silicon would need to be produced in order to supply even the smallest percentage of our energy consumption. Furthermore, if we are doing all of this for the environment, it should be noted that the production of silicon isn’t the most earth friendly process; some experts suggest that it takes 3½ -5 years of solar production just to offset the environmental impact of creating solar panels.
The point of this article is hardly to knock solar power, though. Despite its relatively long financial and environmental payback, solar is still the most feasible solution on a residential scale. After all, it’s not like you can just “slap up a turbine” in your front yard. You can, however, harness wind power through a system based upon Renewable Energy Certificates, also known as Renewable Energy Credits, or simply RECs. The REC market is easily one of the most controversial, yet least comprehended, aspects of the green movement. It is complex, confusing, and sometimes frustrating, so much so that even industry experts can stumble through the challenge of explaining it in 50 words or less. Thankfully, I’ve got a few more than 50 words. If you head up to Vail, Aspen, or any number of ski resorts in the west, you may come across literature claiming that the entire mountain, and even the town, is powered by wind… but when you check the skyline there’s not a turbine in sight. These companies are purchasing wind power from a third party, which in turn pumps the equivalent amount of clean electricity onto the national grid on their behalf. Some companies spend millions of dollars a year to offset their consumption through clean energy, while relying on conventional energy for their own power requirements. This is where the naysayers jump up and cry 'foul.'

  • “So you’re saying that I’m going to pay this many dollars on top of my energy bill, and I don’t get anything tangible out of it?” (Marketing, and a warm fuzzy feeling knowing you’re doing something good.)
  • “How come I can’t get that wind energy pumped directly into my home/company/mountain?” (Because we can’t track individual electrons, and even if we could, sending 500 megawatts of wind energy from Texas to New York/Colorado/Florida is about as strategically sound as our current plan in Iraq.)
  • “Who is to say that this wind energy wouldn’t be added without my REC purchase?”

This last question is a doozy, so I turn to my old trusted friend: The Numbers. The Numbers never lie (though if you’re in the Bush Administration you don’t need The Numbers to lie, you can just change them to fit your needs). When wind developers consider building a wind farm, they must inevitably consider which revenue streams will pay back the multi-million dollar capital investments that they are making.

Four such streams exist: Wind power sales, production tax credits (government rebates), tax write-offs on the equipment depreciation, and the sale of RECs. Because wind energy is more expensive to create than conventional energy, taking any one of these streams away makes the project financially unfeasible. Thus, if people, companies, nongovernmental organizations and state governments stop buying RECs, wind turbines stop going up. Take, for example, T. Boone Pickens, one of the largest and most successful oil tycoons in the history of Texas. The man has made fortune after fortune drilling oil, yet in April he announced that he’d be investing more than $10 billion dollars into the largest wind farm in the history of the planet. Keep in mind, this is the same man who, in 2005, said “I was in wind energy for a minute…. I hate it. And when I got to looking at those damn things I said, ‘I don't want to be a part of putting that on the horizon…’ We took a loss and got out of it and I'm glad I did.” One can only wonder, what changed Mr. T. Boone’s mind? A call to his press secretary yielded “no comment” when confronted with this information, though considering the amount of publicity he is getting over this, I’m surprised I even got her on the phone. Mr. Pickens is a businessman, and a mighty fine one at that. No doubt he is well aware that voluntary wind REC purchases have more than doubled since 2005, and the increased demand is driving up the price of RECs. Any corporate investment, especially one this large, has to consider the financial return on this investment versus the return on investing in conventional business operations. As such, one can only wonder, if RECs were not available, where would that $10 billion have been invested? We live in a market driven economy, and there is no doubt that the REC market is driving the wind market, making projects like Mr. Pickens’ feasible and profitable. But what exactly is driving the purchase of RECs? Why does a company like Whole Foods purchase over 500 million kilowatt hours worth or RECs each year? Whole Foods is a business, and like any other business, a purchase that large needs to be justified financially. Current market data suggests that 91% of consumers prefer purchasing goods from a company that is environmentally friendly. What’s more, consumers have shown that they are willing to pay as much as 30% more for products from such a company. So while on the surface it may seem like Whole Foods isn’t getting anything tangible for their purchase, those customers willing to support their efforts to drive wind development in this country are making it worth their while. Ultimately, business is business. For the past 100 years oil companies have made trillions of dollars destroying the environment, and now it seems that there are fortunes to be made protecting it. The wind market is booming, and it’s a beautiful thing. People will line their pockets, but I’m happy to pay an extra 30% on a dozen bagels if it helps motivate another oil tycoon to invest in a wind farm. In retrospect, Carter was a visionary, and I don’t think he was far off. He tried to set an example for a country that didn't want to listen. We certainly seem to be ready to listen now, though maybe it’s Dylan’s words we’re hearing from 1963 when he said “The answer, my friend, is blowin in the wind.”

Tagged with: