March 19, 2005
Wind power: From hot air to real deal?
Tax credits, new rules help spur investment
By Steve Daniels
After years of being perceived as the slightly daffy pipe dream of environmentalists, wind energy is now poised to power up in Illinois.
The catalysts include rising fuel prices that are making wind power cost-competitive with coal- and natural gas-fired electricity. Most important is Gov. Rod Blagojevich's recent proposal to require electric utilities to buy a percentage of their power from wind farms.
Still, Illinois has just two wind farms — in Downstate Lee and Bureau counties — producing a collective 100 megawatts of power. Another 3,000 megawatts are on the drawing board. To put that in perspective, in Commonwealth Edison Co.'s Northern Illinois service territory alone, peak-demand days can require more than 20,000 megawatts.
But wind developers are convincing skeptics that renewable energy is good economics — a generator of jobs and taxes for rural counties, as well as a cash crop for farmers who lease land for windmills.
The toughest audience of all is weighing in positively. An industry that a few years ago was short on capital today is swimming in financing from deep-pocketed institutions such as J. P. Morgan Chase & Co., as well as private investors such as Chicago energy entrepreneur Michael Polsky.
"The business basically took off, and we sort of found it a few years ago," says John Eber, managing director of energy investments for J. P. Morgan in Chicago. The bank has financed seven wind farms, at an estimated $400 million, outside Illinois. It expects to bankroll another five or six this year.
J. P. Morgan's wind-energy financing — a legacy of Bank One Corp., which J. P. Morgan acquired — is part of a unit that invests in tax-advantaged projects like aircraft leases and affordable housing. Mr. Eber says his group has shifted from aircraft deals, scarcer because of airline woes, to wind power, which benefits from a federal tax credit.
"Right now, there's more money chasing projects than projects," says Michael Skelly, vice-president of business development for Zilkha Renewable Energy of Houston, a leading U.S. wind developer. Zilkha plans to build the nation's largest wind farm — a 430-megawatt project — in Downstate Bloomington.
Wind farms are becoming common in Minnesota, Iowa and Wisconsin. These states, like 15 others, require utilities to buy wind power.
"Where the utilities are required to buy a certain percentage of resources from renewable energy, (wind power) is booming. Where they're not, it's not," says Howard Learner of the Environmental Law and Policy Center in Chicago.
That Illinois doesn't have such a mandate is attributable to past utility opposition. But that's changed. ComEd is backing the governor's plan, which would require electric utilities to buy an increasing percentage of their power from renewable sources, capped at 8% by 2012. Three-quarters of that would have to come from wind farms.
Key to ComEd's support is that the utility won't have to eat the potentially higher costs of wind power. Ratepayers will. "It's important that we have cost recovery as part of this," says Arlene Juracek, ComEd's vice-president of energy acquisition.
PLUG PULLED ON PLAN
Utilities' past unwillingness to pay wind developers more than 4 cents a kilowatt-hour stymied wind development in Illinois. For example, FPL Energy LLC of Florida, the nation's largest wind generator, pulled the plug a year ago on a proposed 50-megawatt farm in Lee County when it couldn't reach a purchase agreement with ComEd.
After accounting for the federal tax credit of 1.8 cents a kilowatt-hour for wind power, the farms can make a profit at 4 to 5 cents a kilowatt-hour, depending on the site's windiness. That's roughly equal to Chicago-area spot-market power prices, so ratepayers may not have to pay extra for wind power.
