The Growing Pains of Distributed Wind

Author: Elizabeth Rubado, Clean Energy Group | Project: Clean Energy States Alliance

blogphoto-Wind-Power-Eastern-WashingtonThe small and mid-scale wind industry is in a unique place in its development: it’s past the stage of an emerging market, but not-yet-fully fledged. And as many states have been discovering, this phase of the industry is full of growing pains. It can be difficult to balance our high expectations for renewable energy with the realities of emerging markets. This is certainly true for smaller-scale wind turbines, when the more mature market for utility-scale projects has become cost competitive with traditional fossil fuel energy and an internationally recognized symbol for renewable energy.

However, the untapped potential of small wind is compelling. According to the American Wind Energy Association 2010 U.S. Small Wind Turbine Market Report, the U.S. market for small wind turbines under 100 kW grew 26 percent in 2010. There was an almost eight-fold increase in annual installed capacity and more than a twelve-fold increase in annual revenues compared to just five years ago.

At the same time, several state incentive programs temporarily suspended their wind programs this year, with a few still on hold. So, why the sudden disconnect between a clearly growing market for small wind and the state clean energy programs that have helped spur that growth? This blog will be the first in a series exploring current challenges for small and mid-scale wind, and the ways the industry is working to overcome them.

Public Perception

In many ways, the current challenges of the small wind industry can be traced back to the expectations and imagery formed by the utility-scale wind market.

When American’s think of “windpower,” two distinct images usually come to mind: rolling hills dotted with large-scale wind farms, or a quaint, mechanical windmill beside a rustic farm. When you say “small wind,” most people come up with a hybrid version of the two ends of the wind development spectrum. Physically, they expect a smaller version of a utility-scale turbine, which would be pretty accurate. Functionally, they expect primetime technology that has been perfected by utility wind giants such as Vestas and GE, with the DIY approachability of an old-fashioned windmill. But that simply is not the reality.

Designing and building a reliable, solidly-performing small wind turbine is not just a matter of scaling down a big turbine. Utility-scale turbines are designed for harvesting a very different, higher elevation and stronger wind resource than a small turbine. The more turbulent, lower speed winds found 60 to 140 feet above ground (the typical tower height range of a smaller-scale wind turbine) are much more challenging to harness than those 200 to 450 feet up. So, while small wind turbines may be simpler than their large counterparts, the resource they have to work with and their design objectives are, in fact, more challenging.

The fundamental difficulty of designing a good small wind turbine has not deterred many well-intentioned inventors from trying their hand at wind turbine design. And since dabbling in wind turbine design doesn’t require enormously large upfront capital expenditures for infrastructure and equipment, as do photovoltaics or fuel cells, the barrier to entry for new turbine developers is relatively low. This accessibility, typically viewed as an asset for promoting innovation, actually has proven to be a disadvantage for the small wind industry.

Too Much of a Good Thing

According to allwindturbines.com, there are over 650 models of small wind turbines being manufactured by more than 200 companies. The majority of these projects are severely underdeveloped with no testing, no third-party review of their safety, performance or engineering, and no data to demonstrate that they will work as advertised. A startling number of manufacturers make exaggerated energy production claims about their products that exceed the theoretical limit for power that can be harvested from the wind. Unfortunately, due to the tendency of the public to believe that small wind turbine science is simple, most people assume that anything that looks like a wind turbine will produce results as powerful and reliable as a utility-scale product; and they make their purchasing decisions accordingly, with sometimes less than satisfactory results.

To address this misconception, state incentive programs have attempted to help consumers successfully navigate the proliferation of questionable turbines by applying performance standards or equipment criteria – often citing a list of incentive-eligible turbines. While a list of program-approved equipment seems like an obvious answer to the problem, it can be a tough solution for states to implement. Many lack the resources to perform a robust review, or feel listing should be handled by the industry at a national level. Others fear the risk of appearing to recommend particular products – that is, picking winners and losers. For some state clean energy programs, a restricted list of eligible equipment feels at odds with a state’s desire to support technology innovation and entrepreneurship.  As a result, only a few states have implemented a wind turbine list to protect consumers and ensure reliability, while others have either piggybacked on those lists (the list managed by NYSERDA is particularly popular) or stood on the sidelines.

Solutions on the Horizon

Having an inconsistent or state-specific approach to qualifying wind turbines is confusing to the market and inefficient for the manufacturers and the clean energy funds. Furthermore, it is not the best way to ensure that products are being well vetted in a transparent and fair way. Fortunately, solutions are in the works. In 2010, small wind industry members implemented a new standard for small wind turbines. The standard was accompanied by a certification program that will provide consistency in labeling and verification that tested products meet the standard. Once certification is widely adopted, it should greatly help stabilize the market for small turbines.

In addition, several state clean energy programs have collaborated with Clean Energy States Alliance (CESA) to create a new Interstate Turbine Advisory Council, or ITAC. The Council is in the process of creating a unified list of turbines that fit the performance, durability, and customer support expectations of state incentive programs. Participating state and utility programs pool their knowledge and resources to collectively evaluate turbines. This information goes beyond just engineering and test data from a single testing site. ITAC considers operational history, customer experiences, dealer feedback, past warranty support, marketing claims and business structure. The end result is the development and maintenance of a national list of wind turbines that states have helped to create and that they can feel confident in referencing for determining incentive eligibility.

ITAC is an example of what can be done when states and industries work together to address major market challenges facing emerging renewable energy technologies. Hopefully, by supporting one another, state programs can determine the best ways to support the distributed wind market in effective and sustainable ways as the industry grows to maturity.

Clean Energy Scale Up: Do It Like We Did Bridges and Roads

Author: Lewis Milford, Clean Energy Group | Projects: Clean Energy Innovation, Clean Energy Finance

CEG report cover dec 2011How can the world finance a massive scale up of clean energy technologies?

To date, neither the necessary funds nor any convincing mechanisms to produce the funds have come from the public- or the private-sector. Such financial commitments have been made all the more difficult in the current financial crisis, with historic budget deficits in OECD countries.

The fact of the matter is that the level of capital needed is available, but only if new, conventional investors are brought into the clean energy space on terms that are within their investment parameters. New approaches are required in order to access, attract, and direct these new funds to build a clean energy infrastructure.

Clean Energy Group (CEG) has prepared a new report for the International Energy Agency/RETD on this question, which was released today, as global climate discussions are underway in Durban.

The report finds that a fundamental task for public finance and policy is to improve the clean energy investment risk-to-reward ratio needed to entice private investors. The risk-to-reward ratio is a comparison of how much money an investment could lose compared to its profit potential. To encourage private investors to direct capital into clean energy technologies, governments have an important role to reduce the risks associated with clean energy technologies (technical, institutional, policy) and, at the same time, increase the profit potential of these investments.

Investors have different comfort levels that match the wide range of risks and rewards. Venture capitalists take on high risk for the expectation of high returns. On the other hand, institutional investors, such as pension funds, look for lower-risk investments with reliable lower returns—for example, infrastructure bonds.

In order to better align these conventional investor needs with the funds that are required for financing large-scale deployment of renewable energy projects, some questions need to be answered:

  • Which policies can influence clean energy infrastructure investments to perform like (or better than) traditional infrastructure, industrial, and municipal bonds?
  • What kinds of policies will reduce risk and generate competitive returns for clean energy?
  • Are existing investment institutions sufficient or should new institutions help restore investor confidence where it has been eroded by a history of changing or short-term policies?

The solution is unlikely to be action to simply to scale up more of the same public subsidies—an unviable option with many countries facing unprecedented national deficits. Rather, a possible alternative path forward could come from combining existing support mechanisms with new public finance measures that are now used to finance infrastructure like roads, bridges, and other public infrastructure projects.

The major task for governments and the private sector is to conceive of the clean energy challenge as an infrastructure-building exercise for the next thirty to fifty years. This challenge will require many tools that were employed by industrial economies over the last century to build out the existing transportation, telecommunication, and energy infrastructure systems that dominate today.

These infrastructure systems relied on at least four kinds of targeted public and private approaches to achieve their unprecedented dominance.

  • Economic development policies to address and link the many actors throughout the economic system, using: “innovation economics” to create incentives, overcome institutional barriers and build the case for a large scale technological transition
  • Financial innovation and mechanisms that made it possible for a diverse range of private investors to obtain safe and predictable returns because of public interventions that reduced investor risk and created stable investment environments, and thereby made trillions of dollars in capital available for major infrastructure investments.
  • Technology innovation strategies that drove cost reductions and performance improvements in new technologies and crucial enabling technologies that created and supported the integration of new infrastructures into mainstream society.
  • Enabling energy policies that mandated investments in infrastructure created a stable investment demand that gave investors confidence to invest based on a predictable, long-term returns horizon.

The paper also recommends that electric utilities must step us to be engines of technology innovation. To date, electric utilities have done little innovation.  In the US, state renewable mandates have forced them to acquire power from renewable technologies like wind and solar. But those laws have generally moved the dial for conventional, commercial renewable technologies.

What is needed to address climate is new innovation in second generation technologies, in new markets like offshore wind and for new technologies like energy storage. To do that, we need new laws to mandate utility investments in technology innovation and new ways to reduce technology risk for those investments. CEG has written about these utility recommendations before (see our 2010 report Weathering the Storm: Public funding for low-carbon energy in the post financial crisis era). And a new book by MIT professor Richard Lester (“Unlocking Technology Innovation”) also advocates the need to reform electric utilities as a means to unlock climate innovation.

In short, an economic and infrastructure systems-approach made it possible for societies to scale up major technological transitions throughout history. It is the way built infrastructure becomes culturally dominant.

It is also the way that clean energy and all its institutional frameworks must evolve for them to achieve scale and technological dominance.