China’s not-so-subtle approach to wind energy legislation

GE recently revealed its agreement to supply 88 wind turbines to HECIC New Energy Co., Ltd, a Chinese wind energy developer, for several projects in the eastern provinces. This deal marks another step in China’s commitment to becoming a leader in wind energy production.GE furthered agreed to supply an additional 800 large turbines as part of China’s goal to install 150 gigawatts of wind power capacity by 2020.  (To put this in perspective, 150 gigawatts could meet the electricity needs for over 100 million American homes).

China’s wind energy production doubled each of the past four years, and at this rate, growing by an average of 11.5 gigawatts per year, China is projected to be the hands down leader in installed capacity by the end of 2011.

While the US has also made some impressive gains in wind energy, it could certainly benefit from a Chinese-like approach of steadfast devotion to developing wind resources.  However, the US wind industry has been dramatically slowed by the on-again-off-again governmental support of the Production Tax Credit (“PTC”). The PTC provides a 1.9 cent tax credit for every kilowatt of wind energy produced, which is critical to making wind energy cost-competitive with other energy sources.

However, because the PTC legislation expires every two years and must be renewed, investors have tailored their investments accordingly. The wind industry prospered in the years of 1999, 2001, 2003, 2005, but shot downward in 2000, 2002, and 2004.

Such volatility shows the remarkable impact of government policy on the private sector and provides an example of wasteful policy that the wind industry is lobbying hard to change.  In February 2009, Congress provided a three year extension, but if the wind industry is going to truly take off in the US, the system will have to be torn down and rebuilt on more stable economic grounds.

In China, utility companies are required by law to purchase all the electricity produced by the renewable energy sector. The US could benefit from such a direct approach.

Alex Kerr

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