Understanding Wind Power in Maryland
Introduction
From its modest beginnings in California in the early 1980's, the United States wind power industry has taken off at exponential rates in recent years. In 2008, 8,358 megawatts (MW)1 of wind power capacity was installed in the United States, increasing the total installed capacity by 50% in one year. In fact, the capacity installed in the past two years amounts to nearly twice the total capacity installed in the United States since the inception of the industry nearly twenty-five years ago.
At the end of 2008, the United States emerged for the first time as the world leader in installed wind capacity, passing the previous leader, Germany. At the beginning of 2010, the United States remains on top with 35,159 MW of installed wind capacity, with Germany trailing at 25,777 MW. While this is significant, it should be noted that the European Union is a big proponent of wind power and collectively has 74,767 MW of installed wind capacity.
Despite the meteoric rise in the wind power industry over the last few years, there are some real challenges that the industry faces. One of the shorter term issues is the competition from alternative energy sources. As competing sources of power production, cheaper oil and gas may make some existing wind projects less profitable and some potential projects less attractive to pursue. Another issue is financing. With the recent recession, the industry is experiencing a lack of available financing for large scale wind farms.
One of the predominant longer term issues is the lack of available transmission capacity. Generally, high-voltage transmission lines do not run to the areas in this country where wind is most prevalent. This presents a problem, as there is no way to transport the electricity to the market without a transmission line. The construction of transmission infrastructure is expensive and can be time consuming, but some states have taken aggressive measures to accelerate the process for these projects. There is even a movement at the federal level to develop a program which would foster transmission expansion across the United States.
The other major long term issue is turbine production. The increasing popularity in wind projects has made it difficult for developers to secure turbines. In the United States, growth in the turbine manufacturing sector has been stunted by the sporadic attention that has been paid to the wind industry.
Notwithstanding these obstacles, the industry is in a favorable long-term position and is already receiving a considerable boost from political policy, at the federal, state and local levels.
Scale of Wind Power Projects
Wind projects come in a variety of sizes. There are large scale wind farms which consist of an area within which individual wind turbines are located that aggregate (at a project substation) their collective produced electric power for delivery to the grid. Then there are other projects for residential or business uses which are relatively small. Typically these smaller wind projects consist of a single turbine that produces clean, missions-free power for use at a business, residence, or farm. The scale of a wind power project plays a large role not only in determining the production capacity, but perhaps more importantly, in determining the necessary scope of development planning and pertinent approvals for the project. The amount of due diligence and the extent to which permits and approvals are required often hinges on the scale of the project involved.
Critical Elements for Wind Development
First and foremost, developers of wind projects must have an understanding of the available wind resource for the project area. For larger scale wind farms, at least one year of wind data is recommended to properly evaluate the wind resource and its characteristics. The U.S. Department of Energy National Renewable Energy Lab has conducted extensive wind studies throughout the country and has produced wind resource maps which indicate the annual average wind speeds across each state. In Maryland, the Maryland Energy Administration (MEA) provides an online wind calculator for determining wind speeds and predicting turbine effectiveness for particular areas. This tool may be particularly instructive for residential or business owners in determining if it is in their financial interest to pursue a wind system.
In a typical small wind system, the home or business is served simultaneously by the wind turbine and the local utility. For most small wind systems, if wind speeds are below 7-10 mph there will be no output from the turbine and all of the power will need to be purchased from the utility. Technology in the wind industry is rapidly advancing, though, and some small wind turbines are now able to produce energy in 2 mph winds. As wind speeds increase, turbine output increases and the amount of energy purchased from the utility decreases. If the turbine is able to produce more power than the site needs, the extra electricity is sold to the utility.
Confirming a project's proximity to transmission lines and available capacity in those lines is also critical in the due diligence period of a wind power project. For small scale residential and business projects, this usually is not an issue, but for the larger wind farms which may pursue more remote locations on account of available wind resources, it is something that should be addressed. If the lines do not exist, the developer must assess the likelihood that transmission lines will become available in the future and the anticipated cost of accessing those lines. Even where lines exist, developers must often get in a queue to determine the priority of its project for capacity availability.
After determining the availability of the wind, the next most important item to address is the overall project site assessment. Assessing a project site is a labor intensive process which includes an examination of such factors as community sentiment, environmental issues including wildlife, avian and archeological concerns, the geology of the site, air traffic and zoning. These issues present a host of permitting issues at the federal, state, and local level and the pursuit of some of these permits may take a year or more. In addition to the permitting, it is not a given that the community will welcome a project, particularly where it may have an impact on scenic viewsheds. Working with the community and gaining its trust and support is critical for the success of any wind project because it allows for a smoother navigation through the regulatory approval process and decreases the likelihood of encountering political opposition. Projects should account for these types of issues in determining the schedule of development. While it should be noted that the applicable permits may differ depending on the size of the proposed wind project, overall the nature of the permits are similar.
For larger projects it may be necessary to secure access to the land for the project. Oftentimes the larger wind farms span a handful of properties and therefore require securing approvals from multiple landowners. Typically permission is obtained through a combination of easement and leases from the necessary landowners. Similar to permitting, securing the necessary rights to the land can take years to complete and as a result should be factored into a project's timeline. It is often beneficial to secure these rights at the same time that the siting and feasibility matters are being addressed with the regulators.
Another important item to keep an eye on is the technological advances in the industry. With the increasing popularity of wind projects, turbine technology is constantly changing. A wind project developer must have a thorough understanding of the equipment options and the availability of supply. In addition, with the increasing demand for wind systems, it is important to identify a supplier of the turbine(s) early on in the development process.
Programs in Maryland
One of the major drivers of the wind power industry in Maryland is the implementation of a renewable energy portfolio standard, or RPS. As codified in Title 7 of the Public Utility Companies Article of the Annotated Code of Maryland, by the year 2022, 20% of Maryland power must be derived from renewable sources, like wind power. This standard essentially uses market mechanisms to create demand and ensure that a growing portion of electricity within Maryland is produced from renewable sources. Twenty-seven other states have adopted an RPS similar to the one implemented in Maryland. A handful of these states have increased their requirements since first passage because renewable energy development has exceeded initial expectations. There is currently a drive to implement a federal RPS, but it has yet to gain approval from both houses of Congress.
There are a variety of programs and incentives in place in Maryland that promote the production of wind power. The majority of these programs foster wind power projects through tax incentives and low interest loans. A significant amount of the funding of these programs has come from the American Recovery and Reinvestment Act of 2009.
State Anemometer Loan Program
The Maryland Environmental Service, in conjunction with the MEA recently developed the state-based anemometer loan program. Under the program, the state loans wind measuring devices to property owners to quantify and characterize the wind resources available at their property. The application process is rolling and there is currently a waitlist. According to the MEA, the program is designed to enable property owners to act on their interest in wind energy and educate themselves on the potential for wind power on their properties. The program has several prerequisites concerning property size and design that applicants must meet in order to qualify for the equipment loan.
Maryland Windswept Grant Program
The Windswept Grant Program, implemented by the MEA, provides rebates for the installation of wind energy systems from 1 kilowatt (kW) to 100 kW. Both residential and non-residential systems are eligible for incentives. Program participants are eligible for an rebate of $2,800 per kilowatt for the first 5 kilowatts (kW) and $2,100 for each kilowatt (kW) of additional capacity above 5 kW. Incentives are capped at the lesser of $20,000 or 50% of the net installed cost after other federal, state, and local incentives. Effective for all applications received after July 1, 2009, rebates are no longer based on the manufacturer's rated capacity, but rather on the turbine's expected performance at 11 meters per second (approximately 25 miles per hour). Applicants may not receive multiple incentives for multiple systems installed on the same property.
EmPOWER Commercial and Industrial Energy Efficiency Loan Fund
The MEA offers loans for the installation of electric and fuel (gas, oil, propane, and coal) energy efficiency improvements to commercial and industrial businesses located in Maryland. Projects must have a simple payback period of 10 years or less in order to qualify for a loan. Loan amounts may range from a minimum of $35,000 up to $500,000 for electric-only energy efficiency projects and $750,000 for projects that involve both electric and fuel efficiency measures. A single business may apply for multiple loans, but the total outstanding loan balance may not exceed $750,000 for all loans in aggregate. All loans under this program have a fixed interest rate of 2.5%. Facilities used for fraternal or religious activities are not eligible for loans under the program.
Clean Energy Production Tax Credit
Enacted in 2006, the Clean Energy Production Tax Credit is a corporate tax credit aimed at commercial, industrial, residential, and agricultural facilities which generate electricity from wind geothermal energy, solar energy, hydropower, small irrigation power, municipal solid waste and biomass resources. In order to qualify for the program, a facility that primarily uses wind (or other qualified renewable sources, as listed above) to generate electricity must be (1) placed in service on or after January 1, 2006 but before January 1, 2011, or (2) generate electricity from wind (or other eligible sources) co-fired with coal and begin co-firing on or after January 1, 2006 but before January 1, 2011 regardless of when the facility is placed in service. An individual or corporation that applies for and receives the credit from the MEA may claim a credit equal to 0.85 cents per kilowatt-hour2 against the state income tax for a five-year period. Facilities that generate electricity from a renewable source that is co-fired with coal are eligible for a credit equal to 0.5 cents per kilowatt-hour for the five-year period. The maximum credit that an individual or business may claim over five years is $2.5 million. The program is capped at $25 million. According to the MEA, there are still funds available under the program, but applicants must apply for and receive an Initial Credit Certificate from the MEA before December 31, 2010.
PACE Enabling Legislation
In May 2009, Maryland enacted enabling legislation permitting counties and municipal corporations to adopt resolutions or ordinances establishing a clean energy loan program based on the PACE model (House Bill 1567). PACE stands for Property-Assessed Clean Energy (PACE) financing and essentially permits property owners to borrow money to pay for energy improvements. The amount borrowed is typically repaid through an assessment on the property over a period of years. Although Maryland has authorized local governments to establish such programs, only Montgomery County and Annapolis have taken steps to do so.
The PACE legislation includes provisions permitting local governments to issue bonds to fund such financing programs. If adopted by a local governing body, the program allows local property owners to opt into a renewable energy or eligible energy-efficiency loan program and repay the loan through a surcharge on their property tax bill. The surcharge remains attached to the property upon a change in ownership and is limited to the amount needed to recover costs associated with issuing bonds, financing the loans, and administering the program.
Conclusion
With an increased emphasis on alternative energy sources both at the state and the federal level, it is likely that we will see individuals and businesses increasingly turning their attention to renewable energy options. The programs in Maryland and the federal funding have made it more plausible for businesses and individuals to consider implementing renewable energy schemes which will help them take advantage of the benefits that such programs present.
1. Production capacity of wind power is measured in kilowatts (kW) or megawatts (MW). One MW of electricity will power up to 300 homes.
2. Production of wind power is measured in kilowatt-hours (kWh) or megawatt-hours (MWh) for larger projects. One kilowatt-hour is equal to 1,000 watts of electricity produced for one hour. To put it in context, a 50 watt bulb running for 20 hours consumes 1 kWh of electricity.