Tax Credits Put Wind In The Sails Of Renewables

Falling clean- energy costs and rising oil prices are turbocharging green, too

Fickle breezes pose a challenge for Steven Zwolinski, president of GE Wind Energy. But in 2004, he was also hit by the capricious winds of politics. A tax credit for wind energy, expected to be renewed, expired in 2003 after being caught up in the congressional stalemate over a comprehensive energy bill. As a result, new wind farm development came almost to a halt. By summer, Zwolinski had no orders and nearly $300 million in inventory, forcing layoffs and factory closings. The uncertainty over policy makes for a "tough industry," he says.

But what governments take away, they can also give. In September, Congress renewed the wind tax credit and extended credits to most other types of renewable energy. In addition, 19 states now require that electricity providers offer a certain percentage of green energy. And around the world, noncarbon-emitting alternative energies are needed to meet the terms of the Kyoto Protocol, which requires cuts in greenhouse-gas emissions.

Factor in falling clean energy costs and rising prices for coal, oil, and gas, and these issues are turbocharging green power. Indeed, renewable energy forecaster Clean Edge expects the overall market to grow from $13 billion worldwide last year to $92 billion by 2013. "These technologies are at a tipping point," says Clean Edge's Ron Pernick.

The biggest winner: wind. "Clearly, wind is set to come on stronger than last year," says Fred Mayes, chief of the Energy Dept.'s renewables information team. With the tax credit, wind power has plunged from 45 cents per kilowatt-hour in 1980 to less than 3 cents today, making it competitive with natural gas- or coal-fired plants. Power providers are rushing to take advantage of the credit before it is scheduled to disappear again in 2006. "We're now seeing a 14-month sprint until the end of 2005," says Jack Ihle, energy analyst at Platts (a unit of The McGraw-Hill Cos. (MHP ), as is BusinessWeek). Platts projects that the U.S. will add more than 2,400 megawatts of wind capacity in 2005, on top of the existing 6,300 MW.

Similar incentives are fueling solar power, which remains more costly than fossil fuels and is even more dependent on government incentives, says ABI Research analyst Josh Laurito. Germany, for instance, has made a major bet on the technology, creating "such incredible demand," he says, that it's driving up prices for solar systems around the world. Companies like General Electric (GE ), BP (RD ), Royal Dutch/Shell (RD ), Sharp (SHCAY ), and Kyocera see sun power as a big chunk of their future business, and new approaches such as plastic-based solar panels are springing up. Forecasters see more than 30% growth per year for the next decade.

The renewable industry is largely the creation of government policies, and there's always a chance that the political winds could shift. But given environmental pressures and more competitive green energy prices, it's a good bet that the boom in renewables will continue.

By John Carey in Washington

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