RE: Sustainablerenewableenergyclimatechangeglobalwarming

Depending on your level of interest in sustainablerenewableenergyclimatechangeglobalwarming; the big story today was either the Oscar nomination for Grouchy Al or the AWEA report on the increase in wind capacity. One highlights the pop culture transformation that is occuring in the sustainablerenewableenergyclimatechangeglobalwarming space and the other signals..... well nothing really.

The former is certainly an exciting development and frankly couldn't happen to a more deserving guy. (I still think he's a bit grouchy; but I guess I would be too if small print prevented me from leading the free world)

Now, the latter means the more money is flowing out of fossil fuel energy and into renewables and that is a good thing. However, there is an irony. The irony is that the majority of the capacity is being built in the strangest places. GE, Xcel, John Deere, our friends at Babcock & Brown and countless other investors are racing to beat the potential expiration of the renewables production tax credit on 12/31/07 by building wind farms in........WINDY LOCALES! Now, a smart investor wants to get the most GWh for his buck. It costs about 1-2 M for every MW of capacity. The key is build where the wind blows the highest percentage of the hours per year. Hello, West Texas. The wind blows about 28% of the time in cowboy country. That amounts to 2452.8 hours/year of generation at lets say $75/MWh (+another $5/MW capacity) = $196,225 per year. So, roughly you're looking at a breakeven of about 7 years. Now, add in the $19/MWh that the Energy Policy Act of 2005 generously contributes to the generators and they're looking at about 5.5 years to breakeven.

Now, and if you've read this blog this long you're finally being rewarded with a little bit of (perhaps) valuable information. The Texas REC market is currently $3.20-$4.20/MWh. So, this means that the environmental benefit of the wind generation makes up roughly 3% of its value. Frankly, 3% is something to sneeze at. So, the fact that capacity is going in at record levels, doesn't necessarily mean that attitudes towards the environment are really changing. The key will be how much supply and demand there will be once the tax credits lapse and make wind generation a bit less profitable.

Another important ramification to consider with all this Texas based generation is going to be true environmental value of a MWh of renewable generation. It may not be what you think. So, my next intellectual flea market will discuss the true value of that REC you're thinking of purchasing. Until then; keep the winds of change blowing.