Business Meeting #16

Commercializing Wind - NWCC Discussion Outline

February 26, 1998

[MPM1] I think we need a thorough discussion of what commercializing means. The discussion should include input from all points of view. In my limited experience with the wind industry thus far, the "free market" advocates are not at the table.

A. The NWCC is "interested in encouraging the prudent acceleration of wind power deployment in the United States". . .to achieve. . ."a self-sustaining commercial market for wind power-- environmentally, economically, and politically sustainable."

[MPM2] Sustainable to me means "can satisfy customers’ needs without government subsidies or coercion while making sufficient cash flow to pay labor and capital enough to keep them around for the long term." I disagree with the notion that the U.S. should create its own wind industry. If foreign manufacturers have a comparative advantage, let them do it.

B. The NWCC should explore in a single text negotiation what its mission statement means by a "commercial market for wind power" so as to be able to explain what the characteristics--scale, timing, and conditions--of a commercial wind market would be.

[MPM3] I agree that this is a very important question. My experience with the American Wind Energy Association and in the utility industry creates great doubt in my mind that NWCC could ever reach consensus. If we do pursue it, I would certainly want a free trade advocate and a free market advocate involved. Too often this industry looks to the government to create and guarantee its market rather than looking inward for creative ways to identify and satisfy customer needs and wants.

C. The current market for wind is smaller, less mature, less well understood, and less well organized than it needs to be to be "commercially sustainable."

[MPM4] This is where a rookie like me gets into trouble. The "modern" wind industry in the U.S. has been around since the early 1980s. I think this is more than sufficient time to mature. Yet we still have subsidies (PTCs) and mandated additions to the generation resource mix, which create the market. Without these wind is very expensive compared to CATCH technology and will fare even worse if fuel cell technology matures. When does one step back and say this is an interesting technology, but until the ultimate customer wants something different than cheap electricity, it is too expensive and cannot sustain itself in a free and open market without government subsidies or coercion.

D. The scale of the wind industry matters, since larger scale domestic US markets will tend to drive wind costs down.

E. Other factors, in addition to manufacturing, development, financing, and marketing scale economies, including technology developments, impacts of international and domestic green markets, policies such as production tax credits and renewables portfolio standards, will impact commercialization of wind.

[MPM5] I doubt that many of these will lead to commercialization. My analogue is a spoiled child whose parents always rescue him when he faces trouble or always smoothes the way before the child meets a challenge. Does the child ever become independent? In a similar fashion, will an industry that has a PTC subsidy that permits it to cut price from 6¢ to 3.5¢ and has a mandated market ever develop the research, ingenuity and marketing savvy to survive on its own?

F. Additional parties who must be involved to reach larger scale wind development need to be convinced that a larger scale domestic US wind industry is in their interest.

[MPM6] I’m a free trade advocate. Why should there be a U.S. wind industry unless it can develop on its own?

G. Development of an NWCC approach to wind commercialization documented in a NWCC wind commercialization paper would help to convince additional parties to take part in the activities necessary for larger scale wind development to take place.

II. Scenarios: What possible market and policy circumstances are relevant?

[MPM7]

1. The first question evolves from my comments above. Can a subsidized industry ever develop the internal strength to make it on its own?
2. What impediments exist in the U.S. market that prevent wind machines from being sold and used? How can they be removed?
3. What attributes of wind energy make it worth its extra cost?

C. Wind Industry: A more developed value chain, manufacturing through wholesale to retail.

[MPM8] What does this mean?

D. Utilities: integrated monopoly, transitional, retail choice markets.

III. Commercialization Benchmarks: What are quantitative measures for domestic US commercial wind development?

[MPM9] I disagree with the premise that domestic manufacturers must be successful. What is wrong with free trade and competition? What happens if wind cannot successfully compete without government subsidies or coercion? Will the advocates be willing to admit that commercialization is not free market achievable?

A. More than five strong domestic wind manufacturing firms.

B. Wind penetrates regional electric supply systems:

NE--5%, NW--10%, Rockies--15%, Midwest--20%, Texas--20%

C. Wind competes on price or value or both with other electric generation resources.

[MPM10] This is the only real measure. For some customers it does so already. The emphasis should be on the ultimate buyer of electricity or on the aggregator.

D. The benchmarks define when we no longer need the NWCC.

[MPM11] I struggle with the mission of the NWCC. It is not an AWEA, whose mission is increased sales of wind machines regardless of whose ox it gores. UWIG focuses on the technical aspects of wind from a grid perspective. NWCC is sort of in the middle.

Consensus is achieved if all participants are at levels 1-4 (not at level 5 or 6)

Levels:

1. Unqualified yes to the position
2. Decision is perfectly acceptable
3. Participants can live with the decision
4. Participants do not fully agree but will stand aside
5. A participant feels the need to block the decision
6. Participants feel the need to do more work before consensus is reached