I sat down to discuss this question with Eric Schneider, marketing director for Acciona, a century-old Spanish infrastructure giant that entered the U.S. for the first time in 2006.
According to Schneider, the U.S. is seeing a favorable convergence of public policy, economy and technology that makes wind power a safer bet than ever before.
And what's more, the Midwest has enough potential to power the entire nation. But there's a major hurdle to clear before America truly unleashes wind power.
SP: Tell me a bit about Acciona.
ES: Acciona is based in Chicago, and is a subsidiary of a major company in Spain. We've been in U.S. since 2006. Acciona itself is 100 years old, and was founded in Spain as a construction company.
Our focus is on sustainability.
There are three pillars of Acciona's business: infrastructure, water desalination and renewable energy, which includes wind -- we have 8,000 megawatts of wind globally -- solar, including photovoltaic and parabolic trough, biomass, biofuels and lots of R&D investment. The only thing we don't do is geothermal.
SP: Acciona's only been operating in the United States for four years. Why here? Why now?
ES: The most obvious reason is that there's an enormous amount of renewable energy potential. [Acciona executives] were looking at markets where there was a hospitable environment from a political and environmental perspective, and where there was enough resources for renewable energy.
The shift of the administration in the U.S. is very favorable for growth in renewables from the perspective of climate change and economic growth. The Secretary of Energy [Steven Chu] has a background in energy technology and renewable energy, and the population seems to be increasing their support for renewable energy.
There is clear acceptance, and there is a greater understanding and sensitivity for all of the things that make up the promise of renewable energy: jobs, energy independence, climate change.
It's really a shift in perspective in the U.S. I think that's a grreat opportunity for companies like Acciona.
The sort of glitch is that we just had a sort of super-recession. At a time when everything was truly coming together -- from the finance and policy and public perception perspective, we were really at the cusp of moving things forward aggressively and directly -- the economic downturn was a major problem. Now we're sort of rebuilding from a new reality.
The number of equity partners from the market has shrunk -- the number of companies we can work with to take advantage of tax credits available through the government. In lieu of those tax credits, the government is funding directly. We had this fantastic momentum, and sort of this sea change.
SP: Let's talk about Acciona's businesses.
ES: In infrastructure, we're trying to offer our customers a new formula: hospitals, highways -- such as the A30 from Quebec to Montreal -- tunnels, including Toronto's deep water cooling system, airports and bridges.
But we're really focused on wind and solar. We think those, on a utility scale -- biomass is also very interesting -- show the most promise, from a financing perspective and a risk perspective and having a relatively clear permitting process for them.
Wind is well understood and is becoming more understood by utilities. It's not like a coal plant -- you can't just burn more coal and get more energy. You have to wait for the wind to blow.
It's all about the availability of wind in a given site to predict annual production.
There has to be an amount of certainty in the process. Our 180 megawatt project -- 120 1.5 megawatt turbines in North and South Dakota -- is an almost $300 million project. They're very expensive and they pay for themselves over a 20 to 30 year life. it's a very steep upfront investment.
In wind, the science has gotten very good so we can predict approximately how much wind is at a particular site.
Natural gas has a similar but different problem. They know how much is going to cost to build the project upfront, and it's less than a utility scale wind farm, but they can't predict the cost of fuels over a very long period. That's where their risk lies.
With wind, more of the investment is on the front end, and your fuel is virtually free thereafter.
SP: You discussed the potential of the U.S. for wind power from a business environment perspective, but what about the physical environment? Do we actually have enough wind to make an impact?
ES: The U.S. has wind potential that's the envy of other countries. We have an enormous wind potential running from the Canadian border to the coast of Texas.
Theoretically, there's enough wind potential in the Midwest to power the country, by the American Wind Energy Association's estimate.
In the Midwest, the population is least dense and least great. The thing about wind energy and solar energy is that you have to build where the resource is. There are good wind resources on both coasts as well. But there's enormous potential in the middle of the country.
But there's a big challenge: there really doesn't exist the transmission to transport that energy to load centers: Chicago, and New York, and Los Angeles.
The federal government is going to have to step in somehow. It's not unlike the build-out of the interstate highway system. That was a federal plan that was carried out and achieved regionally and locally, for strategic, defensive and economic reasons.
The infrastructure build out to support our nation's energy needs will also be driven by federal government leadership.
The federal government has the right to [commandeer] land when it comes to oil pipes. But they don't currently have the right when it comes to energy transmission. Only for fossil fuels. At some point, the government will have to deal with that issue.
The transmission is going to have to catch up with the development pipeline. There's some already in place. There are large markets -- Oklahoma City and Kansas City and major cities in Texas -- you can reach some major markets with some transmission that is available.
SP: The Midwest has a reputation for being on the conservative side of politics. Is there as much initiative to go green as the more progressive coasts?
ES: Look, I'm from a small town in Kansas. I think that the majority of people in the Midwest are in favor of renewable energy. I do think people see jobs and local economic development and support for local family farms that are struggling. If you are engaged in the government and have a turbine, there's considerable money to be made.
We can look at a wind resource map and see where resources are the most great. Then we can look for land that's suitable for a wind farm, geographically. Then we start looking at who owns that land, and start talking about building a wind farm.
To host a wind farm on your land, we pay the farmers for that. We begin by sort of having them sign options to participate, which holds their land until we can get all the land necessary to go through the permit process and environmental review to get started. And then we begin designing the wind farm, laying out the turbines, those lands where we have options we have the ability to put a wind turbine, and those options become a lease, and we lease that land for approximately 20 to 25 years.
The turbine itself really only requires an acre, an acre and a half of land. Livestock grazing and crops can really coexist naturally.
In the Midwest, there's greater acceptance of wind energy technology, largely because the Midwest has a history of using land for energy and for commerce. It's more common to count on the land for these types of things. There's a lot of land and it feels very normal for these types of purposes.
In more densely populated areas on the East and West coasts, in some cases we've found that there is a greater level of opposition.
It's not the same as the really truly wide open spaces of Nebraska and Oklahoma.
But the transmission issue is a very big one. We didn't design our existing transmission system for that because you could build a power plant 20 miles outside of Chicago. With fossil fuel power generation, you can put it wherever you want.
We have a wind farm in Illinois, but it's in Stevenson County, about a two-hour drive from Chicago.
SP: So where do we go from here?
ES: In a single word it's certainty. The technology exists, it's tested, the science exists to make sure that the amount of resource that you have in a certain location is relatively consistent over time. There are a lot of companies who know this business and want to move it forward. The thing that's most necessary to do that is to provide certainty.
If you look at the past 10 years, the incentive provided by the federal government has been tax credits. The production tax credit is the main incentive to renewable energy developers. It's only approved for a couple of years, and twice in the past 10 years it's been allowed to expire -- for two years, it didn't exist.
It's hard to plan these kinds of investments if you don't have certainty in the long-term.
If it's true that the federal government and as a country we believe in clean energy for all the reasons that it's beneficial -- creating new jobs, new manufacturing sector, helping to reduce the effects of global warming, making us more energy independent -- which I think as a people we do, and we want to provide an environment to take full advantage of the resources we do have, we need to provide the structure for those projects.
SP: Are we on the right track, at least?
ES: I think we're getting there. I think we're taking steps in the right direction for sure. The federal government responded well to the economic downturn, where a lot of projects that were going into development whose equity partner no longer existed. The government basically converted those tax credits to a grant, so we weren't dependent on those equity partners. So they've been very smart about it.
But we're still in Band-Aid mode. It seems like there's a vision for longer0term, concrete policy, and I think they're moving in that direction.