The Department of Energy’s National Renewable Energy Lab estimated it would cost at least $43 billion to upgrade the nation’s electric system to move to 20 percent wind by 2030. Photo: Travel Aficionado, Flickr

By now, the Obama administration has made clear it wants to ramp up the use of renewable energy, calling it a key to the nation’s leadership in the 21st century. And some in Congress are hoping to pass a federal renewable energy standard, requiring the production of more wind, solar, biomass and geothermal energy.

Utilities recognize the shift to green energy as a major growth prospect. But they also recognize an impediment: Infrastructure. Indeed, across the country, utility and energy companies are preparing for a massive fight over how to deliver clean energy to people’s homes — and, more to the point, who will pay for the necessary infrastructure to get the energy there.

Behind the scenes, in recent months, utilities have battled over how to allocate the costs of the new high-powered electric lines necessary to move wind energy from one part of the country to the other. Despite efforts by federal regulators to referee the fight, some experts foresee further delays in the construction of the new electric, or transmission, lines they say are essential for meeting federal and state renewable energy mandates.

“A lack of transmission lines is the single greatest barrier to wind here in the Midwest. The lack of transmission has proved to be a huge barrier,” says Jamie Karnik, communications manager at Wind on the Wires, an advocacy group. Karnik says the Midwest produces about 10,000 megawatts of wind now, and needs to build at least 25,000 to 40,000 further megawatts of capacity to meet state and regional renewable energy goals.

Many utilities in the wind-rich Midwest would like to move excess electricity to the Northeast on new, high-powered lines. But utilities in the Northeast see Midwestern wind as a threat to its nascent offshore wind industry. While offshore wind is plentiful in the region, it has been plagued by regulatory delays and high costs. Cheap wind from the Midwest could keep the Northeast from developing its own local source of renewable power.

“As the nation looks to move to a renewable energy standard, a lot of that really comes down to how to meet the energy needs of the East coast,” Karnik says. “Certainly people who are building wind in the Midwest, have their eye on the eastern market.”

Utilities on both sides of this divide are drawing the battle lines over so-called cost allocation policies, which lay out a structure for how the costs for these lines are spread among ratepayers. One faction (including some Midwestern utilities and renewable energy advocates) proposes spreading the costs broadly over an entire region, arguing that new lines deliver broad economic and electric reliability benefits to all ratepayers. The other faction (including many Northeastern utilities) says costs should be paid by the specific beneficiaries of the new line.

Electric industry stakeholders — utilities, renewable energy developers, transmission companies — stand to lose or gain billions of dollars based on the structure of these policies. As a result, they are pouring significant lobbying resources into their development. “Needed transmission in the eastern interconnection would be about $85 billion,” says one lawyer following the issue who was not authorized to speak on the record. “The dollars involved here are huge and the regional economic impacts are huge. Utilities are keenly aware of that and that’s why they are fighting over cost allocation.”

A 2008 study by the Department of Energy’s National Renewable Energy Lab said it would cost at least $43 billion to upgrade the nation’s electric system to move to 20 percent wind by 2030. Others have put estimates significantly higher. A study conducted by the lab in January also said that any effort to meet the 20 percent goal in the Northeast would require “significant expansion of the transmission infrastructure.”

At the center of this fight is the Federal Energy Regulatory Commission, or FERC, a little-known agency that has often played second fiddle to the Department of Energy, but energy policy experts say has far more power over shaping the country’s energy policy. After months of discussions with industry stakeholders, FERC released in June a cost allocation proposal meant to assuage utilities’ concerns. It drew on elements of both utility factions’ proposals, giving some preference to projects that meet policy goals like renewable mandates, while ensuring that the costs allocated are at least “roughly commensurate” with the benefits delivered.

For the most part, industry stakeholders say they can work within the framework FERC set up: It gives utilities latitude to develop their own workable proposals. But as the public comment period on FERC’s proposal comes to a close at the end of this month, they also say the cost allocation debate might take years to resolve.

The lawyer following the issue said the ongoing battles between utilities over cost allocation could significantly impact states’ abilities to meet renewable energy standards. “I think it will affect it tremendously,” the lawyer says. “I think it’s going to continue to be really, really hard to build big lines.”

Rob Gramlich, senior vice president for public policy at the American Wind Energy Association, the wind industry’s national trade group, says he is “encouraged by what FERC is doing,” adding, “They clearly understand the challenges of the new clean energy economy and what that entails.” He says that FERC is working to expand a “Balkanized” electricity grid that was meant only to work on a local, rather than a regional basis.

In order to meet a stringent renewable energy standard, Gramlich says transmission must be built across regions in order to bring wind from the Midwest to states that don’t have many renewable resources. “To do that we’d need more regionalization of the type that FERC is pursuing now,” he says. “To do it cost effectively, by using the most economic resource areas, significant new transmission would be needed.”

But Gramlich notes that any rulemaking that FERC finalizes will likely be challenged in court, as some companies will “stand to lose a lot” no matter what proposal is adopted. Such challenges could delay a process that likely won’t even go into effect until 2012, given the various compliance periods allowed under the plan.

Joseph Kelliher — former FERC chairman and current executive vice president of federal regulatory affairs at NextEra Energy, the country’s largest renewable energy developer — says FERC’s cost allocation proposal is “critical and essential to translating conceptual renewable energy projects to real projects. They actually won’t get built until there is some clear conception of cost recovery.”

Kelliher also defends broad cost socialization, saying that entire regions benefit from new lines that carry renewable energy. “The notion that only ‘A’ and ‘B’ have to pay for that line and nobody else has to pay for anything, economists would look at that and say it’s a classic ‘free rider,’” he says. “Free riders tend to like the status quo and would like to get something for nothing. The current policy does discourage investment.”

At the same time, offshore wind is just not as cost competitive as onshore wind from the Midwest, Kelliher says. “The difference between onshore wind and offshore wind is about 400 percent. If transmission constraints don’t allow you to import good onshore wind from the Midwest for at least part of your renewable energy needs, you’re left paying” more, he says.

But Tim Fagan, director of public policy at the New Jersey-based PSEG, says broad socialization of costs puts the Northeast at a disadvantage because it favors Midwestern wind. “The concern is that we may end up with an overall less economic solution,” he says. “If the resources from the Midwest are able to have these long transmission lines paid for, that may competitively eek out other options.”

Fagan says Northeastern states need to be given time to develop local offshore wind and solar resources. “Eastern states are looking to develop offshore resources; they’re plentiful and they’re close to load,” he says. “In New Jersey, we’ve been aggressively developing PV solar.”

While a broad energy bill authored by Sen. Jeff Bingaman (D-N.M.) addressed some electric transmission issues, those provisions are not expected to come up for a vote in the Senate this year. Until then, electric utility officials say they will be watching Congress closely in the coming weeks to see if momentum is building for passage of a federal RES. Renewable energy advocates have been working feverishly behind the scenes during the August recess to convince key senators that the proposal could get the 60 votes necessary for passage.

“You’re beginning to see people stepping up and saying we can’t meet these mandates if we can’t get transmission built,” says one utility official who requested anonymity to speak openly. “All of this comes down to whether or not we have a federal RES. That has the potential to change things.”

A preliminary artist's rendering of the plant, via BigStoneII.com

Despite a metro-area city backing out of the project, representatives for the proposed Big Stone II power-generation facility say they remain optimistic about  the plant’s future, while opponents are still insistent that the new plant will mean dirty power for the Dakotas and Minnesota.

The proposed coal-fired plant, to be located in northeast South Dakota, would generate between 500 and 580 megawatts of electricity. Five utilities are backing the project, including western Minnesota’s Otter Tail Power and the Central Minnesota Power Agency out of Blue Earth. The project is called Big Stone II because it is a major expansion of an existing facility of the same name near Milbank, S.D.

The municipal utility for Elk River, a western suburb of Minneapolis, has declined participation in the project, citing that taking part could carry considerable risk. “We have to commit a lot of money to something that’s not built,” said city utility board chair John Dietz. “They were asking us to commit $3.4 million by September for our share of the research-and-development costs. They’re going to have a go/no-go vote in September of this year, and next year we would be required to put up more money for construction.”

Dietz said that the ratepayers for the utility would be on the hook if the plant didn’t happen.

Elk River’s decision was the target of Twin Cities area activists who urged supporters to call Elk River officials asking them to turn down the project. At the recent meeting of the Elk River city council and utilities board, council members expressed no dissatisfaction with using coal-generated power, but questioned the price tag the utility would have to commit to the project. The utilities board had previously voted not to recommend the project, and the city council took no action, effectively killing Elk River’s participation.

A spokesman for the Big Stone II, Dan Sharp, said the project can continue without Elk River’s participation. “We could increase the scope of the project to 580 or 600 megawatts, if others were willing to come into the project,” he said. With the number of utilities that are on board, the project will probably be 500 megawatts.

Sharp said that all of the project’s partners are trying to secure their shares of the financing in anticipation of a September meeting of the partners, adding that construction is still slated for 2010, possibly starting as early as May.

Sharp says one factor that could be a benefit to this project would be if so-called cap-and-trade legislation becomes a reality. Then, Big Stone II would be about 20 percent more efficient than the existing facilities and would be in line to receive credits that could be traded on the open market.

The plant's proposed location, just over the Minnesota border (BigStoneII.com)

But, critics of the project contend the project will generate dangerous and antiquated coal-based power when other alternatives are becoming more viable in the region. The Northstar chapter of the Sierra Club, which counts Minnesotans in its numbers, has been active in opposing the expansion project. Northstar member Rich Felming said the project is largely past the point of any significant public input. He found it encouraging that Elk River declined to participate.

”We’re always trying to get letters to the editor in to make people aware of the hazards of this proposal,” Felming said.

In addition to his concern that the plant will create several million tons more of carbon dioxide emissions that could contribute to global warming, Felming has a more personal stake in the project: “I run a part-time business where I make fishing products, and I’m concerned about mercury emissions, the sulphur dioxides and the nitrogen dioxides are an issue also for me.”

Felming said he’s very concerned of the impact of this plant on sport fishing. The plant will withdraw cooling water from Big Stone Lake, which is co-managed by Minnesota and South Dakota authorities.

He said he also finds it odd that these utilities are overlooking a prime source of energy. The Dakotas are “the Saudi Arabia of wind power,” Felming said.

But in examining why utilities still seem wedded to coal-generated power, Felming said. “You want to do something you’re familiar with, you always want to keep going down that path.”

Felming added that groups like the Sierra Club and Clean Water Action in South Dakota will try to keep the public focused on what they say is a continued and dangerous reliance on coal for power.

When Minnesota passed one of the nation’s most aggressive renewable electricity standards last year, there was reason to think the law would signal to the renewable energy industry that Minnesota is a good place to do business. It requires that utilities generate 25 percent of electricity from sources like wind, solar or biomass by 2025.

So far there hasn’t been a windfall, and that’s in part because of the intense competition among states to attract “green” manufacturing. As demand increases for wind turbines and solar panels, some predict a wave of new domestic manufacturing jobs.

Our neighbors to the south have perhaps put more into courting these jobs than any other state. Iowa’s governor is known to roam trade show floors. Its economic development office has two employees working exclusively with wind firms. It has an office in Frankfurt, Germany, near many of the major turbine manufacturers. It exempts turbines and other equipment from sales tax. A $100 million “Iowa Power Fund” rewards innovation in renewables and energy efficiency.

So, why can’t Minnesota do what they’re doing?

It’s a question Dentley Haugesag said he gets on a regular basis. Haugesag is Minnesota’s economic development specialist for the wind industry, and he admits Iowa is a formidable competitor.

“Instead of talking about doing it, they’re actually out there doing it,” Haugesag said. “My hat is off to them. They’ve been very successful.”

Continued: Click “Read more”But that success isn’t necessarily Minnesota’s loss, Haugesag said. Wind turbines are made up of lots of parts — things like gears, electronics and hydraulic systems — and some of those parts are already being made in Minnesota for turbine manufacturers in Iowa.

That supply chain is central to Minnesota’s wind strategy, Haugesag said. The state hasn’t committed the resources to chase down turbine manufacturers in Europe, so instead he’s focused on helping existing companies tap into the growing market for wind turbine parts.

Haugesag has been touring the state to meet with manufacturing companies that have the capacity to make various turbine parts. He came up with about 60 that were interested, and information about them is being compiled into a web database that will be unveiled at this year’s wind energy industry conference in June.

So, say you’re a turbine manufacturer and you’re looking for a company to make some gears for you. You could search “gears” and get a list of all the Minnesota companies that are up to the task. The database will also be a tool to convince larger turbine manufacturers that Minnesota would be a convenient place to set up shop.

“This will go farther than Minnesota. This will go farther than Iowa. It might go even global, because now, with the weak dollar, it’s certainly feasible to ship components offshore,” Haugesag said.

It’s a strategy that was born of frugality, he admitted, but added he doesn’t think it’s a bad strategy. It’s maybe a bit like comparing the Minnesota Twins to the New York Yankees. The emphasis is on developing existing talent instead of spending big to bring in star players.

“This is kind of a ground-up approach,” Haugesag said. “I think we’re going to get a lot done. It just might take a little longer, but I think it might be more securely based.”

An opportunity blows past

Last November, Dutch wind-turbine manufacturer Vestas announced its intentions to open a research and development center in the United States that would come with about 80 high-paying jobs. The unusual announcement, via press release, set off a marketing war among more than 30 states hoping to attract the research center.

In Minnesota, Rep. Jeremy Kalin, DFL-North Branch, and Rep. Aaron Peterson, DFL-Appleton, saw an opportunity for Minnesota to attract “green” jobs to the state, and they started organizing an effort to win the company. Gov. Tim Pawlenty reportedly contacted Vestas on his own, and the state’s Department of Employment and Economic Development started preparing its pitch and organizing a letter-writing campaign. The governor, the mayors, University of Minnesota leaders, and others all wrote to the company, according to Haugesag.

Then, a couple months ago, as the state was completing its final proposal to Vestas, the Dutch company announced it had narrowed its choice to five states. Minnesota didn’t make the cut.

“The frustration from a lot of us at the Capitol is that not making the short list wasn’t a [matter] of not being the right state to do it, but actually just not having the right effort out there to sell the state,” Kalin said. “I think folks from the state were really expecting it to be a formal, RFP, old-school 20th-century process, and the business world doesn’t work so much like that anymore.”

While Haugesag said an “energetic” effort was made to win over Vestas, Kalin said the incident is a example of why the state’s effort to attract “green” industry needs to be better organized and better funded.

Kalin said there was confusion during the Vestas process about who was taking the lead. It turned out it was legislators, he said, “because there’s not really capacity in the executive branch — or not commitment — to be a real player at this high level.”

The Vestas miss, as well as conversations with the Blue-Green Alliance, a coalition of the Sierra Club and United Steelworkers, helped prompt Kalin and Peterson to submit a bill that would increase the amount of money and attention spent on recruiting green-collar jobs to Minnesota.

“We need to be on top of this, and we need to be moving as quickly as we can,” Kalin said.

House File 3999 would start a task force similar to the one recently organized by the mayors of Minneapolis and St. Paul. It would also open existing business infrastructure and job skills development grants to any company that helps the state meet its environmental goals. And it calls on the commerce and economic development departments to partner on a report identifying how all existing grant and loan programs can be used to target the “green” economy.

Kalin said he’s very optimistic the measures will pass this session.

“Right now we all need to work together to identify how we can overcome some challenges in making Minnesota a leader across the board in the green economy,” Kalin said. “As a business venture, and the state is a business venture in some ways on this stuff, we have to do this together, and we have to be all on the same page.”

Each summer, thousands of wind-energy power players gather for a three-day conference featuring speeches, workshops and exhibitions from the biggest names in the industry. For states like Minnesota that are eager to attract wind-energy jobs, it’s a chance to make pitches to the major turbine manufacturers, many of which are based in Europe but are expanding to meet growing demand in the United States.

A typical strategy involves setting up a trade show booth and dispersing economic development employees with stacks of glossy folders touting financial incentives and quality-of-life issues. A handful of states such as Iowa, however, are upping the ante and dispatching governors to personally schmooze company officials at the events.

“That’s pretty hard to compete with. It’s pretty clear who you’re going to meet with first, and who you’re going to remember,” said Rep. Aaron Peterson, DFL-Appleton, who would like to see Gov. Tim Pawlenty follow the lead of some of his peers and play a more personal role in recruiting wind and other green manufacturing jobs to the state.

The use of governors to recruit wind companies is an indicator of the huge potential some see in the future “green economy.” As more states approve laws favoring energy efficiency and renewable electricity, the transition is expected to create a surge of demand for technologies like wind turbines, solar panels and the components that go into them.

And that means jobs. Potentially lots of them.

Continued: Click “Read More”The mayors of Minneapolis and St. Paul last week unveiled their strategy for attracting these “green-collar” jobs to the region. Some are questioning, though, whether the mayors’ effort will be limited in what it can accomplish without greater support from the state, and in particular from the governor’s office.

Pawlenty has supported some important renewable energy legislation and made the issue the focus of his time as chairman of the National Governors Association. He’s also, however, reportedly spent about one of every three days this year outside the state, much of it campaigning for John McCain. Some think he needs to spend more time stumping for Minnesota as a place for green jobs.

“What we’re looking for is the governor to get on board with green job creation. We haven’t heard that from him yet,” said Gerry Parzino, a representative of the United Steelworkers. Parzino’s organization will be canvassing fairs and other events across the state this summer seeking to build political support for a state-level green-jobs initiative. “We feel it has to go above [cities] and come down from the state.”

The governor’s communications office did not return a phone call for comment on this story.

Here’s are a few examples of what other governors are doing and how it’s paying off:

• Iowa Gov. Chet Culver manned the Iowa booth for an entire day at last year’s annual wind energy conference in Los Angeles. He also regularly leads delegations to Europe to meet with wind firms. Culver’s commitment follows in the footsteps of his predecessor, Tom Vilsack, and has helped lure five wind turbine manufacturers to set up facilities in the state, bringing 1,500 jobs and $185 million worth of investment.

• Montana Gov. Brian Schweitzer was a keynote speaker at last year’s wind energy conference and has met personally with wind turbine manufacturers. Last month, German turbine manufacture Fuhrlander announced plans to build a $25 million plant in Butte that will employ 150 people and up to an additional 600 in the future.
• Pennsylvania Gov. Ed Rendell’s state hosted a green jobs conference earlier this year. After meetings with Spanish wind firm Gamesa, the company decided to spend $84million building its U.S. headquarters in the state.

Rep. Peterson said he thinks it’s critical for Pawlenty to be more involved if Minnesota is going to be successful in attracting similar investment.

“If the governor’s not involved, Rybak and Coleman can do all this stuff. That’s great. The unions can talk about it, and everybody can get fired up about it and have a series of meetings that never end,” Peterson said, but “you need the governor to, for lack of a better way of putting it, to wine and dine these people. They’ve got lots of options of states that want them come to their state. You need to recruit them at the highest, highest level.”

Tuesday: Minnesota has a “ground-up” strategy to generate green manufacturing jobs, but some think the effort could use powering up.