Is Wind Power Being Blown Away?

Wind power generation capacity in the United States increased exponentially from 4,144 MW in 2001 to 51,630 MW in 2012, an astounding 1,145% increase.  However, future growth in the sector remains unclear.  The expansion of the wind power industry hit its peak in 2008 as federal incentive programs encouraged the construction of wind farms.  In 2009, the global recession hit the wind energy hard, and the industry’s annual growth rate dropped significantly.  From 2009 to 2011, new wind energy project construction decreased from 10.0 GW of new capacity to 6.8 GW, despite federal incentive programs in place.  In addition to the global recession, the profound surge in the supply of domestic natural gas caused a decrease in natural gas prices and made natural gas power plants attractive as an alternative to wind farms.  However, in recent years, the import of wind power equipment has decreased as domestic manufacturing levels approach domestic demand.  As a result, the price of wind power equipment continues to decrease, which acts as a double-edged sword for the industry.  It is now cheaper for wind farms to procure their equipment and easier to replace damaged parts.  However, the drop in equipment price and increase in international competition between equipment manufacturers has caused the domestic manufacturers to realize lower profit margins.  What’s more, the United States remains as one of the largest importers of wind power equipment, despite the recent increase in domestic production.  This leaves the US susceptible to fluctuations in global prices for wind power equipment. With concerns over global warming, and the depletion of non-renewable resources, society has been on the look out for an alternative for producing electricity, and wind power is seen as a viable candidate.  However, conflicting trends in the wind energy industry make it difficult to determine its fate.

The majority of growth in the wind power industry has been spurred by the American Recovery and Reinvestment Act of 2009.  This act allocated $6 billion to improve the transmission line system and electrical grid across the United States, as well as fund advances in renewable energy, including wind energy.  The Act also extended the production tax credit (PTC) for wind energy facilities, in which a new facility earned one tax credit for every kilowatt-hour of electricity produced during the first ten years of its operations.  However, this tax credit program was set to expire at the end of 2012, which could have potentially demolished the future growth of the wind power industry.  Without the incentive, the already weak economies of scale in wind power production would have become even weaker as the costs for the facilities would increase.  The tax credit was renewed, but only for the year of 2013.  Some of the players in the wind energy industry see this annual extension as a blessing and a curse.  When the tax credit is approved for another year, these wind farms are able to operate with an acceptable profit margin for that year.  However, there is the constant fear that the government will not renew this tax credit.  Wind power firms recognize that if they begin to invest more assets into wind power, they run the risk of losing money if the government doesn’t renew the PTCs.  This has slowed the growth of the wind power sector, and brings skepticism to whether we should pursue wind energy as a viable way to generate electricity.

Despite wind energy being considered a renewable resource, the inflating costs associated with wind energy production will encourage the use of natural gas for generating electricity.  In comparison, wind energy realizes weak economies of scale, while natural gas can obtain large economies of scale because of the excess domestic supply of natural gas, the efficiency of natural gas power plants (95-99%), and the already-established infrastructure available to sustain future growth in the natural gas industry.

On a state-by-state basis, Texas has remained the leader in wind energy, currently with the capacity to produce nearly 11,000 MW of power.  California has had a recent surge in wind farm construction, along with Oregon, Alaska and Kansas, which shows strong signs of growth for the industry.  In 2011, the United States added 6.8 GW of capacity in wind production, a 16% increase from the previous year.  The US wind power production market is dominated by three major firms, GE, Vestas, and Siemens.  GE and Vestas each make up 29% of the current production, while Siemens makes up roughly 18%.  These three companies comprise 76% of the market share, which creates a predicament for the industry.  If these companies decide that wind energy is no longer worth pursuing and decide to stop operations, there are no substitute firms that have the infrastructure to match the current production of these companies.  This would result in a sudden crash in the market, increasing the production costs of wind energy, and potentially destroying the domestic market.

In order to prevent a crash in the domestic wind power market, the government needs to extend the current tax credit program beyond the next year.  By doing so, the government will show industry that they support wind power and believe it is sustainable, profitable, and a strong alternative to coal in the generation of electricity.

Sources

American Wind Energy Association. (2012, October). AWEA U.S. Wind Industry Third Quarter 2012 Market Report. AWEA Data Services.

http://www.awea.org/learnabout/publications/reports/upload/3Q2012-Market-Report_Public-Version.pdf

Chen, A. (2010, January 7). Incentives included in Recovery Act may stimulate community-scale wind projects, according to Berkeley Lab analysis. Retrieved January 25, 2013, from Berkeley Lab website: http://newscenter.lbl.gov/feature-stories/2010/01/07/community-scale-wind-projects/

Congressional Digest. (2013, February). Wind Energy Market Trends: Factors Affecting the Growth of Wind Technology. Congressional Digest, 8-11.

Eber, K. (2009, February 18). Clean Energy Aspects of the American Recovery and Reinvestment Act. Retrieved January 25, 2013, from Renewable Energy World website: http://www.renewableenergyworld.com/rea/news/article/2009/02/clean-energy-aspects-of-the-american-recovery-and-reinvestment-act

Kaffine, D. T., McBee, B. J., & Lieskovsky, J. (2013). Emissions Savings from Wind Power Generation in Texas. The Energy Journal, 34(1), 155-175.

http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?vid=3&sid=b87bd250-5e2f-4240-b1f6-6c72d918d709%40sessionmgr112&hid=110

Smejek, T. (n.d.). Texas wind power sets a record, but continues to take it up a notch. Retrieved January 25, 2012, from Examiner website: http://www.examiner.com/article/texas-wind-power-sets-a-record-but-continues-to-take-it-up-a-notch

US Department of Energy. (2012, November). Installed Wind Capacity. Retrieved January 25, 2013, from Wind Powering America website: http://www.windpoweringamerica.gov/wind_installed_capacity.asp

Voorhis, D. (2013, January 10). Renewal of U.S. tax credit revives some wind-energy projects. The Wichita Eagle, Business.

http://www.kansas.com/2013/01/09/2630382/burst-of-energy-in-wind.html

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1 Comment

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One response to “Is Wind Power Being Blown Away?

  1. oscargarcia003

    One main reason for the recent drop in quarterly installed wind power may have been the political climate during the election and the uncertainty of renewing the Production Tax Credits for wind. Also, the global recession affected the market dramatically in 2009, and we can see it increasing ever since.
    In another perspective of the AWEA report, if one looks at the cumulative wind power capacity in the US since 2001 it can be said that the sector has been growing steadily. Looking at the quarterly projects under construction we see that they have actually been on the rise since the recession (except for the very uncertain period of 4Q2012). “Every region in the U.S. has more under construction and online in 2012 than they installed in all of 2011”. So after the recession, from 2010-2012 quarterly installed capacity was growing. I would say this rise would have been continued were it not for the PTC’s expiration. Now that the tax credits have been extended, although for only this year of 2013, could we expect the same trend or should we expect wind farmers to follow Texas’ suit? Texas, according to one of the sources, 26% of its generated wind power is now being utilized – a new record. What caused this increase in utilized wind power, and would this be adopted elsewhere?
    I completely agree that the tax credits should be renewed further for the sake of the domestic wind market, and I wonder how many domestic direct and indirect jobs would be at stake it were to crash? What would cause the major market players in US wind power to withdraw? Despite the gains in the wind industry, producers’ and investors’ decisions will heavily depend on the tax credits’ future.

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