Why U.S. Wind Installations Are Slowing

“[AWEA says] utilities ‘see value of having 20-year contracts that provide electricity at lower costs than ever and that protect against volatility in fossil fuel prices.’ That’s a statement only a wind promoter could believe.”

This year, the wind industry added just 1.6 megawatts of new operating capacity in the United States, virtually unchanged (a 0.0027% increase) over 2012 installations.

The American Wind Energy Association (AWEA) wasted no time blaming the precipitous drop in development on a lack of long-term, predictable federal policies, which in ‘wind speak’ means uncertainty surrounding extension of the federal production tax credit (PTC).

It’s true that incremental extensions of the PTC have had an impact on slowing wind development but other, more significant factors contributed to this year’s drop-off, the primary one being the expiration of Section 1603 cash grants.

The massive infusion of public cash lavished on big wind under the American Recovery and Reinvestment Act of 2009 (ARRA) changed the economics of the industry overnight. Projects that otherwise made no economic sense became viable with the grant money.

In other cases, applications were pushed up in order to take advantage of the handouts. The industry’s project pipeline was emptied by the end of 2012, and it could take several years before additional proposals reach the shovel-ready stage.

During the period when the grant program was in effect (2009-2012) roughly 30,000 megawatts of new wind was installed, more than doubling the wind capacity in the country. The U.S. never experienced that rate of growth under the PTC alone.

With natural gas prices at record-lows and continued flat demand for electricity, it’s no surprise the stimulus-induced wind bubble collapsed and will likely push installations back to mid-2000′s levels. The production tax credit, if extended, will still offset above-market wholesale prices for wind power but the credit will not drive the same level of growth.

AWEA touts the rosy potential for new wind development as utilities announce Request for Proposals (RFPs) for more renewables. According to Liz Salerno , the group’s director of data analysis, utilities “see value of having 20-year contracts that provide electricity at lower costs than ever and that protect against volatility in fossil fuel prices.”

That’s a statement only a wind promoter could believe.

Wholesale prices for wind may be somewhat lower, but they’re still above market. In states where renewable portfolio standards have been adopted, utilities likely have no choice but to accept expensive contract prices in order to ensure compliance with the mandates.

The Public Utility Regulatory Policies Act (PURPA) proved decades ago that such long-term power contracts do not lead to lower costs. In fact, with contracts in place, it’s the wind developers that are shielded entirely from market price fluctuations. There is no cost benefit to ratepayers, nor will there be until the end of the contract, which by that time the turbines will have reached the end of their useful life.

Even if wind developers are able to secure project financing, critical challenges face wind development which will make adding new capacity more difficult. These include the lack of transmission capacity, a lack of good wind sites, and increasing operation and maintenance costs.

But a key obstacle that developers prefer to ignore is public opposition which has grown steadily in the last few years, particularly in rural areas where onshore projects are likely to be sited. While people may accept the concept of wind power, siting is a different matter.

A Wind Energy symposium conducted in Western Massachusetts last year found that 96 percent of the participants supported local control over siting of industrial-scale wind projects, 63 percent supported an “outright ban” in their own towns – or anywhere in the region and the same number agreed that approval of such projects should require the unanimous consent of all landowners within a 3-mile radius.

The residents of Massachusetts are not alone. Distrust and negative sentiment toward wind developers and their projects run deep and have cropped up in every state where projects have been proposed.