Wind Chills

The headlines read ‘the wind industry survived a brutal 2010 and just barely got its life saving cash tax grant subsidy extension from congress at year end.’  Variations of that theme were repeated over and over again using the talking points from the American Wind Energy Association to remind us in case we forgot the story.

There is something off-putting about an industry that seeks to be the mainstay of America’s energy future and yet lives so hand to mouth on unsustainable Federal subsidies that it cries wolf so consistently we hardly hear the message any more—only the whining.

I’m not trying to pick on the wind industry—I’m not.

Back in 2005, at Global Energy Decisions we did an independent study entitled: Renewable Energy: The Bottom Line which assessed nine different renewable technologies across twelve regional power markets.  It proved a turning point in the willingness of investment banks to loan money in project finance deals to support larger scale wind projects.  We said in that study that wind was a mainstream power generation option and that we expected wind energy to capture 76% of the renewable market share by 2025.  Our work providing the market opinion in the Horizon Wind transaction with Goldman Sachs won a 2006 PROJECT FINANCE magazine deal of the year award. We gave scores of market opinions to help facilitate wind’s potential.

So what’s up with wind?

Wind is playing defense not offense. By continuously campaigning for special treatment and complaining unless it gets that special treatment the sky will fall on the wind industry, its potential customers are beginning to worry that wind is not competitive over the long term.

Part of this defense strategy is American manufacturers of wind turbines feeling the competitive cost pressure from China.  The defense strategies of renewable portfolio standards at the state level combined with the relentless push for one at the national level are designed to create a floor on the industry.  But RPS standards fly in the face of “least cost, best fit” integrated resource planning that worked well for the power industry for years until regulators abandoned it to enable competition.

China has driven down wind turbine prices—-and that is a good thing.  It means more wind projects can be built at more competitive prices.  What worries manufacturers is China taking market share and seeking to dominate the market for wind turbines and solar panels.

The problem with the defense strategy is customers WANT LOWER PRICES.

As the wind energy has grown consolidation has transformed its mom and pop character as large firms bought out weaker smaller ones to gain market share.  But even these big national or global players dislike the fierce price competition from China and seek protection. It is time for the wind industry to be emancipated, grow up and get work without relying on an allowance from Uncle Sam.

Wind business model is outdated.  The wind industry built its business on a model of politics rather than economics.  It succeeded in getting the states to order the utilities to buy a specific market share of wind or renewables under their RPS so the industry did not have to compete to win business it only had to be better lobbyists.  There was competition between technology producers but the Chinese rapidly reverse engineered the technology, undercut the price of local producers and used the feed in tariffs and RPS targets against the locals.  Win by subsidies, die by subsidies.  The wind industry must not only learn to play offense with new technology advances that produce better equipment at higher efficiencies but it must be able to do so competitively without subsidies.


The best defense against China is to offer a better product made locally at competitive prices. Instead of innovating to compete too many wind industry players are running to China hoping to get a piece of the growing China market but sacrificing their intellectual property so China can eat their lunch faster.

Wind meets NIMBY—the curse of mainstream resources.  Debate over wind turbine “take” of birds is not new but the NIMBY problems don’t stop there as cities adopt ordinances limited siting wind turbines judged unsightly or too tall to fit into the community ambiance even if they are green.  Welcome to the real world.  I’ll spare you the discussion of the value of  transmission that many wind advocates have spent decades protesting only to discover that they need that transmission to provide access to the best wind sites and many good wind projects as much as the rest of the industry.  But the NIMBY strategy so many advocates used so successfully has now been mainstreamed too which brings me to the fourth problem wind faces.

Interstate Transmission Access is Essential to Scale the Wind Industry. It does little good to adopt a national renewable energy standard requiring utilities to buy a minimum level of wind and other renewables if you cannot get the wind resources from West Texas, or Iowa, Nebraska, Kansas or elsewhere to the Southeast or California or even the other side of ERCOT.  The US needs an interstate high voltage electric transmission superhighway system to cross state lines and bridge the three un-synchronized grids of North America.  The Federal Government has timidly begun this process with the national interest electric transmission corridor policy but US DOE fears the hand-to-hand combat with the states over who will control transmission siting.  Here is one area where the high voltage transmission system ought to be preemptively controlled by FERC just like the interstate gas pipeline system.  Today’s fragmented system means we build hundreds of miles of state-regulated electric transmission line each year compared to thousands of miles of gas pipelines under Federal jurisdiction

Wind is living on borrowed time and needs and extreme makeover fast.

High Federal budget deficits and the near-term prospect that utilities will meet their RPS goals in the next several years means the easy money subsidies and targets are nearing an end.  The wind industry must use 2011 to reinvent itself defining the strategies that will work to scale its business in the changing economic conditions ahead.  If it does not then China will dominate America’s wind industry and utilities will go back in the business of building projects themselves based upon that ruthless IRP competition required once they declare victory on their 20% RPS goals.