Wind Energy’s Growing Pains

Did you see the press statement from American Wind Energy Association Denise Bode about first half 2010 wind installations?[1]

“It’s dismal and getting worse. In the first half of this year, we are down 70 percent in terms of wind installation, and we continue to see a drop in new manufacturing activity. We need action.  The US wind industry is in distress. Only 700 megawatts were added in the second quarter, and wind power installations to date this year have dropped by 57% and 71% from 2008 and 2009 levels, respectively and manufacturing investment also continues to lag below 2008 and 2009 levels. An RES is a critical component to ensure the US wind industry thrives.” —-Denise Bode

Is the wind going out of the wind energy industry?

Hardly!   The wind energy segment is experiencing growing pains as it transitions from a mom and pop segment to an industry segment dominated by giant players with global reach.  Scalable growth means something materially different to a mom and pop shop than it does to a global conglomerate like GE.

By any measure the wind energy industry has experienced substantial growth.  Between 2004 and 2006 the total wind energy capacity installations doubled and then doubled again in the 2006 to 2008 period before the recession stopped almost everything in its tracks. By the end of 2008, total wind energy capacity stood at an amazing 25.5 GW.

In 2009 more than 10,000 MW of new wind capacity was added as Congress stepped in with ARRA Treasury grant option to support the continued growth in the segment by using the grants to replace wind project production risk since the recession made the production tax credits useless.  Thus wind projects with relatively high capital costs and relatively low wind resources used ARRA Treasury cash grants to prop up the rate of return on investment.  But since ARRA Treasury requires wind projects to begin construction in 2010, projects that are delayed risk losing their subsidy support.

While it is true that wind projects have slowed in 2010 this has more to do with the combined impacts of the recession reducing electric demand and thus slowing procurement, lower electricity prices for the same reasons, and the frenetic need to remodel the project finance structure because so many projects were unable to use the traditional PTC/ITC subsidies.

The prospects for wind are expected to have a solid 2011, but perhaps not the compounded annual growth rates of 40% the industry has experienced since 2004.  So the wind industry wants Congress to pass a national renewable energy standard to boost the market potential for their subsidized projects.

The US DOE’s Energy Information Administration Annual Energy Outlook forecasts that wind market share will grow from 1.3% to 4.3% by 2035.[2] While that is substantial market share growth it is not a sure thing given the uncertainties facing the wind industry because of its dependence on subsidies that must be periodically re-authorized, its dependence on state RPS targets which utilities are now close to meeting, and its dependence upon someone else building the transmission needed to bring the next tranche of wind potential to market.

Does this sound like something to panic over?   I thought not!

The real panic in the wind industry is that they were counting on the Obama Administration to deliver on their global warming legislation imposing a cap and tax regime proposed in Waxman-Markey and its 20% RPS by 2020 requirement. So when Senator Reid said he did not have 60 votes to pass the energy bill, Denise Bode’s members demanded action.

The sky is falling!  The sky is falling!

The sky is not falling and wind energy will be fine.  But as the wind segment matures and the big guys like GE and Siemens dominate it along with the Chinese, it is tough to get people worked up over more subsidies for them.  Waxman-Markey would have required over 835 TWh of renewable energy sales nationally by 2020 if it applied to all utilities across the US.  That is three times the renewables mandate of the 28 states that now impose an RPS standard.  But many of those states nearing their compliance levels may not follow California’s lead and up the ante from 20% to 33%.

The cold hard truth is this is a wake-up call for wind that as a mainstream resource sooner than later it will have to become profitable without subsidies.  Today it has stimulus funded treasury grants but being addicted to them will not make them permanent.