Wind power losing its punch

DALLAS, TEXAS - It's the renewable energy source that's surprisingly losing its tailwind: wind.

The high cost of building wind farms and transmitting their electricity to population centers coupled with a reduced price advantage has slowed the growth of the industry nationwide.

The first three months of this year saw only 539 new megawatts of wind power added in the U.S., the lowest levels since early 2007, according to the American Wind Energy Association.

And, here in Texas, some companies that have promised to build new wind capacity are balking at the state's financial requirements, in part because the economics of wind aren't as compelling as before.

Nevertheless, wind industry leaders meeting in Dallas for the Windpower 2010 convention remained optimistic. They're pinning hopes on a federal renewable electricity standard that would bring fresh gusts to the sector by increasing demand for wind power.

"Everybody wants to buy wind," said Michael O'Sullivan, senior vice president of NextEra Energy Resources, formerly Florida Power & Light. "But not at the price we're offering today. We have to get our costs down."

The cost to build a wind farm has roughly doubled in the past four years due to steep increases in steel and copper prices as well as currency fluctuations. A credit crunch has further hurt growth.

But the heart of the worsening economics for wind — and other renewable energies that could get more spotlight with crude oil's blackening image — is that prices for natural gas, the primary source for electricity in Texas, remain low.

When natural gas sells for $4 per million British thermal units as it has for much of the year, wind power loses the big price advantage it had when natural gas traded near $10 in 2008.

While a slow economic recovery has helped push oil prices higher, natural gas seems more stubborn, in part because producers keep discovering huge fields of gas-laced shale deposits and drilling methods to tap the gas are improving, analysts say. Swelling reserves could keep prices in check for years.

Texas' wholesale power market uses natural gas prices as the benchmark to pay power producers no matter what type of power they're adding to the state's electric grid.

Wind generators saw dollar signs when natural gas touched $12 per million BTUs because their megawatts were worth that price. Now wind may be a break-even prospect, and that's going to deter wind installations, at least domestically, industry leaders said.

"We're going to seek the best return for our shareholders," said Gabriel Alonso, chief executive of Horizon Wind Energy LLC of Houston, in a Windpower 2010 panel with O'Sullivan. That may mean finding wind opportunities for Horizon outside the U.S.

The other knock on wind is its uncertain reliability. Texas has some of America's best wind acreage, but the wind blows hardest and most often during times of the day when Texas needs power the least. Although wind forecasting tools are improving, the question on whether wind power can deliver when needed the most tempers interest.

French conglomerate Alstom, which announced last week that it would build a wind turbine plant in Amarillo and hire 275 workers, also announced research partnerships with the National Institute for Renewable Energy and the National Renewable Energy Laboratory, with goals to improve the reliability and efficiency of wind power.

The biggest help for wind may come from Congress as it mulls legislation containing variations of the Renewable Electricity Standard that would require 20 percent of power to come from renewable sources by 2020. Versions of the standard are moving through both the U.S. House and Senate.

Twenty-eight states have their own standards a national mark could be a boon for manufacturers but potentially raise power costs for consumers if fossil fuel prices remain low.

"We need a supply chain in place here for our manufacturing," said Martha Wyrsch, president of Vestas Americas. Having a national standard would give wind turbine builders the confidence to invest here instead of in other wind markets, she said.

Texas leads the nation in wind power with 10,000 megawatts, far eclipsing runner-up Iowa with 3,670 megawatts. Because Texas controls its own power grid, it was able to start a program to link wind farms in the west and north with the state's biggest population centers — called a Competitive Renewable Energy Zone project — without having to fight other states over the $5 billion cost and direction.

Experts say Texas' CREZ program could double the amount of wind power produced this decade.

"We need a lot more mini-CREZes," said Ned Hall, executive vice president of AES Corp., a global power company based in Virginia.

A federal standard for renewable electricity would help boost wind's allure, but industry leaders recognized that the sector's basic economics need to shine again to move fresh investment in turbines.

"We see an attractive business going forward," O'Sullivan said, "but there's going to be some hiccups."