Thursday, June 14, 2007

A Wave of Wind

A long train ride provided the opportunity to review the new report from the Department of Energy on the state of wind power in the US. For those who like numbers the ones in this document are fascinating. Significantly, they show that for the second year in a row, wind power capacity additions were second only to those for natural gas-fired turbines and ahead of coal, even when adjusted for “capacity factor”, the proportion of nameplate capacity actually utilized, on average. Furthermore, in at least a few states wind power is now contributing shares of total electricity sales that are comparable to the national shares from conventional sources such as hydropower and nuclear energy. At least regionally, wind is becoming mainstream, rather than niche.

The DOE report reflects the reality that practical wind power is not a national phenomenon, partly because of differences in state renewable energy policies, but also because wind resources are unevenly distributed. Twenty states account for almost 99% of all US wind power capacity, both incrementally for 2006 and cumulatively since the 1980s. Within that group, just six states account for 76% of 2006 additions and 72% of total capacity, with Texas, California, Minnesota and Washington making both lists.

In four relatively sparsely-populated states, New Mexico, Iowa, North Dakota, and Wyoming, wind made up over 5% of total electricity supply last year. That isn’t quite up to Danish levels of 21%, but it approaches the shares in Spain and Germany, the world leaders in installed wind capacity, and it greatly exceeds the US and global averages of just under 1% of total power from wind.

The data make it clear that consistent federal policy is the key to sustaining this kind of growth, and in particular avoiding the previous situation in which the Production Tax Credit for renewable power was at risk of expiring nearly every year, and periodically did. The Energy Policy Act of 2005 provided a two year extension of the PTC, and the Tax Relief and Health Care Act of 2006 tacked on an extra year, through the end of 2008. A permanent extension of the PTC, even one that included a gradual phaseout of the benefit, would put wind on an equal footing with conventional power and support the growth of domestic wind turbine manufacturing. The proliferation of state Renewable Portfolio Standards (RPSs) and the prospect of a national RPS from pending energy legislation are also helping to expand the market for wind.

The report provides some useful information on the structure of the US wind industry, which is dominated by independent power producers, including many small developers focused entirely on wind power, but which has recently seen significant consolidation and acquisitions by large, non-utility players such as oil companies and investment banks.

Some of the most interesting data concern the power price garnered by wind generators. Although this had been falling steadily throughout the decade, it appears to have turned up slightly last year. The DOE attributes this to rising turbine costs, but it must surely also reflect the higher price of the fuel for wind’s chief competitor, gas turbines, as well as the induced demand from state RPSs. However, we shouldn’t conclude from this uptick that wind is likely to be any less competitive in the future. That will depend on improvements in transmission capacity and load management, as well as the expansion of the turbine manufacturing base. It also begs the larger question of what should happen to the specific subsidies for wind under a national climate change policy that puts a price on carbon emissions from wind’s conventional competitors.

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