|
|||||||||||||
Beyond Kennedy and his Nantucket NIMBY neighbors, wind power – the leading renewable energy source today – certainly has its detractors. But it has also generated some serious investment from major players in the electricity market. The economic difficulties of the wider electricity industry have dampened project development this year, but companies are still hustling to qualify for the federal wind energy production tax credit that expires Dec. 31.
The energy legislation currently before Congress calls for a three-year extension to the wind power tax credit (federal lawmakers usually let it lapse for a few months, then extend it for a few years) and a national renewable portfolio standard that mandates 10 percent renewables-driven electricity by 2020. Currently 2 percent of the nation’s electricity comes from nonhydro renewable sources.
Is wind power the next big thing or an investment misstep? In the first part of this series, NPE talks to experts in both camps. One sees the beginnings of a boom for a clean, renewable electricity source with no air pollution. The other sees a problematic subsidy-driven market rife with economic and, ironically, environmental problems.
Whatever your stance, the realities of wind power may surprise you. Read on.– the editor
In just the last month, a quick glance at the headlines revealed a flurry of activity in wind power:
- FPL Energy is set to build an 80-turbine wind farm in southwestern Wyoming with a generating capacity of 144 Mw. The FPL Group subsidiary, which claims to be the largest wind power generator in the country, has 20 wind farms in 10 states, netting 1,700 Mw. That’s about one-half of the total US wind generation.
- Washington Gas Energy Services and Community Energy have launched the largest wind farm east of the Mississippi in Tucker County, WV. The 66-MW Mountaineer Wind Energy Center has a 20-year wholesale power agreement with Exelon.
- Shell WindEnergy and Padoma Resources announced plans to complete the Brazos Wind Farm, south of Lubbock, TX, by the year’s end. TXU Energy has inked a wholesale deal to purchase all of the electricity generated by the 160-MW project and Green Mountain Energy has signed on for the retail distribution.
- Brighton, MI-based Dermond Inc began marketing a commercial generation and storage system for wind-generated electricity as well as a building rooftop turbine for on-site and off-grid power generation. The company claims that its WindStor turbine and rare-metal battery system provides an “uninterruptible power supply” that can also be used for peak shaving and load-leveling. It will launch three 100-kW demonstration projects this year.
- Milwaukee, WI-based We Energies inked a 20-year deal to buy the entire output of three wind farmsthat are to be built over the next two years. The Wisconsin projects together will generate 214 Mw of power.
- Capstone International has bought the rights to inventor Alvin Snaper’s propless wind power generator – in other words, a windmill with no propellors. Snaper, who among other things invented the IBM Selectric typewriter ball, will head up Capstone’s green power generation program, which is targeting the urban rooftop market inaccessible to prop turbines. The company says it’s already entertaining offers from landlords to turn commercial and resident high-rises into self-generating energy systems with the capacity to sell surplus power back onto the grid.
- Other major projects are already underway, including FPL’s 204-Mw New Mexico project – the world’s third largest wind farm – that promises to bring $40 million to the area over 25 years in the form of land lease payments to farmers, new jobs and property tax adjustments. Two projects slated for Oklahoma this year will generate a combined 115 MW, making it 28 states with utility-scale wind projects.
State-renewable portfolio mandates are the root cause of the dramatic rise in wind power publicity, says Robert Bradley Jr, who is president of the Houston-based Institute for Energy Research and a Cato Institute adjunct scholar.
“The bill that Gov. Bush signed in Texas was a godsend to the wind industry. The mandate is having its intended effect. I think if you didn’t have the wind mandates, it’d be a fairly dead industry,” he says. “Green pricing has had limited success and has backfired in some states.”
Texas has the nation’s second-largest installed base of wind power generation, with 1,095 MW. It’s quickly catching up to the top producer, California (1,832 MW). Number three is Iowa, with 423 MW of generation. Only the climate of Southeast is inhospitable to the technology – most states in the West, Southwest, Midwest and Northeast have at least some wind projects in operation. At the beginning of 2003, the US had an installed wind energy capacity of nearly 4,700 MW, nearly quadruple the capacity of a decade ago. The industry is poised to grow another 25 percent this year, according to the American Wind Energy Association.
The Argument Against
Bradley stands by his 1997 policy tome “Renewable Energy: Not Cheap, Not Green,” in which among other things, he anticipated an environmental backlash for wind power. He says the technology follows the double-triple rule: Twice as expensive as new capacity from the most economical fossil-fuel alternative and triple the cost of surplus electricity. The technology is improving, but so are conventional technologies, he argues.
Wind power in particular has raised the ire of some environmental groups due to the number of bird kills in windmill blades. The argument, in 1997 numbers, runs that 1,700 Mw of US installed capacity equals 10,000 bird deaths. A statistical argument adds that it takes 10 million pounds of emissions-producing materials to build a 45-MW wind farm. “You need a period of time for payback for all the electricity that goes into building a wind turbine,” he says.
Other arguments include noise and light pollution, “visual blight” from the windmills and the associated transmission lines, soil and tree erosion and the potential for wild fires. Bradley calls the problem “a machine in every pristine,” since renewable technologies tend to work best in remote wilderness areas.
Then there’s the NIMBY issue, being played out most publicly over a $700 million offshore wind project planned within view (albeit distant) of some of the country’s most upscale vacation homes.
As a letter last week to the editor of the Dekalb County Midweeker in Illinois put it: “The matter of fact is, wind power is inefficient, unreliable, unsightly and if it wasn’t for government subsidies you wouldn’t be here. It’s absurd to think that this project will not adversely effect our property values.” (A statistical study released in May refuted this concern, finding that in most cases property values in the “view shed” actually rose faster than in comparable, nonwind power areas.)
In his 1997 report, Bradley reasons that wind farms use up to 85 times as much land as a gas-fired power plant (10 to 80 acres per megawatt). In a still-timely comment, he states: “The argument that the actual space used by wind towers is much smaller than the total acreage of wind farms (as little as 1 percent of the land is actually occupied) is the ‘footprint’ argument that eco-energy planners refuse to consider for petroleum extraction in the Arctic National Wildlife Refuge in Alaska.”
But intermittency is wind power’s big dilemma – the wind doesn’t blow consistently and the strongest winds typically don’t coincide with peak hours and seasons for electricity demand. This is the source of state mandates, he says. “No amount of subsidiaries were interesting people in building a lot of wind power, but the mandates have had their effect.
“The mandates are completely blocking the signals of the market. Electricity from wind is a much lower quality product than electricity from a base-load, nonintermittent technology,” Bradley says. “Some call it a car with three wheels.”
The Cato scholar questions the ratio of energy to effort in the renewables arena. The minute market share of solar and wind suggests “a whole lot of effort for not much electricity,” he says. Renewables defined the energy era prior to the mid-19th century, when fossil fuels came to prominence. There was a good reason for that displacement: “Energy is much more concentrated, available and transferable into useful [capacity] from oil, gas and coal than from the different renewable alternatives – sun, wind, wood, dung, falling water.”
Depletable and nondepletable resources make sense in physical terms, he says. “But in economic terms, the exact opposite is occurring. Hydrocarbons are expanding resources. Renewable resources such as hydro enter a mature stage and seem to be depleting as more of the best sites are utilized.”
Bradley advocates removing the mandates for wind power and letting the market decide the future. “The more you try to force technology on a market that really doesn’t want it, the more side problems you’ll run into, such as with these offshore wind proposals,” he says.
The Argument For
Be that as it may, a recent study shows that falling costs and government policies are creating a worldwide boom in renewable energy projects. According to the Worldwatch Institute, wind turbine sales reached $7 billion last year, up nearly 80 percent over the past three years. Solar power system production is catching up – it’s nine years behind wind, but has seen 25 percent annual growth.
“There’s been a dramatic acceleration in the growth of solar and wind,” Worldwatch President Christopher Flavin says. Total generation would typically grow in the 2 to 4 percent range in an industrialized nation. The installed base for renewables is expanding 30 percent a year.
He compares these growth rates to the explosive adoption rate of cellular phones. As with that industry, the expansion means the mainstreaming of a new technology over the coming decade.
“I think we’re crossing some kind of threshold. Some would argue this is driven by government policies, which it certainly is. But a virtuous circle begins to develop. The growth tends to drive technological improvement and mass production forward. That further cuts cost and increases the political clout of the industry, which is critical to anything in the power business.”
While it was a leader a decade ago, the US is a bit of a dog in the global race for renewables today. In wind power, Denmark and Germany are significantly ahead of US development. But “life is stirring in the US market,” he says. “It’s not as large or sustained at this point, but this is going to be either the best or second-best year for wind power.”
State electricity regulation – renewable portfolio standards and funds for renewables development – is a key driver of the industry, he admits. About 20 states have policies in place that are now beginning to create markets. “There are very attractive pockets of wind resource to be developed almost anywhere you look in the country,” he says.
“There are many parts of the country where if you were to appropriately value the mitigation against fuel price volatility you get with the development of technology that doesn’t require fuel – particularly given what’s gone with the gas markets – it’s economical as long as it’s developed on some kind of scale.”
New Statistics
A Stanford University study puts some interesting numbers to that claim. Released in May, the report suggests that Department of Energy estimates of wind power potential have understated the country’s wind resources, largely because turbines are getting taller (from 262 to 330 feet) and accessing faster winds, many of which had not been mapped prior to this research.
Authors Mark Jacobson and Christina Archer say winds in 25 percent of the US wind monitoring sites are powerful enough to generate electricity as cheaply as natural gas or coal. Locating those high-wind sites has the potential to offset the majority of coal dependence, easily meeting the Kyoto standards, they say.
According to the research, coal-fired plants cost 3.5 to 4 cents per kWh and natural gas plants cost 3.3 to 3.6 cents. Power from winds of 14 miles per hour or more costs 2.9 to 3.9 cents per kWh. The implication is that wind power could supply a minimum of 30 percent of the power to the grid (coal generates about 51 percent and natural gas 15 percent). They see wind’s chief role as helping to promote the “hydrogen economy.” Wind power could be used to run hydrogen generation, a more easily stored form of power.
“The resources are widely distributed geographically and they’re huge in scale,” Flavin says. “They are actually much larger than our fossil fuel resources.” Prior to the Stanford study, research found that the combined wind power of Texas and North and South Dakota could provide the electricity demand for the entire country. In theory, of course.
Intermittency isn’t a limiting factor for the near future, Flavin says. It becomes a problem once wind is generating 25 or 30 percent of the power in a region. The researchers say networking at least eight wind farms can remove wind’s intermittency problem, “virtually eliminating the chance of a windless hour during the year.”
A look at the successful power supply in northern Europe (wind supplies 20 percent of Denmark’s power, for instance) should ease fears in the traditionally conservative power industry that intermittency will cause the whole system to crash.
“The nature of modern power systems is that they have to be designed to deal with conventional power plants going down. It’s much tougher to deal with a sudden tripping of a 1,000-MW nuclear plant. Wind is broadly spread geographically and you can use weather forecasting to anticipate it, so the grid operators have an opportunity to respond,” Flavin says.
Off-peak to on-peak electricity use represents nearly a doubling of demand, so the system is clearly flexible, he says. New distributed generation technologies could lend themselves well to responsive operation.
Flavin sees technical innovation dealing with the bird kill and noise problems. As for the NIMBY issue – not unique to the siting of wind power projects – it’s a positive sign that the country is coming to terms with new technology. “I don’t think it’s going to be a limiting factor on a national or global level,” he says. “The US’s vast wind resource – the Great Plains – is in areas that aren’t terribly inhabited, where wind farms can be integrated into the agricultural landscape.”
A Windy Future
What’s driving the wind power boom? In the Northeast, clean air concerns make anything that shifts away from coal generation attractive. The same Northeastern states that develop renewable portfolio standards are embracing cap and trade systems.
In the Midwest, there’s an economic incentive for agricultural areas that are struggling financially. Landowners may not always own oil and gas rights, but there’s no disputing their claim to wind rights. One energy executive told us farmers and ranchers have been banging down his door to site wind farms on their property and reap the substantial royalties.
Beyond that, the tax credit definitely plays a role. But wind advocates argue that the traditional power industry is no less subsidized – consider the advantages to grandfathered pollution standards for older coal plants.
“To set a pure market test for the power industry is hypocritical and unrealistic. And intermittency is a canard,” Flavin says. Intermittency is figured into economic estimates that wind projects, which have a 25 percent capacity factor, can be built for 4 or 5 cents per kWh. “If the tax credit weren’t there, it would cost a bit more. By the time the tax credit is withdrawn, the industry will have scaled up to a point where prices will be below where they are today.”
But here’s where it gets interesting for energy executives: What the tax credit and state mandates started, market dynamics will begin to accelerate. The government incentives are creating a new level of credibility for renewables among political figures, business leaders and the financial community. As costs drop, the scale of development grows apace and the differential between wind versus traditional energy sources begins to diminish.
“The mistake is to look at [wind power] as static. Even to the extent that intermittency, cost or government subsidy are issues, there’s a technological dynamic associated with an industry that’s doubling every three years that will tend to eliminate those problems,” Flavin says.
With the tax credit incentive, developing 500 to 1,000 MWs of wind power in one region is already in the ballpark of gas or coal development. Renewable portfolio standards force utilities to build wind projects, but they also force the industry toward a threshold when it starts building of its own volition.
Energy is a conservative industry in both the engineering and financial senses, he says, and electric utilities’ priority is to keep the existing generation earning revenue for as long as possible. “There’s a certain amount of resistance, but when the market starts to function, when you’re judging the options based on their real economics – not just the primitive economics of cents per kWh but the portfolio of investments and price risks – there’s going to be a very dynamic period ahead.” Flavin expects the scale of the market to accelerate well beyond current expectations.
A recent speech by Steven Zwolinski, the president of GE Wind Energy, adds credence to these predictions. GE bought the wind business out of the Enron bankruptcy and, with $1 billion in wind projects on the books, saw a 20 percent return on investment in their first year. “That’s unheard of. They are very bullish and think they got a steal buying it at the price they did,” Flavin says.
But the true indicator is that GE has moved 60 engineers out of other divisions of the company to focus on the wind business. Translation: GE is planning on major continuing improvements and cost reductions in the technology. Zwolinski compared wind to GE’s acceleration of gas turbine technology over the last decade. The lessons learned are now being applied en masse to this new area. The GE exec said he saw no end in sight for cost reduction in the wind business.
“So you’re sitting with something that arguably is economically competitive if done on a large scale with today’s technology against gas and coal generators. Nobody is going to tell you there’s the prospect for almost unlimited cost reduction for 15 to 20 years in coal or gas because they’re already near the bottom of those curves,” Flavin says.
“I think there’s every prospect that wind will actually be the most economical source of new power generation that’s available five to 10 years from now, until something better comes along.”
But IER’s Bradley argues reliance on unconventional energies becomes problematic outside niche applications. “The conversion of fossil fuels to energy is becoming increasingly efficient and environmentally sustainable in market settings around the world,” he says.
We smell something on the wind: a middle ground.
