U.S. Wind Industry to Break Installation Records, Expand by More Than 35% in 2005
The American Wind Energy Association (AWEA) stated today in its Third Quarter Market Report that the U.S. wind energy industry will install about 2,500 megawatts (MW) of new wind power this year, a record amount that will help lower skyrocketing home heating and electric bills by reducing the demand for natural gas. Wind energy projects also bring new jobs, rural economic development, and tax revenues to cash-strapped states without creating any of the harmful side-effects associated with conventional power generation.
Obviously, the above is the PR release by the industry association, so it is naturally upbeat and positive, but in this instance, they are actually right to be so.
For the full year 2005, the USA will reclaim, for the first time in a long while, the crown of the biggest market for wind power, in terms of newly built capacity, with 2,500 MW, while both Spain and Germany, the two market leaders, are expected to build about 1,600-1,800 MW this year.
In terms of installed capacity, Germany is still far ahead, and Spain a little bit ahead of the USA:
As the first table showed, and the graph below underlines, the USA has had to face brutal variations in new installations, due to an uncertain regulatory framework:
The collapse of the industry in both 2002 and 2004 was due to the expiry of the federal mechanism which supports renewable energy, the PTC, a tax credit of 1.9 cents/kWh given to renewable energy producers for the first 10 years of production. In 2001, Congress renewed the mechanism – for just two years – just a few months before its expiry at the end of the year. In 2003, it was not renewed until October 2004 (and then just till then end of 2005), but it was extended to the end of 2007 recently, thus ensuring that the next 3 years will see a number of projects developped.
The consequence of such shortsightedness in what is a heavy industry is that turbine manufacturing capacity worldwide, which was underutilised in 2004 due to the collapse of the US market, is this year stretched and unable to respond to demand. All turbines to be manufactured until the end of 2006 have already been sold as of today.
Denmark, the pioneers, Germany, now the market leader, and Spain, have all developped their industry on the back of supportive regulatory frameworks (typically, guaranteed dispatch of production and a guaranteed sale price for the electricity). The US mechanism, the PTC, is not as strong, but have proved to be sufficient to develop a number of projects. But turning that mechanims on and off every two years is absurd and has definitely prevented the emergence of a homegrown industry in the USA. (GE, the main US manufacturer of turbines, built its operations from the purchase of German manufacturers and still has a storng base in Europe; the European players, who do not have GE’s balance sheet, have limited their investments in the US).
And yet, the industry can provide a LOT of jobs. The AWEA, the industry association, estimates that the construction of 50 GW of wind power (8 times the current installed capacity, but only 50% more than Europe’s existing capacity) would create 150,000 jobs over the next 5-10 years.
10 MW bring about 40 jobs over one year and 2 full time jobs over 20 years, or 80 man-years.
The other argument these days, as I wrote last week, is that wind power today is actually helping to lower electricity costs for utilities in a context of high gas prices. The subsidy is still needed for the time being as wind power needs 10-15 years of stable high prices to pay for the initial investment, but the required level is now below market prices – if these last, then wind will NOT need subsidies of any kind at all. The good news for now is that production costs do not vary with fuel costs, and those utilities that have purchased wind power – and sold it on to their users under special plans, can keep their prices low today.
And this is especially important in a context of localised shortages of natural gas and a strong likelihood of insufficient gas supply in the medium term, with North American production peaking (dixit ExxonMobil):
as the AWEA press release mentions:
One megawatt of new wind energy is enough electricity to power 270-300 homes2.
“Wind power’s rapid growth provides what is potentially the quickest and best supply-side option to ease the natural gas shortage,” said AWEA Executive Director Randall Swisher. “We are hopeful that the momentum started in this record-breaking year will continue because of the Congress’s foresight in extending the wind energy production tax credit through December 31, 2007. The wind power industry is stepping up to provide the U.S. with a significant amount of its power needs in this time of uncertainty.”
The growth in wind power construction comes at a time when customers across the country are facing electricity and natural gas rate hikes due to the natural gas supply shortage, with 2005-2006 winter gas prices projected at $10-13/thousand cubic foot (mcf), compared to last year’s average prices of $5-7/mcf. Wind power, which generates energy without using fuel, provides a hedge against rising energy costs because wind energy production is immune from fuel price spikes.
Every unit of electricity that is produced by a wind farm is one for which the country does not have to burn natural gas or other resources. And because prices at the margin are volatile and sensitive to supply and demand pressures, each unit of natural gas conserved by wind energy helps shave down costs even further in times of crunch.
AWEA estimates that an installed capacity of 9,200 MW of wind power will save over half a billion cubic feet of natural gas per day (Bcf/day) in 2006 3, alleviating a portion of the supply pressure that is now facing the natural gas industry and is driving prices upward. The U.S. currently burns about 13 Bcf/day for electricity generation, which means that by the end of the year wind power will be reducing natural gas use for power generation by 4-5%.
Another benefit of wind power plants is that they can be permitted and built quickly (1-2 years), whereas the drilling of new natural gas fields and the construction of Liquefied Natural Gas terminals takes longer. AWEA projects that over 14,000 MW of wind capacity could be part of the nation’s generation supply by the end of 2007, producing the equivalent of .85 Bcf/day of natural gas.
Also, wind power helps to cut pollutant emissions significantly, as the power sector is a major contributor for a number of noxious pollutants:
and just a reminder: wind turbines kill a negligible number of birds:
Peak gas will be felt this winter. Get your local utility to get involved into windpower.
(And if this sounds like self-interested information, I suppose it is. So what?)
A final note: the “koswind” had started well over the summer, but we’ve all been busy since then and it has stalled somewhat. I’d be interested to hear from those of you that would be interested and able to commit real time on this (especially corporate/securities lawyers).
