Workers stand atop a turbine tower at the Endeavor Wind Power Project, a 100-megawatt facility in northwestern Iowa. The state is No. 3 in wind-power capacity. (Courtesy of Clipper Windpower)
Amid economic crisis, wind power spins more slowly
Many of the big players who were drawn to alternative energy by tax credits are now sidelined or kaput.
By Mark Clayton | Staff writer of The Christian Science Monitor/ October 28, 2008 edition
Reporter Mark Clayton discusses how the recent financial turmoil has affected wind energy projects in the US.
Reporter Mark Clayton
On Michigan’s ‘thumb,’ a broad peninsula whose gusts make it one of the best places in the US to site a wind farm, Noble Environmental Power has erected 30 huge wind turbines – 16 more will finish the job.
But the project was hit by a financial gale last month when key underwriter Lehman Brothers went bankrupt. With Lehman out, Noble was forced to sell in a hurry. Three more Lehman-financed wind-power projects in New York are also in doubt, according to published reports.
America’s credit crisis is shaking up not only smaller alternative energy sectors like solar and geothermal, but also the largest renewable electricity sector – wind power.
As a result, wind generation may grow far more slowly in the United States next year, experts say. Financing for wind projects is likely to shift more to deep-pocketed utilities and other companies far from Wall Street – including big foreign companies searching for a foothold in the United States.
Until this fall, plowing billions into new wind farms from North Dakota to Texas to California had been the epitome of renewable-energy investing for hedge funds and big banks. But even though the US may still be the “Saudi Arabia of wind power,” tapping that resource will be far tougher.
“We all know that with the impact of the credit crisis on the economy, there’s no way that this sector will not also be hurt,” Randall Swisher, executive director of the American Wind Energy Association told reporters during a teleconference call last week. With the cost of capital rising and access to credit more difficult, “eventually that’s going to have an impact on our members’ ability to do business,” he says.
Wind power used to have the breeze at its back. This year it is the second-fastest growing source of electricity generation after natural gas. It’s also winding up a banner year of building about 7,500 megawatts of new generating capacity – about 50 percent more than 2007. And wind energy seemed set to soar, buoyed by recent renewal of a vital production tax credit (PTC) from Congress.
As recently as this summer, the cost of power from new wind farm was 8.4 cents per kilowatt hour, cheaper than power from a new gas-fired power plant (9 cents) or a new nuclear plant (9.8 cents). Only coal, at about 6 cents for kilowatt hour, was cheaper, according to Emerging Energy Research, a Cambridge, Mass.-based market research firm.
But prospects for banner growth in 2009 have ebbed. Falling prices for natural gas, transmission bottlenecks, and other costs have undermined wind power. Rising steel costs alone have pushed up the price of building one megawatt of wind power about 30 percent.
“You’ve got fuel costs declining, so the competitive advantage for wind over regular generation is narrowing,” says Jamieson Bender, an associate partner with Ducker Worldwide, a Troy, Mich.-based market research firm. “That means the payback [from wind] isn’t quick enough for some utilities.”
This year saw 262 wind projects announced while 66 projects were canceled or postponed – on a par with 2006, according to Ventyx, an Atlanta-based energy consulting company. New projects are likely to dip and cancellations rise in 2009, Mr. Bender and others say.
The critical short-term challenge facing wind power developers is financing. But with Wall Street plunging, the tax credit associated with wind power has lost some of its allure. Wind farms were financed symbiotically with investors who used the wind-production tax credits of 2.1 cents per kilowatt hour to offset profits elsewhere. The need to offset profits has dipped worldwide.
Until this fall, more than a dozen large investment groups actively financed wind power development. Only about half remain active, says Ethan Zindler, head of North American research for New Energy Finance, a London-based market research firm.
Lehman Brothers, one of five top wind-power lenders on Wall Street, is no more. Wachovia and AIG, have been sold and sidelined, respectively. JP Morgan and GE Energy Financial are question marks, Mr. Zindler says.
The industry was unsettled by news reports earlier this month that GE might pull back from wind-power financing. An official statement by GE to the Monitor seemed to rebut that. “GE has been – and will remain – a significant investor in renewable energy,” the statement read. Yet it also affirmed that a “core issue is the industrywide difficulty of committing to new investments in a period of high uncertainty about borrowing costs.”
Through a spokesman, JP Morgan managing director John Eber said: “We definitely are still actively investing in wind and will continue to do so through the remainder of the year, as we did last year.”
“It’s not that Wall Street is losing faith in wind power – Wall Street just doesn’t have as much money to play with anymore,” says New Energy Finance’s Zindler. “We’re going to see in the next six months a disruption in the way wind projects are financed.”
Who will get hit, and how hard? Industry experts say the impact will be felt most by “merchant power” – smaller, independent power developers who have been a key force behind wind’s recent growth. Many have relied on selling “tax-equity investing” deals – the term used to describe how Wall Street trades cash in return for valuable tax credits to offset profits. Profits are down, and roughly two-thirds (about $5 billion) of wind investment in the US received tax-equity investment from outside investors, Zindler estimates.
Until credit markets smooth out, tax-equity investment in wind power is likely to suffer.
But despite the doom and gloom, longer-term trends continue to push wind ahead.
Some 30 states now have renewable portfolio standards (RPS) that require utilities to purchase renewable power. Regulated utilities with a strong cash flow will continue to build wind farms, observers say.
“There are still strong drivers pushing in wind’s favor including the nation’s push toward energy independence and reducing carbon emissions,” says Keith Hays, a global wind industry analyst with Emerging Energy Research. “Both presidential campaigns are pushing hard on both of these issues.”
That’s good news for Cape Wind, the mammoth and controversial 130-turbine wind-energy project off of Cape Cod, Mass., whose cost has been pegged at around $900 million. A Cape Wind spokesman said last month that the bankruptcy of Lehman Brothers, which was to help provide financing, should have no major impact.
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Comments
2. Hal Eis | 10.28.08
I am not an expert and so the validity of my arguement must rest on its logic rather than its author.
It appears to me that a core and not particularly controversial issue which a President Obama (or McCain to a lesser degree and certainty) would almost certainly address immediately would be the pursuit of energy independence not only for the obvious reasons of climate, security and trade imbalance but because it would be the cornerstone and perhaps the symbol of a New American Economy and America’s return to preeminence in global leadership.
If this is the case, then it would be critical that the wind industry lead the way and whatever support was necessary would be available.
Finally, wind turbine manufacturers and their suppliers are producing to capacity, increasing world-wide production capacity at a perhaps 30% rate, and have a 1-2 year delivery cycle so if one project doesn’t get funding another will get the product.
In essence, if the economic ground rules change the industry would be affected but if it’s just a temporary credit shortfall it would not.
3. John0 | 10.28.08
The current economic conditions are not really favorable to any industry. The growth of sustainable energy resources will continue as the economy recovers. Over the short term growth in all sectors of business will most likely slow. We have some tough times ahead. Without question, fossil fuels are a finite resource. Basing our entire energy infrastructure on finite resources would be absurd. With the backing of the American people, our country can move ahead maybe at a slower pace, but our technology and society need transitional energy resources, wind, solar, fossil fuels, and nuclear power all have a place in our future.
4. John | 10.28.08
There is no question that the Wall Street meltdown and the unavailability of credit will make large investments of any kind more challenging. But we cannot be pushed off of this critical pursuit. Wind Power Generation is not only clean and renewable, but because it gets us off of Foreign Oil and the huge transfer of wealth flowing out of the economy.
It’s a time of reckoning to be sure. The economy is in deep recession. We are in serious trouble. But here’s the thing, and there is just no getting around it. We cannot continue to export our wealth to satisfy our huge addiction to oil. Whether the number is $350 Billion annually or $700 Billion annual (depending on the spot price of the day) matters little. If we keep it up…we’re doomed.
The challenges, domestically and internationally, are so complex and so tangled that every decision and every action is wrong to some portion of the world. And the truth is neither candidate looks like they are going to be a very good President. But they could be a truly great President, if they are able to rally this country in a great mission to set us on the right path with respect to Alternative Energy and our addiction to oil.
I am really down on our politicians and our leadership. They couldn’t see this thing coming? They voted in the reinstatement of derivatives, with no checks and balances or even a method to track the total value of them. The ethics committee’s are disgraceful. Our Congressman and Senators dabble in grey areas during their careers until “politically motivated” investigations remind them of their desire to be with their family and retire with all the perks. We are an embarrassment to ourselves and to the world.
We want a change. Not the kind change Obama and McCain are talking about because they can’t even sell it…let alone do it. We are tired of the “I reached across the aisle” **** like it’s some kind of ultimate sacrifice or worthy of an “Atta boy”.
T. Boone Pickens. But he’s got a Plan. It’s elegant, the technology behind it is here now, and it will work. At least 80% of it will. A good bet and enough to go forward with it. The sooner, the better.
Where there is will there is a way. We’ll find the money for the Wind Turbines and the infrastructure…Obama…McCain…lead us.
5. Sheldon | 10.28.08
Green energy alternatives such as wind power will be thwarted by the global economic crisis. The crisis with the world economy may eventually be an even bigger environmental disaster.
6. California Joe | 10.29.08
If the federal government starts to push for development of a green revolution next year, the funding will be made available.
7. Jim Nooris | 10.29.08
Wouldn’t it be more practical to use cell phone towers for the purpose. They’re high enough and they need to be powered by something.
I is theoritically known that a large antenna can receive excess power from the evironment and can be use for surplus power. (More likely leeching radio energy from electric powerlines and television and radio high power antennes in the area..
8. George McCrea | 10.29.08
I hate to be a fly in the ointment when it comes to wind power. Wind power on average only produces power 28% of the time. (when the wind blows). Subsequently, nuclear, coal, hydro power plants always have to provide “spinning” backup to meet the immediate demand on the grid when the wind doesn’t blow. Wind power is also heavily subsidized by the taxpayer. As we all know you cannot store electricity. Although wind power is part of the solution it is not the panacea to “swearing off” foreign oil. To produce 30 trillion kilowatt hours needed in the year 2050 would require windmills occupying 600,000 square kilometers of land just to produce 1/3 of the 30 trillion needed. (Unstoppable Global Warming; Every 1500 years; S. Fred Singer and Dennis T. Avery)
9. Jim Cummings | 10.29.08
Especially in difficult financial times, it’s especially important that wind projects that DO move forward fuel a demand for more alternative energy development, rather than raising concerns that may slow the growth of this important industry. Siting of new wind farms is a crucial element of this long-range growth: it appears that about 20% of UK wind farms generate noise complaints from neighbors, especially at night. At some wind farms, noise issues are exacerbated by still atmospheric conditions (no wind at ground level, light wind at turbine height, some sound “reflection” off stable atmospheric “ceilings”). While these nights may occur only 10% of the time, this represents 30-40 sleepless nights for nearby neighbors; in some instances, people have been forced to move by health impacts, and have been unable to sell their homes. All this raises the difficult question of how large the turbine set-backs should be. A half mile seems to often work, though some noise and health experts are beginning to suggest a full mile to provide a more absolute level of safety from noise or health effects; meanwhile, a quarter mile is commonly considered enough by the industry. This is a discussion that needs to take place openly and transparently in communities that will be hosting wind farms, so that the current surge of new construction encourages future expansion of the industry, rather than spurring high-profile complaints and problems that shackle future wind farm development. This aspect of the wind farm movement is one of several noise-related issues covered in the News Digest and Special Reports at the Acoustic Ecology Institute website and in our blog/feed, http://AEInews.org
11. Nick K | 10.29.08
Thank you for the interesting information on the current state of financing for the industry.
Obama said that a new energy policy will be his top priority initiative, and wind is an important component of this policy. Therefore I think that the government will take the steps necessary to encourage the rapid growth of wind power. Our energy infrastructure should not be held hostage to the vagaries of the oil market, otherwise in a few years we will find ourselves in a worse fix than we are now. That is what an energy policy is for. Apart from the economics, given the rapidly accelerating global warming issues, there is not really much choice. So I believe the new government will soon enact policies to rapidly accelerate the development of wind power in this country.
12. ThomasO’Donnell | 10.29.08
I am only in 6th Grade, but what if they made houses that ran on electricity (like normal), but the roof had Solar Panels on it AND Wind Turbines on the roof too? It would provide lots of extra energy in-case of an energy crisis.
13. Jeorge | 11.21.08
Yet this spring, when the Department of Energy looked at wind power, it found huge hurdles, particularly the question of how to send electricity from the blustery Midwest to the big coastal cities.
Here is a link that might be useful:lincenergy.us/
14. cris | 12.14.08
There are other types of energy that we can use. Wind power is not one of my favorite. It disrupts the environment (it kills birds ), the life of people (very noisy–even horses can’t stand them), etc
Shouldn’t we learn from the Europeans that it is not worth persuing? It actually creates more problems than is worth and with the economy the way it is, we can’t afford to subsidize it. There are other types of energy far more productive. The University of Iowa is working on developing trees that will grow incredibly fast and will be energy efficient.
Texas is building a new plant using wood chip left over from a nearby factory. We should learn from them, instead of increasing the deficit figure by creating more wind turbines.
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1. Dennis Markatos-Soriano | 10.28.08
Thanks for this informative article!
I just wrote a a blog on prospects for wind industry growth in 2009 and estimated it may reach 25% (instead of the recent 40+% of ‘07 and ‘08) based on the recent announcement by Florida Power & Light (FPL) of a somewhat lower wind installation forecast:
http://www.setenergy.org
Your article points out such huge obstacles (especially with a key financier Lehman Bros gone) that wind growth may slow to around the ‘07 growth level of 5 GW or even even toward the ‘05-’06 annual growth rates of ~2.5 GW. What do others think? I know its very difficult to project in the current uncertain economy, but wonder what estimated guesses others have.
Onwards to sustainability,
Dennis