The US wind industry is on track for a record-breaking year. In August, the American Wind Energy Association announced a milestone 50 GW of capacity and installations will this year beat previous records.

Matt Kaplan, US wind analyst at IHS Emerging Energy Research, estimates that 12 GW will be installed this year.

“We’re expecting that 2012 will be the largest year for wind installations in the US,” he said.
But the banner year for America’s wind industry will be followed by a dramatic collapse in rates of installation that could sink as low as 2 GW or less, said Kaplan.

“We’ve seen a bit of jobs losses and manufacturing lines going down so far, but we do expect that to continue. We’ve also seen a couple of wind project development companies cut staff as well.”

The Production Tax Credit first introduced in 1992 has helped the US reach 50GW of installed capacity. But the 2.2 cent per kilowatt hour federal subsidy is due to expire at the end of this year unless Congress agrees to extend it. When the PTC expired three times previously, installation rates crashed by up to 94%.

But since 2005, the wind industry has enjoyed a period of stable growth thanks to the uninterrupted supply of tax credits for the industry.

The American Wind Energy Association estimates that the share of electricity generated by wind reached 2.9% in 2011. Wind generates roughly 20% of electricity needs in states such as Iowa and South Dakota and the 10 MW installed in Texas has prevented the building of new natural gas power plants.

More than $14 billion was invested in wind power project installations in 2011, for a cumulative investment total of $95 billion since the beginning of the 1980s, according to Department of Energy’s Wind Technologies Market Report 2011 published last month. Download the report here.

But the wind industry is already contracting rapidly and preparing for hibernation from 2013 as manufacturers shutter facilities and developers cancel projects almost weekly.

Navigant Consulting estimates that 37,000 Americans may lose their jobs by the end of the first quarter of 2013 if Congress does not extend the PTC soon. Navigant projects that turbine deliveries will peak in the third quarter of 2012 and then drop sharply through 2013.

Rob Gramlich, senior vice-president of public policy at AWEA, said: “This is particularly devastating because our industry has invested money and time to build up a manufacturing sector that can support its rapid growth. There’s no guarantee that the companies currently supporting the wind industry will stick around and wait for us. Already we’re seeing companies shifting to other sectors, laying off their skilled workers or closing shop altogether.”

Shale Disrupts the Wind Revolution

Although wind provided 35% of all new US power capacity over the last five years, maturation of this emerging energy technology with the support of subsidies has been thwarted by low natural gas prices.

Were it not for the price of natural gas hovering around $2 per mmbtu, wind would likely be able to compete with other forms of fossil fuel sources of electricity without subsidy.

Kaplan estimates that natural gas prices would need to hit $5-$6 per mmbtu for a sustained period to make wind competitive without the PTC.

But the DoE’s wind market report 2011 found Power Purchase Agreement prices in the $30-$40/MWh range in many parts of the interior US if the PTC was factored in, which would make wind competitive with 2011 wholesale power prices.

“Low wholesale electricity prices continued to challenge the relative economics of wind power,” said its authors. “Average wind power prices compared favorably to wholesale electricity prices from 2003 through 2008. Starting in 2009, however, increasing wind power prices, combined with a sharp drop in wholesale electricity prices (driven by lower natural gas prices), pushed wind energy to the top of (and in 2011 above) the wholesale power price range.”

Despite headwinds from natural gas prices, the fuel can be a good complement to intermittent power from the wind. The US Energy Information Administration projects that 49 GW of coal-fired capacity will be retired by 2020, and natural gas looks set to replace coal as a baseload power fuel source.

Kaplan said: “While gas prices have recently been blamed for hindering wind’s ability to be competitive, natural gas and wind can be very complementary on a transmission system. Gas can help to better balance wind, minimizing variability.

“We have seen several recent examples of companies using wind and gas together. [In one example] First Wind is looking to integrate gas on a wind project in Oregon in order to shape and balance the output from its wind plant.”

Nearly 42% of new generation capacity built in the US in 2011 was natural gas with wind energy representing the second largest capacity addition at 31%.

US consumers are in favor of this transition. The 2012 Global Consumer Wind Study showed 67% of US consumers prefer renewable energy compared to 9% who prefer fossil fuels. However, when asked about fossil fuels specifically, 57% of consumers preferred natural gas.

Concerns about US energy independence and climate change appear to be driving these preferences. Roughly 79% of US consumers are concerned about US dependence on foreign imports of fossil fuels and 74% believe renewable energy is a good solution to mitigate human-induced climate change.

Martha Wyrsch, president of Vestas American Wind Technology, said: “You can marry gas and wind resources, and you don’t necessarily have to have a large gas plant located right where the wind farm is. Xcel Energy has used, and a number of our utility customers are looking at, a technology where they would put the smaller combined cycle gas engines in a wind farm location where you don’t have to necessarily lay pipe to bring in a big gas-production facility. You would be able to take care of wind intermittency using a smaller 10- or 15 megawatt unit.”

Given the historic volatility of natural gas, difference in costs per MWh could narrow.

Wind energy has reduced costs due to technological innovations and increased domestic manufacturing and competition, said Gramlich.

“As our industry has grown, so has the potential disruptive impact of a delay in extending the PTC,” he said. “Wind power has made excellent progress in reducing costs, and would be fully competitive today were it not for the fact that natural gas prices are at historic lows. The industry can reduce costs still further if there is stable tax policy that gives businesses the certainty they need to invest in new factories and manufacturing processes.”

Lawrence Berkeley National Laboratory scientists said that wind turbine prices continued to decline in 2011.

After hitting a low of roughly $700/kW from 2000 to 2002, average wind turbine prices increased by approximately $800/kW (>100%) through 2008, rising to an average of more than $1,500/kW, they said.

Wind turbine prices have since dropped substantially. In 2011, some turbine transactions were priced at $1,150-$1,350/kW and could drop further this year to $900-$1,270/kW.

Historically stubborn installed project costs had also shown declining costs from an average of $2,100/kW, down almost $100/kW from 2009 and 2010. Preliminary estimates suggest that costs will drop further in 2012.

“Nearly 500 factories now make close to two-thirds of our wind energy components here in the US employing 30,000 people and cutting transportation costs,” said Gramlich.

“That new manufacturing sector has helped revitalize heartland communities with factory and construction jobs, lease payments to farmers and ranchers, up to $20 billion a year in private investment, and property taxes that pay for schools, hospitals, and other public services.”

Wind power comprised 32% of US electric g generating capacity additions in 2011, said the LBNL researchers. In 2011, for the sixth time in the past seven years, wind power was the second-largest new resource (behind natural gas) added to the US electrical grid in terms of gross capacity, they said.

But the US is capable of generating 20% of US electricity by 2030 from wind power on a national scale and providing 500,000 American jobs in wind energy, according to AWEA estimates based on DOE figures from 2008.

This year’s wind market summary authored by LBNL researchers found that although the US remained the second largest market in annual and cumulative wind power capacity additions, it was still well behind on overall wind energy penetration.

On a country-by-country basis, the US has been second to China for three years, comprising roughly 16% of global installed capacity in 2011, and 20% of overall cumulative capacity.
But a simpler figure tells a revealing regional story for America’s real wind energy potential: 50GW is impressive, but Europe with an almost equivalent economy and population has a cumulative capacity of around 93 GW.

This piece appears on Breaking Energy as part of the Energy Transparency series in partnership with Vestas.