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Wind Growth Ahead, Despite LNG-Like Struggles

Back in 2003, wind power advocates maintained that if more turbines were planted on U.S. soil, fewer liquefied natural gas (LNG) terminals would need to be sited on U.S. shores. An additional 100,000 MW of wind power in the next decade could supplant the need for LNG imports, wind backers said.

While wind and LNG are both slivers of their respective U.S. markets, wind has set growth records, and an LNG renaissance is well under way. Funny enough, though, both wind and LNG face similar struggles: A number of people don't want wind turbines or LNG terminals anywhere near them. And developers of both face higher costs for equipment and services, both of which are often scarce in globally competitive markets.

Speakers at WINDPOWER 2006 believe wind will grow to be a significant power generation force, given time, investment in the wind generation equipment supply chain and public policy support. Several who spoke last week at the American Wind Energy Association's (AWEA) conference in Pittsburgh latched on to comments made by President Bush in February when he said that wind could provide as much as 20% of the country's electricity, up from less than 1% today. Remember when back in 2003, then Federal Reserve Chairman Alan Greenspan gave a substantial boost to the U.S. LNG industry when he called for more LNG imports (see NGI, June 16). It remains to be seen whether Bush's words will have a similar effect on wind power, but the industry is hopeful.

"We are no longer a boutique industry, a small niche...This industry has really moved to the next level," said Randall Swisher, AWEA executive director. He said wind is ready to go head-to-head with coal, natural gas and nuclear power.

The U.S. wind energy industry is on track to install a record-breaking 3,000 MW this year, AWEA said recently. Construction is under way on a number of facilities scheduled for completion in 2006. More than 400 MW of new plants have already been brought online since January, including the 150 MW Shiloh Wind Farm in California, the 60 MW Spring Creek Wind Farm in Colorado and the 60 MW completion of the first phase of the Maple Ridge project in upstate New York. Overall, the industry is planning to invest more than $4 billion in new wind energy capacity this year. Last year the industry broke annual installed capacity records, installing more than 2,400 MW, or more than $3 billion worth of new generating equipment in 22 states.

Along the way, though, there are hurdles. One is the rising cost of turbines and the fact that the United States competes for wind energy equipment in a global market where most of the players have long histories in places where market and regulatory conditions are more favorable to wind, another similarity with the LNG industry.

"We cannot keep blinders on in the parochial U.S. wind business," said Michael O'Sullivan, FPL Energy Inc. senior vice president. "We've got to realize we're part of a global wind business. The U.S. market is subject to those forces whether we like it or not and we've got to start recognizing those things."

Substitute "LNG" for "wind" and he could have been speaking at a natural gas conference.

O'Sullivan said that rising costs for equipment are hurting everyone in the wind industry. About half of the recent price increases has been absorbed in returns while prices in power purchase agreements have gone up somewhat. "At some point cost increases will cause demand destruction," he warned.

By the end of next year, FPL Energy will have invested close to $5 billion in wind power, O'Sullivan said. About 26% of FPL Energy's generation is wind, representing more than 3,200 MW net. O'Sullivan said that most utilities that are willing to accept wind power already have had a good experience with it, having bought energy from a wholesale provider like FPL Energy, Invenergy or PPM Energy.

He said that with the exception of markets such as Nevada and Florida, there isn't much growth in utility service territories. Utilities "are looking for a way to grow their rate base in a low-risk, politically acceptable way in their state jurisdiction. Wind is not rocket science. It is not building a nuclear plant...Therefore, it may be good public policy and good shareholder policy and good ratepayer policy. In a utility world it's very hard to match up all of those."

However, the last few years have seen a number of power purchase agreements (PPA) that were out of the market. Generation providers underbid and utilities were forced by regulators or the RFP process to accept the lowest bid. Then the project fails and the utility is embarrassed because it failed to deliver on its promise to provide wind-generated electricity. "We're going to see it quite a bit this year and next year," O'Sullivan said. "There are a lot of PPAs out there that can't be economically delivered at the price that was promised. And either it's new entrants not understanding the economics of the wind business or experienced developers hitting a stumbling block..."

Just like LNG, the wind industry has its share of detractors who oppose projects for environmental and aesthetic reasons. A potential source of embarrassment for the wind energy industry is the controversy over offshore wind farms. A proposed 420 MW offshore project by Cape Wind Associates Inc., which would provide about 75% of Cape Cod's power needs, has run into strong opposition from Cape Cod residents. There is a push under way in Congress to give Massachusetts Gov. Mitt Romney the power to veto the project, which he has said he would do (see NGI, May 8). Meanwhile, a second offshore project has been proposed for the region, and two projects have been proposed for offshore Texas.

Alan Waxman, managing director with Goldman Sachs, which has about $1 billion in wind energy investments, said that offshore projects really aren't that attractive to Goldman and others in the industry because of logistical and operations and maintenance issues. Further, there are plenty of onshore sites to be developed. "Just as a business matter, we just don't see offshore wind as an opportunity that we need to attack today," Waxman said. "We don't think that the economics are there."

Terry Hudgens, CEO of ScottishPower's PPM Energy, said the focus of national attention on offshore wind could harm the larger wind industry. "We're all focused on onshore wind business because that's where the economics work. It's where the demand is...My concern is we take collateral damage from a lot of very vocal and powerful opponents of some of the offshore wind. People really do need to look at the facts around onshore wind and keep that separate from some of the things that are being batted around."

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