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United States

SIGNS OF NEW LIFE IN A DEAD US MARKET

In America, major delays in proposed wind farms or the complete withdrawal of planned projects has reached virtually epidemic proportions with a number of large scale wind farms stagnating in uncertainty. Meantime a series of promising new markets are opening up. They include the huge potential for developing clusters of wind turbines across the Great Plains, the burgeoning interest in buying renewable energy under green pricing programmes and the keen interest being shown by Native Americans in using wind to become self sufficient in electricity supply. This major article assesses the current status of planned projects and discusses the liklihood of a new era for wind power in America away from mega-scale developments.potential for development of However, the new markets for wind will not realise their full potential without fundamental changes in both national attitude and the way electricity markets are structured. Even more important is the barrier of the unknown market; the US electricity business is undergoing a massive restructuring--not a climate conducive to investment in new power plant. Most experts agree that it will be a good three to four years before there is much movement in the country-wide market.

In America, the trend of major delays in proposed wind farms or the complete withdrawal of planned projects has reached virtually epidemic proportions. For some three years now, the US market has simply been hammered to a pulp. Even the most touted regions for wind development in the country, the Pacific Northwest, Minnesota and California, have produced almost nothing in new installed capacity.

Nowhere is this illustrated more clearly than in the Northwest. Here, three projects totalling more than 125 MW -- in Washington state on the Columbia River and in Wyoming -- were to be up and running by sometime this year. Now it is most likely that two will not even have started construction by the winter and that, at most, road construction for the third might start this year. Meantime, the largest wind farm proposal in the Midwest, the 100 MW "phase two" of Northern States Power's planned 425-800 MW of wind power on Buffalo Ridge in Minnesota, is tied up in litigation and may be pushed at least a year behind schedule.

And in California, the cradle of the US wind industry, the massive power auction that was to have led to 1538.5 MW of wind capacity on-line by 1998 has collapsed completely. The wind projects, which came to life as bids under California's now disallowed Biennial Power Resource Update (BPRU), would have almost doubled the nationwide wind capacity base in the United States.

Is there any hope for new installations in America in the near future? The answer appears to be a tentative yes. First, at least some of the mega-projects planned for the Pacific Northwest, California or elsewhere could be expected to go ahead. Contracts for projects left over from the BPRU are being separately negotiated with utilities and projects elsewhere are delayed rather than dead. But such large scale wind development will not be going ahead in the numbers anticipated even a short while ago, or on the same tight timetable.

Instead the wind industry has a second option -- and one that could shape-up to be the start of a whole new era in the United States. Emerging from under the shadow of America's fixation on mega-wind power are a series of promising new markets. These include the huge potential for developing clusters of wind turbines across the vast reaches of the Great Plains, stretching from Texas to Minnesota; the burgeoning interest in buying renewable energy under green pricing programmes; and the keen interest being shown by Native Americans, anxious to achieve some self sufficiency in power supply on their reservations (to be the subject of a future article).

Realisation of this potential, however, will require a radical turn about in wind industry thinking. In terms of the sheer volume of clean power installations or sales anticipated, the possibilities are only modest in potential, compared with the much hyped mega proposals of the last few years. But large utility scale projects in the past have more often been driven by the finances of deal making than by power prices. The current crop of emerging niche markets represent a whole new ball game more similar in style to wind development in Europe than in the US -- and requiring an approach more inclined to grassroots grafting than high flying finances.

That is not to forget, though, that the landscape of the electricity business in America is very different to that of Europe, financially and in terms of attitude towards energy and the future. In the US, short term profits are too often sought at the expense of stewardship of resources or the environment. American electricity prices are on average a mind-boggling third or one-quarter of what might be the norm in Germany or Spain, the major cause of why small-style developments do not work as well financially in the US as they do elsewhere.

Still, the opening provided by the new markets suggests a change in attitudes more compatible with a sustainable future in consumption-hooked America, where wind projects in the past have been driven too often by short term cash priorities. The debris of jerry built projects from the heyday of wind installations in the 1980s, the widespread technical failures in Kenetech's newest projects in Minnesota and Texas, and reports of persistent soil erosion at other newer wind plants suggest there must be a better approach.

Small is sustainable

In the strongest and most immediate indication of change, the Department of Energy (DOE) and the Electric Power Research Institute (EPRI) are for the first time about to try offering funding for small clusters of prototype wind turbines. Previously the DOE and EPRI have financed small "utility verification" projects, but they were seen as first phases of the traditional California-style mega-project. The new Turbine Verification Programme (TVP) would instead support small clusters or distributed development as an end in itself.

Under the programme, a request for proposals is to be issued as soon as early July for perhaps $2 million in funds for cost-shared projects. To make the funds go farther, successful bidders will probably be asked to contribute 80-90% of the cost. The monies available are uncertain as yet, but would most likely come from funding already set aside for the TVP in previous years that has not been spent.

Part of the reason for this change in direction is that response from larger utilities was less strong for the last round of the TVP in mid-1994. Six or so utilities had expressed strong interest in bidding, but those who actually responded were far fewer, because they could not commit to a financial outlay in the current uncertainty of the electricity market, although they did say they might be interested next time around. Meanwhile, the idea of clusters was actively being promoted by renewables advocates in the Midwest and by small municipal utilities, which tend to be more sensitive to customer interests than large investor owned utilities, if only because their board members are elected.

"The wind farm idea is not the way things are happening in the next three years," says EPRI's Ed deMeo. "The market for central-station wind in this country has fallen out." Peter Goldman, DOE's acting deputy director for photovoltaics and wind, agrees. "It seemed we might better serve the industry by facilitating a distributed concept," he says.

Next fiscal year, fiscal year 1997, the DOE's new focus on small project funding may be expanded to the deployment of wind clusters of proven technology rather than just for the installation of prototypes. The Cluster Programme, if funded, would target small utilities and farmers, suggesting a significant move -- temporarily at least -- towards a more-European approach to wind farming and somewhat away from the DOE's long standing preference for "bigger is better."

Targeting small utilities

In another fascinating indication of a change in direction, the American Wind Energy Association (AWEA) -- in a departure from its more usual preoccupation with Washington and large scale programmes -- hopes to use the DOE cluster funding initiative as an organising vehicle to reach, among others, smaller consumer owned utilities that could in the future become committed to wind (see next story). Indeed, for some time this grassroots approach to wind development has been pushed by renewable activists in the Midwest, including John Dunlop, AWEA's representative for the Great Plains, where consumer owned rural electrification co-operatives and open farmland predominate.

The Midwest has long been known for its vast resources of winds, in many areas predominantly moderate, and wide open spaces of farmland that may be more conducive to wind development than the undeveloped lands of the Western states or New England where the wind industry has often concentrated its efforts because of the introduction of short term market incentives. But a cluster approach is likely to lead to a more long term market.

Among the series of modest signs of a trend towards clusters, a new study for Iowa municipal utilities, out last month, suggests that a smallish wind farm of 10.5-20 MW is economically feasible for a group of small communities, even if the power is wheeled in from a wind farm site in windier northwest Iowa. Also in Iowa, software to optimise the airflow in a cluster approach is being worked on at Iowa State University.

Significantly, the modestly promising outlook in the Midwest has already prompted a few wind companies to established small offices in recent years in Iowa and Minnesota. Vestas-American Wind Technology Inc, one such company, last year set up in Ames, a college town in Iowa. Says Paul White of Vestas' Iowa office, "It looks like there's a sluggish market in California√Č and the Midwest is huge and vast, and although the policies have not come through there's a lot of wind out here and something coming." This region, after all, was dubbed a "Saudi Arabia" of wind resource some years ago by AWEA, he points out. And although nothing has yet happened -- even in North Dakota where it is so windy it could still theoretically provide about one-third of the country's electricity from wind -- he still sees potential. White concedes Vestas may be ahead of the curve, in setting up the office, but he says the company will probably soon establish a small service organisation in the region.

In yet another sign of the increasing Midwest interest in wind, a recent wind conference in Nebraska drew many more participants from the Great Plains than expected, including representatives from utilities, both large and small. The around 80 participants at the Heartland of the America Renewable Energy Conference included representatives of the rural electric co-operatives so common in the region. Most emphasis was on the cluster approach, says AWEA's Dunlop.

Green consciousness

In addition to the cluster approach, growing interest in green pricing offers a second glimmer of hope. The concept gives customers the option of using green electricity if they are prepared to pay a premium for it. The significance for wind is that to sell green power, utilities will need to acquire it from renewable sources, requiring more plant to be built.

Although green pricing is often lambasted for ignoring the hidden costs of conventional power, little energises a market more than consumer demand for a product. Green pricing is also indicative of growing customer interest in clean power and allows utilities to not only start learning to respond to the market, but to hedge their bets in case of future carbon taxes.

In mid April, representatives of about 30 utilities were drawn to a green pricing workshop in Colorado, organised by the DOE and EPRI. The utilities were from states including Hawaii, Nevada, Oregon, Texas, Colorado, Wisconsin, Indiana, New Jersey and even Ontario, Canada. In indicating the weight of their interest in the concept, the single most common description given by the 90 participants was that they were planning -- not considering as an option but actually planning -- a system of green pricing. Indeed half a dozen to a dozen utilities are now thought to be actually starting green pricing and have at least completed market surveys, says Terry Peterson of EPRI, who organised the workshop. "There's clearly a lot of interest in this approach," he adds. And although some of the programmes are on hold because of financial concerns, he predicts that within a few years, two to three times that number will have established such a pricing system.

Peterson concedes, though, that the number of customers who actually sign up is much smaller than the number who initially express interest in green pricing. While some 30% of customers of US utilities might say they want green pricing, one-hundredth of that will actually participate. "Contrary to what you expect, you have to advertise it quit a bit," he says.

Still, the initial response can speak powerfully enough to get a programme started. Salem Electric Cooperative, a tiny utility in Oregon, found that 75% of its 14,500 customers said they would pay 4-6% more for clean energy to replace electricity from nuclear, coal-fired and natural gas plants. The co-operative has now voted to buy a package of wind and geothermal that will make up about 17% of its total needs starting in October. An $0.08/kWh premium will be paid for the wind. The remainder of its power will come from the region's hydro.

In Wisconsin too, Madison Gas & Electric has promised to start a green pricing system sometime this calendar year because of customer interest. Although the source or the clean power is not yet definite, the utility is apparently "leaning towards" wind, says Michael Vickerman of Renew Wisconsin, a pro-renewables group. A site has already been chosen for the project, which he says would probably be small enough to qualify for cluster funding from the DOE. Madison Gas & Electric, based in the progressive univerisity town of Madison, is the smallest of the state's investor-owned utilities.

Indeed, green pricing may be the only way that wind will be built in the near future in some areas. In the case of Wisconsin, the debate over market restructuring is particularly heated right now. The large investor owned utilities are reluctant to incur new costs during the uncertainty, and even Madison is apparently not interested in owning any new capacity -- just in buying clean power if its customers express a strong enough desire via green pricing.

Other projects based on the concept are already going ahead in different parts of the Upper Midwest. Late last month near the Great Lakes, a Vestas V44 wind turbine was being erected by the resort town of Traverse City, Michigan, because so many customers have signed up for green pricing. Starting this month, it will supply power under a green pricing plan. Although the community is small and relatively affluent, some wind advocates note that if the customer interest were translated to the market share of a large utility, the resulting programme could be sizeable. Out of the Traverse City municipal utility's 8000 customers, 263 have signed up to pay a $0.0158/kWh premium for 100% wind power. Residential customers had to make a three year commitment, while commercial customers made a ten year commitment. And not only is the green pricing going ahead, Traverse City is actually at least 40% oversubscribed for electricity from the 600 kW turbine, notes Steve Smiley, the community's energy consultant. A ceremony marking installation of the new turbine and the green pricing system is expected in mid June.

Identifying the barriers

Despite their promise, the new markets for wind will not realise their full potential without fundamental changes in both national attitude and the way electricity markets are structured. The American attitude towards energy is an issue. Even though studies again and again indicate steady interest in environmental issues and green power in certain areas, such as the Pacific Northwest or in parts of the Upper Midwest, in practice this seems to count for little. Only last month, just after a study was issued indicating that particulate air pollution in the US may shorten the lives of as many as 37,000 people, politicians on Capitol Hill were jostling to roll back the country's taxes on petrol.

The new survey, issued on May 8 by the Natural Resources Defence Council, suggests that small particles from conventional power plant, among other things, cause thousands of Californians alone to die a year or two prematurely. But the sort of policy move that plays well during an election year is cutting the tax on gasoline paid by American drivers, which is already only some 37 cents on average per gallon, compared with a level of two to three dollars in some developed countries.

The country's addiction to unrealistically cheap power is further illustrated in lower than expected prices for wind's toughest competitor, natural gas. The low price of gas is a major reason for the collapse of the US wind market. This raises not only the issue of consumers' attitudes towards resources and sustainability, but also reveals the political and financial clout of the conventional technology lobbies. So far they have successfully argued against the implementation of environment penalties to recognise the external costs of using dirty or dangerous fuels. Environment taxes on such fuels would have helped level the playing field for wind.

Another barrier to wind is its perceived potential for inflicting physical or aesthetic damage. Although favoured by many environmental groups, wind's localised impacts on birds and other wildlife, on soil, on Native American artefacts, and on the aesthetics of scenery have compounded a tenacious "not in my back yard" or NIMBY opposition to the siting of large utility scale projects, often in remote or sensitive wilderness areas. Here the Midwest cluster approach could fare better. The Great Plains has traditionally been farmland not wilderness and people are more likely to accept development of it.

Meantime, the technical, financial and image problems of wind firms, most exemplified by Kenetech Corp, are hardly helping confidence in the industry. Even the New York Times, America's newspaper of record, in describing Kenetech's long fall from grace, characterised the company as once-symbolic of the coming of age of wind power.

Kenetech, long known as the world's largest wind firm, is now scrambling to survive financially. It is facing an uncertain electricity future, compounded by its own epidemic of technical problems and class-action stockholder litigation. Its arrogance too is legion. In portraying critics as unethical, filing strategic lawsuits against competitors, using strong arm tactics against protesters outside its site in Spain last year, and with its employees becoming embroiled in industrial espionage allegations in Germany, Kenetech has consistently suggested to the public that wind is an industry out to earn short term mega bucks with nothing more than a wafer-thin green veneer.

The big question

These hurdles, however, shrink in size when measured against the huge barrier now facing all new power projects in America -- the barrier of the unknown market. The US electricity business is undergoing a massive restructuring in a trend which is sweeping the country state by state. A dozen or so different models for future trading in electricity are being discussed. It is not a climate conducive to investment in new power plant.

Restructuring, when complete, may or may not be good news for wind. In part, this depends on whether regulatory bodies will agree to hoist wind over the barriers preventing its market penetration by adopting what is known as a "renewables portfolio." This approach, being championed by AWEA, would help wind and other clean-energy technologies survive during the transition in the market by requiring utilities to include a fixed amount of renewables power in their resource portfolios. In the absence of a carbon tax, it would also give clean energy due financial recognition for its environmental benefits.

Deregulation is also about stranded costs -- the costs of unprofitable power plant which some utilities would be heavily burdened by in a competitive market. So far regulators have agreed that in the so-called power pools, in which all technologies would compete in a deregulated market, these costs need not be reflected in the trading price of electricity. Instead they would be later distributed among all of those selling electricity, including new players offering clean power, upping consumers's bills and muddying the picture of what electricity really costs. This means the burden of mistakes of the past -- for example utilities' costly nuclear power plants -- would be borne by all technologies. Thus the trading price of electricity from traditional technolgies would be held artificially low, while renewables such as wind would be saddled with extra costs, making them appear relatively expensive.

Furthermore, the deregulation models now being discussed show few signs of allowing the so-called "competition" to take place on a level playing field. Subsidies for conventional, polluting technologies -- oil, coal and nuclear -- in the form of sizeable research and development funding and tax breaks are unlikely to disappear in the near future. The oil and gas industries alone accounted for nearly half of the $12.8 million in political contributions given to US Congress members by the energy and natural resources sector from 1992 to 1994. Even electric utilities gave only about 60% as much as oil and gas during the same time period, while "miscellaneous energy" donors gave 0.07% as much as oil and gas, according to the Centre for Responsive Politics.

There are, however, some positive signs for the restructuring outlook. While a total of 41 states are considering restructuring -- including the five states that are actually going ahead with plans -- it appears that the largest is making favourable moves towards renewables. Last month in California, Southern California Edison and Pacific Gas & Electric, the state's two largest utilities, endorsed the idea of a renewables portfolio. That is a major coup and, if adopted, means a recognition of long-term environmental and fuel-diversity benefits of renewables, say backers of the idea. California is also a state watched closely across the country for how it handles market changes because it so often leads the way for other parts of the country.

Under this approach, a minimum renewables requirement would be set for all participants -- retail sellers and generators of electricity -- in the lucrative state market. When the idea was endorsed late last year by the California Public Utilities Commission, it was hailed as a move towards a healthy reliance upon market forces while minimising bureaucratic oversight and weighty administration.

Nothing short term

To be sure, little will change overnight for wind, nationally or at the state level. Most experts are agreed that it will be a good three or four years before there is much movement in the country-wide market, leaving open the question of how wind companies can hang in domestically during the transition. Ed deMeo of EPRI, a respected research centre largely funded by investor-owned utilities, even cautions that it will take a "good ten years" before the electricity market settles down.

True to form, AWEA remains more optimistic, though is more cautionary in its latest forecasts than in the past. The association now predicts that just 30 MW will be installed this year, 150 MW in 1997, 200 MW in 1998 and another 150 MW in 1999, compared with last year's 41 MW. (The predictions do not, however, account for older turbines that may be ripped out and sold overseas, or capacity that would be repowered.) AWEA further predicts -- though insists it may be a pessimistic prediction -- that new wind capacity will be upped to reach a total of 2730 MW over the 1995 base of 1770 MW by the year 2005.

Whether these figures are realistic or not, it is a fascinating exercise to recall how overly optimistic and perhaps politically motivated projections have been in the past. When AWEA's Windpower '92 conference was held in Seattle, the association called for a goal requiring the Pacific Northwest region alone to capture 2000 MW in wind developments by the year 2000.

Even relatively recently, highly-speculative projects were being presented as underway in documents circulated to news media and others. In a publication on the status of project development issued by AWEA 16 months ago, some 361 MW of new wind installation was to be on-line by the end of this year in the Pacific Northwest, the Great Plains parts of Texas, Iowa and Minnesota.

More specifically, 60 MW for MidWest Power at Storm Lake, Iowa, was scheduled to be on-line this year, as was 100 MW for Northern States Power on Buffalo Ridge, Minnesota. Construction for a 30 MW plant for Iowa-Illinois Gas & Electric at Calhoun City, Iowa, was to have started this year, and 0.7 MW at Fond du Lac, Wisconsin, was planned to be on-line in 1996 too. A 70 MW project was to have started construction in 1995 in Sibley, Iowa, although AWEA gave no date for completion.

The litany of projects which have yet to materialise continues. The 25 MW CARES project in Washington state, using FloWind's AWT-26, was to have been on-line by July 1996. A 31.5 MW project, also in the Columbia Hills in Washington State, though using Kenetech machines to produce power for PacifiCorp and Portland General Electric, was to have been operating this year. And a 70.5 MW project for Carbon County, Wyoming, should have been up and running in January.

In reality, less than one-tenth of that -- or 31 MW -- has actually gone in the ground. And by the end of the year, it appears that the total will still remain about one-tenth at some 37 MW of new installations. The addition will likely be the 6.05 MW plant by Green Mountain Power in Vermont. The 31 MW in the ground is made up of two projects in West Texas: Central and Southwest's Zond project in Fort Davis and a 25 MW Kenetech plant for the Lower Colorado River Authority.

Predictions scaled back

Many of the project delays have been apparent for some months. In the most recent of its twice-yearly updates, released in November 1995 and again last month, AWEA provides a significantly scaled-back timetable. Some projects are listed with smaller capacities or a delayed timetable, though even these timetables are not reflective of actual events. Projects such as that in Carbon County are delayed more than AWEA indicates (Windpower Monthly, May 1996). Other projects listed earlier, including several major proposals in Iowa under the state's beleaguered alternative energy law, do not appear at all on the more recent listings.

Most imminent, according to AWEA's current list, are the three Pacific Northwest projects, now to be on-line in 1997; the Big Springs, Texas, project to be on-line by summer 1997; 125 MW for Northern States Power on-line also in 1997; construction starting this November for 30 MW in Manson, Iowa, for Iowa-Illinois Gas & Electric; construction starting in June 1997 for 1.3 MW in Waverly, Iowa; 10 MW of a 20 MW project on-line in Maine in 1997; the 6 MW for Green Mountain Power to be completed in November; and lastly 2.5 MW for Nantucket Electric on-line next year too. Most of these have been slated to use American technology.

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