Fast Lane for California Wind Energy — But for How Long?

Federal incentives can hasten development–or slow it down

By Nate Seltenrich

Craig Miller

Last year brought a fresh breeze for wind energy, and projections indicate that 2012 will be even better. But over the next two years, a variety of forces could conspire to hamper wind energy development across the United States, despite a significant decline in the cost. These are the main findings of a new report by the US Department of Energy and the Lawrence Berkeley National Laboratory.

It’s that classic good news-bad news scenario: should proponents focus on the fact that in 2011 wind energy became cheaper, more efficient, and more widely distributed than ever? Or should they dwell on the looming challenges, including steep competition from cheap natural gas, inadequate high-voltage transmission in many parts of the country, and the possible expiration of federal incentives at the end of the year?

A little of both, say study authors Ryan Wiser and Mark Bolinger. That’s particularly true in California, where mixed signals abound. On the bright side, the state wind industry had its best year ever and outpaced all others in 2011, adding 921 megawatts of new production throughout Northern and Southern California. Illinois came in second with 692 megawatts and Iowa in third with 647. All told, the nation added 6,816 megawatts of new production, bringing its total at the end of 2011 to a little more than three percent of the nation’s electricity supply.

On the flip-side of the coin in California, wind-energy costs are higher here than in any other state. This is largely due to permitting and siting costs, driven upward by stricter environmental controls. But it can also be attributed to the finer workings of California’s Renewable Portfolio Standard, which calls on large utilities to purchase a third of their power from renewable sources by 2020.

Many wind-energy developers offer electricity to utilities at a higher price than they otherwise would because they know they can get away with it, said Bolinger. The end result is that in California, wind energy is much less competitive with natural gas than it is in other states, particularly in the Midwest.

“Natural gas prices have come down, pushing wholesale prices down, but wind has followed along,” says Bolinger. Nationwide, new wind contracts in 2011 averaged about 3.5 cents per kilowatt hour — rivaling all-time lows set in 2003 — while in California the average was nearly triple that.

“The incentive is to wait until the incentive comes back.”

Looking forward, Bolinger and Wiser expect 2012 to go down as another banner year. But with federal incentives set to expire on December 31, the coming year doesn’t look so rosy. It’s not simply because the incentives could end — after all, Bolinger notes, wind prices are cheap enough in some parts of the country to be competitive even without them — but because of the sheer uncertainty. “The incentive is to wait until the incentive comes back,” he said. “If there’s a chance, why not wait? If it was definitely gone, then they’d proceed.”

In other words, if developers knew for certain they weren’t getting any help, they’d go ahead and build. But since there’s a chance they’ll be offered financial assistance if they hold out a little longer, they’d rather wait and see. Expect that dynamic to dictate wind-energy development nationwide as we round the corner into 2013.