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With the renewal of the production tax credit (PTC) through 2007, a fair breeze blows again through the wind industry. Wind farms are going up in the district as fast as developers can acquire construction permits, turbines and transmission capacity. Yet after more than 20 years of wind power development, the technology produces less than 2 percent of the nation's electricity. What's it going to take for wind power to become cost-competitive with conventional fuels, without a tax subsidy? Nobody's quite sure, but industry experts agree that wind stands a chance if:
Wind farms become even more efficient. Turbine manufacturers are likely to achieve only incremental improvements over today's towering, electronically controlled machines. "Nobody with whom I speak on the technical side of our industry expects any sort of mind-boggling breakthrough," said John Dunlop, Great Plains regional manager for the American Wind Energy Association. But it may be possible to plan, design and construct cheaper wind farms, reducing developers' marginal costs. Larger projects can realize economies of scale by spreading out fixed costs for access roads, electrical and communication lines, and maintenance. A domestic turbine industry would reduce distribution costs for wind farm equipment. (Today GE Energy of Tehachapi, Calif., is the only U.S. manufacturer of utility-grade machines.)
Prices for conventional power keep rising. Currently, wind power holds an edge over electricity produced from natural gas, the price of which has doubled in the last three years. Liquefied natural gas transported in tankers from overseas is not expected to lower North American gas prices for several years, said Ron Rebenitsch, manager of member marketing for Basin Electric Power Cooperative in Bismarck. But burning plentiful lignite coal instead is cheap—less than a penny per kilowatt-hour—and skyrocketing gas prices could spur construction of more coal plants in the district (see September 2004 fedgazette), making it more difficult for wind energy to compete. U.S. Department of Energy projections of the relative cost of electricity from new plants show that, even with the PTC in place, wind will still be more expensive than coal in 2015 (see chart).
Government penalizes fossil fuels. Congress has steadfastly refused to enact carbon caps, taxes or other regulations designed to reduce emissions of carbon dioxide and other greenhouse gases. A Senate bill that would lower CO2 emissions to 2000 levels by 2010 died in committee. But political winds may shift in Washington, raising the costs of new coal or natural gas plants in comparison with carbon-free wind generation. Ryan Wiser, an energy economist, noted that coal plants have a life span of 40 years, an eternity in energy policy. "An increasing number of utilities over the past couple of years, in their planning efforts, have begun to consider pretty seriously the risk of future carbon regulations," he said.
Transmission capacity expands. Billions of dollars must be spent on transmission upgrades if wind farms are to proliferate in the district, helping the industry to achieve critical mass and drive down costs. There's no point in building a wind farm—PTC or no PTC—if its output can't be transmitted over the grid to consumers in distant cities. Western Minnesota, eastern Montana and the Dakotas suffer from a dearth of big wire to export wind-generated or any other type of electricity to markets such as Minneapolis or Denver.
Xcel Energy is spending $160 million to fix a transmission bottleneck on Minnesota's Buffalo Ridge that has prevented it from contracting for more than about 50 megawatts of new wind power this year. But few other utilities or wind developers appear willing to shoulder the costs of upgrades alone. The 2005 energy bill exerts a greater degree of federal control over power line construction, but does not address how costs will be allocated among users.
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