Blown away

Source: The Economist, Jun 8th 2013 | CHICAGO • Posted: Monday, June 10, 2013

Wind power is doing well, but it still relies on irregular and short-term subsidies

ON A breezy day in October last year the governor of Kansas, Sam Brownback, took a tour of his state’s flourishing oil- and gas-exploration industry. But as the bus travelled across the open plains it was difficult not to notice a new phenomenon in Kansan energy: wind turbines. Lots of them. Last year the state doubled its wind-power capacity; this now provides 11% of its electricity. But a weatherbeaten oil man, looking up at one inactive turbine, remarked that the thing did little more than suck up government subsidies.

Thanks to these subsidies, wind power did well in 2012. A record 6,700 turbines were installed that year, and $25 billion of private capital was invested. This brings wind capacity to about 3.5% of the country’s electricity supply: enough to power 15m homes. The Department of Energy reckons that, by 2030, 20% of America’s electricity demand could be met by wind.

According to the American Wind Energy Association, an industry group, it took 25 years to get to 10 gigawatts (GW) of wind-power capacity—but a mere five months, last year, to jump from 50GW to 60GW. The greatest growth came from the Midwest and the Plains. Iowa and South Dakota each produce more than 20% of their electricity from wind; seven other states produce more than 10%.

Iowa aspires to be the nation’s leading producer of wind power per person, generating 39% of its electricity that way. MidAmerican Energy, based in Des Moines, plans to invest $1.9 billion in new wind farms. Iowa’s governor, Terry Branstad, says it is the largest investment for economic development in the history of the state. This decision also helped persuade Google and Facebook to agree to spend $700m on building and expanding their energy-hungry data centres there.

The effervescence of the wind industry last year, however, was partly because the main federal tax credit for wind power was going to expire in December, and companies raced to qualify before the deadline. The Production Tax Credit (PTC) gave producers 2.2 cents per kilowatt-hour for electricity generated during the first ten years of a turbine’s life. In January another year of the PTC, worth $12 billion, was wrung out of the deal by which the federal government avoided the fiscal cliff, and this spurred the new investments in Iowa.

Questions, though, are being asked about this subsidy. Some power and utility companies whose margins are being squeezed by cheap wind power would like to see the PTC eliminated. Energy companies that use fossil fuels are griping too, perhaps forgetting how handsomely they have been subsidised in the past. But even the wind industry wonders whether a credit that expires every few years, causing cycles of boom and bust, is helpful.

Analysts at a recent wind conference in Chicago felt that the industry was not making sufficient long-term investments in R&D and domestic manufacturing to bring the price of its power down. Both the federal government (in a 2011 report) and the World Resources Institute, a green group, agree that uncertainty over the PTC is causing underinvestment, with the institute pointing out that America remains a net importer of wind equipment.

Some technical improvements have, in fact, been notched up. Since the late 1990s rotor diameters have increased by around 90% and the average height of a turbine “hub” has gone up by 45%. More than 1,000 turbines installed last year were on towers of more than 100 metres (330 feet). Today’s turbines have, on average, a technical capacity eight times larger than they had in 1990, and generate 17 times more power. Yet without the PTC wind is uncompetitive with other forms of energy.

The PTC also has strong political support on both sides of the aisle. Democrats like it as a subsidy for green energy. Some Republicans like it because it brings jobs and development. Wind energy is distributed in a highly partisan fashion, with a rich band of gustiness running through the Republican Midwest from the Dakotas and Nebraska, through to Kansas and the western corners of Oklahoma and Iowa.

Some of the most enthusiastic Republican supporters of the PTC do not even acknowledge that climate change is happening. Karl Rove, a former adviser to George W. Bush, and Charles Grassley and Steve King, respectively Iowa’s senior senator and fifth-district congressman, have all campaigned for the wind-energy credit but have expressed opinions about climate change ranging from ambivalence (“The science is confusing”) to downright hostility (“Climate is gone”). A number of other groups, such as the US Chamber of Commerce, support the credit but lobby against climate-change legislation.

The fact is that wind power generates many well-paying, desirable jobs in rural places with not much else going for them. New energy sources also allow these states to diversify their economies. This alliance of green and red politics helps keep the industry going at a time of low wholesale electricity prices—the result partly of cheap shale gas, and partly of a drop in demand because of the sluggish recovery.

All would not be lost if the PTC disappeared. Without it, there will still be a trickle of demand for new turbines. Concerns about the intermittent supply of energy from wind are dying down. It turns out that with enough wind farms sited in enough places, the supply evens out. The wind is always blowing somewhere. And a solid majority of Americans continue to favour alternative, clean power sources over traditional fossil fuels.

Private insurers say that last year was the second-most-expensive in American history for disasters related to climate change, costing them $139 billion. But private insurance paid only a quarter of these costs, leaving taxpayers to cover the rest. By comparison, funding renewable energy properly seems rather cheap.