Texas wind plans stop blowing amid tax credit uncertainty

Source: Nathanial Gronewold • E&E • Posted: Tuesday, February 14, 2012

HOUSTON — The great Texas wind energy machine is grinding to a halt as project developers await word on federal tax credit extensions.

Waning state government support and ultra-low natural gas prices caused a sharp slowdown in activity last year. The industry is struggling to bounce back to pre-2011 annual growth levels, but experts say that although projects are still getting built, companies are putting most plans on hold as Congress debates whether to extend the production tax credits that have fueled the wind industry.

Data from the American Wind Energy Association (AWEA) showed that last year was a rough one for wind developers in Texas. The state added just 270 megawatts of new installed capacity in 2011, less than 40 percent of the volume put in the year before. Illinois eclipsed Texas in new wind installations last year, adding around 692 MW of new capacity to that state’s grid.

Still, AWEA lists Texas as the top wind state, with its ability to tap into 10,337 MW of wind capacity. By comparison, Iowa and California, the next two front-runners, host around 4,300 MW and 3,900 MW of wind capacity, respectively.

“Texas is a manufacturing leader for the wind energy industry,” AWEA analysts said in their latest state assessment. “The state is home to numerous manufacturers, blade manufacturer Molded Fiber Glass and many component suppliers.” About 35 factories throughout the state supply the wind industry in some way, the organization estimates.

AWEA says projects totaling about 847 MW of wind are under construction in Texas.

But Greg Wortham, executive director of the industry trade organization Texas Wind Energy Clearinghouse, said that’s misleading given the current impasse. He said big wind powerhouses like E.ON, Invenergy and AES Corp. are putting plans on hold while they wait to see how the tax credit debate plays out.

“There’s no pausing a bit; it’s stopping,” Wortham said in a telephone interview from his offices in Sweetwater, Texas’ de facto wind capital. “Every one of them has got a next-phase plan, and every one of them is not doing it right now.”

Paying for transmission but not capacity

Wortham voiced his frustration both with the state government’s attitude toward the slowdown and with Washington, D.C., lawmakers who are debating the fate of the tax credit that was temporarily extended last year to break a deadlock over the federal budget. The two-month extension runs out Feb. 29.

He said the state comptroller and Texas congressional delegation’s position against wind is making it difficult for industry advocates. He also noted the irony of the state spending $5 billion to extend transmission lines to west Texas wind projects and then providing no incentives for companies to build more capacity.

“We’ve got the transmission building outside my window,” Wortham said. “The Congress is willing to sacrifice the American jobs, apparently. They jump up and down about jobs going overseas, but they are choosing to shut down factories in Colorado and Kansas.”

Last week, Industrial Info Resources, a market intelligence firm in Sugar Land, Texas, released a report that predicts California and Texas will top the nation in the number of new renewable energy projects built in the first half of 2012. It sees $2.3 billion being spent on renewable energy generation in California, on 13 new wind and solar projects. And it sees 10 wind projects valued at $1.89 billion coming to fruition in Texas, with one project expected to add almost as much wind as all projects in the state added last year.

“The largest project planned in Texas is the grassroots 248-MW Grassland Wind farm, located in Lynn County, about 30 miles south of Lubbock,” Industrial Info analysts write in an overview of their report.

Wind proponents acknowledge that the shale gas boom has been another drag on their industry. Texas sources a large proportion of its electricity generation for natural gas-fired power plants. Energy prices spiked throughout much of the state after Austin lawmakers deregulated the market 10 years ago, but record-low gas prices are pulling electricity prices down with them.

Shale’s impact

Many believe Texas could support the nation’s largest offshore wind market thanks to its favorable regulatory environment and large offshore energy services industry. But while they’re gradually moving forward with the permitting and environmental review processes, offshore wind companies in Texas say they have no plans to build anything until natural gas prices rise again.

Inland wind is suffering from low gas prices, too, Wortham admits. But he cites the on-again, off-again nature of the federal tax incentive system as the real driver of the slowdown he sees now. Wind costs have also fallen, and energy analysts see gas prices rising as drillers’ attention shifts to oil instead.

Wortham said at least five wind projects will be built in Texas this year, but not just in the first half — not spurred on by the two-month tax credit extension but rather carried forward by other federal stimulus spending. His comments suggest Texas would be lucky to see 10 new wind power farms being added during all of 2012 given the halt in investment and construction plans he sees.

“It could be 10, it could be 100,” he said. “There’s no way to know.”

Last week, Vestas Wind Systems reported a $220 million loss as a result of the rough 2011 environment for the wind industry. The company announced plans to shed 10 percent of its workforce and warned that up to 1,600 jobs in the United States could be lost if tax incentives are not extended.