2011 was a year of much political chest thumping but not much progress on the significant issues. Subsidies for wind energy are among the many unanswered questions and are likely victims of the challenging budget decisions. The industry has grown used to generous subsidies for wind generated electricity. The current subsides are going to expire at the end of 2012 without any guarantee they will be renewed. This leaves the market in an uncertain state.
Along with the government subsidies that provide wind energy producers 2.2cents per kWh, many states have passed renewable energy mandates which required that a certain amount of electricity come from renewable sources. The nascent wind industry has grown a lot recently thanks in large part to innovative insight and support by both state and federal governments. To add to the excitement, wind researchers have produced renewable electricity as cost efficiently as others produce it now from non-renewable sources.
All sources of renewable energy (including solar power and hydro, for example) are in jeopardy of further decline due to the nation’s foreboding economic outlook. It is imperative for wind technology to continue to lower production costs in order to be an important part of the U.S. electricity portfolio moving forward. The bottom line in free markets is invariably cost.
Wind generated electricity has several benefits. Wind provides clean and endless electricity. To survive, the wind industry must effectively combine environmental cleanliness with low cost. In a future with reduced government subsidies and less pressure for renewable energy mandates because of cost concerns, it has to be able to compete on cost to remain viable. In the wind industry’s favor is the fact that fossil fueled power has continually risen over time in cost. If renewables continue to go down in price the two will ultimately intersect.
However, one fossil fuel – natural gas – has made strong advancements in cost. This provides a formidable challenge for the alternative energy industry. Since 2008, new natural gas drilling technology advancements have triggered a dramatic decline in electricity rates in Texas. Texas, along with a number of other states, gets a significant percentage of its power from natural gas plants. Because of this, the wind industry faces a huge cost challenge for the near future.
A major complaint about wind energy is that it doesn’t produce electricity consistently and predictably. After all, simply building wind turbines doesn’t guarantee that the wind will blow to turn them. The result of idle equipment is zero electricity production. Because there are no effective technologies to control the wind, there is no good way to calculate just how much electricity will be generated at any given moment from a particular wind turbine. If the wind industry can develop technologies that first stores the overflow of electricity produced when the wind is active and then steadily supplies it to consumers, then renewable wind energy will grow in future importance. There are many interesting technologies on the horizon for solving this issue, but today none of them are at a stage where they could be implemented on a large-scale and to great effect.
Article by Devon Bass who has been active in the energy markets for 16 years, first as a trader then as a consultant.
He is the founder of Vault Energy Solutions and the Texas Chamber of Commerce Energy Association.