Losing Its Tailwind

It might be America’s hottest new commodity, but wind isn’t packing as powerful a punch lately in Texas. The Dallas Morning News recently reported that a mix of economic factors is dragging down the industry.

Only 539 megawatts of power were added to the U.S. power grid in the first three months of 2010 – the lowest level in three years. Companies in Texas blame pricing.

From the Dallas Morning News:

“Everybody wants to buy wind. But not at the price we’re offering today. We have to get costs down,” said Michael O’Sullivan, senior vice president of NextEra Energy Resources.

There is a storm of economic factors at play… First, the paper reports the cost to build a wind farm has doubled in the past four years due to increase in the price of steel and copper prices. Next, the nationwide credit crunch leaves developers having a hard time finding financing. Lastly, natural gas prices remain low. Currently the majority of Texas’ electricity is generated by natural gas, making this the most economical choice right now.

And, as producers around the country and right here in Oklahoma continue to find vast amounts of natural gas reserves, the price and supply of natural gas will likely remain the most economical choice in Texas. That’s because Texas’ power market uses natural gas prices as the benchmark to pay power producers - no matter what type they’re adding to the state’s power grid. Texas officials speculate that as long as wind appears to be a break-even prospect, it will deter the development of domestic wind farms.

In addition to natural gas being the cheaper electricity-generating option, oil and natural gas production and regulation taxes are expected to generate $1.8 billion in revenue for the state of Texas during the 2010-11 fiscal year.