Once a booming industry, U.S. wind power saw its growth plummet 92% last year as it wrestled with tax uncertainties and cheap natural gas.
The industry is still growing but not nearly as fast, says a report Thursday by the American Wind Energy Association. It added a record 13,131 megawatts of power in 2012 but that fell to only 1,087 MW last year — the lowest level since 2004.
One reason was investors’ uncertainty that Congress would renew a federal wind tax subsidy. “People didn’t know it would be passed … so they weren’t creating new projects” early last year, says AWEA’s president Tom Kiernan. He says it takes about nine months to plan a wind farm, so the one-year extension in January 2013 didn’t trigger a flurry of new wind farm construction until the second half of 2013.
He expects this year will see a rebound in new capacity but how much will depend on whether Congress extends the tax subsidy, which expired in January. An extension is pending in the Senate. Retailer IKEA announced Thursday that it’s building a wind farm in Hoopeston, Ill., slated to open in early 2015.
The AWEA report is the latest to show the challenges confronting the clean energy sector. Last year, investments in renewable energy fell 14% globally and 10% in the United States, according to an analysis Monday by the United Nations Environment Programme. It says U.S. investments in wind were $13.3 billion, down from $14.5 billion in 2012.
The UNEP attributes the declines to policy uncertainty, including the expired U.S. wind subsidy, and falling technology costs, notably solar panels and wind turbines. Yet for the U.S., it saw another factor at play as well.
“The shale revolution certainly has had an impact,” says Eric Usher, manager of UNEP’s seed capital programs. He notes the boom in U.S. production of natural gas, due largely to the use of fracking or hydraulic fracturing, has lowered prices and made it more difficult for wind and solar to compete.
“We do have a tough time competing with natural gas,” Kiernan says. But he says the U.S. wind industry can do something that natural gas cannot — give customers a constant price for 20 or even 30 years. Natural gas prices fluctuate, depending largely on production.
The wind production tax credit, known as the PTC, is typically renewed a year at a time and three prior lapses — in 2000, 2002 and 2004 — each led to significant drops in new capacity. It allows producers to lower their tax bill by 2.3 cents per kilowatt hour during a project’s first 10 years. Kiernan says it spurs $15 billion in private investment each year and more than pays for itself in increased federal, state and local revenues.
Given the widespread use of wind power, notably in GOP areas, its extension has bipartisan support. AWEA says wind now provides more than 15% of electricity in six states including Iowa (27%), South Dakota (26%), Kansas (19%) as well as Idaho, Minnesota and and North Dakota (each 16%.) Nationwide, it provides 4.1% of U.S. electricity.
Despite industry bumpiness, the UNEP sees bright spots for renewable energy. It reports an end to the nose dive in clean energy stocks, which lost 78% in value over four-and-a-half year period before bottoming out in July 2012 and rising 54% in 2013.
Also, it notes that renewable energy continues to add capacity, led by solar. Globally, the solar industry produced 26% more power last year than in 2012 despite a 23% decline in investments.
In fact, 2013 was the first year when solar added more new power globally than did wind, although wind’s total capacity is still at least twice as large, according to a report last month by Clean Edge, a U.S.-based firm that’s been tracking the clean-tech sector since its founding in 2000.
“Record levels of new solar deployment in China, Japan and the the U.S., combined with a down year in the wind industry enabled this unprecedented crossover,” the Clean Edge report says, adding solar’s projected double-digit growth rates could overtake wind’s total by 2021.
In the U.S., solar accounted for 22% of new utility-scale electricity last year — up from less than 6% in 2012 and second only to natural gas-fired power plants, which added just over 50%, according to data this week by the U.S. Energy Information Administration. Coal provided 11% and wind, nearly 8%.
Unlike wind, the U.S. solar industry is eligible for investment and residential tax credits through the end of 2016.