WICHITA, Kan. — BP Wind Energy certainly was getting its money's worth recently as a steady 30-mile-an-hour wind spun the 148-foot-long turbine blades at the Flat Ridge 1 wind farm at a surprisingly fast clip.
The 100-megawatt wind farm north of Medicine Lodge, Kan., has spawned a now-under-construction extension, Flat Ridge 2, that is four times bigger. It's a key reason why Kansas is the nation's top destination for wind farm construction this year, with a near-doubling of the state's power generating capacity to more than 2,600 megawatts.
But any prospects for a Flat Ridge 3 look pretty dim right now, as Congress appears unwilling to renew a federal wind power tax credit that expires Dec. 31.
An industry executive said plainly that losing the subsidy will kill almost all new construction because it makes the power too expensive. One wind energy manufacturer in Colorado is promising large layoffs if the subsidy isn't renewed. Wind farms built before the end of the year are unaffected and will continue to receive the tax break.
The Production Tax Credit was most recently approved in 2009 as part of President Barack Obama's stimulus effort, although it has largely been in effect since 1992. It provides 2.2 cents per kilowatt hour for utility-scale wind power producers. With the subsidy, said John Graham, CEO of BP Wind Energy, wind-generated electricity is competitive with the cheapest common alternatives.
The cost of wind generation has fallen significantly as wind turbines and wind farms have gotten bigger, manufacturing moves from Europe to the United States and the technology improves. The cost is close to being competitive, but it is still a few years away, he said.
The tax credit, Graham said, costs the government $3.5 billion a year and attracts $15 billion to $20 billion in investment. Sixty percent of wind energy components are now made in the U.S. "We think it's a very good return," he said.
Apparently so does the rest of the industry. It has launched into a frenzy of production that Matt Kaplan, of IHS Emerging Energy Research in Cambridge, Mass., estimates will add 12 gigawatts of generating capacity, about 20 percent more than the previous peak year.
If the tax credit isn't renewed for 2013? Kaplan estimates construction of 1.5 to 2 gigawatts — about an 85 percent decline.
It's happened before. When Congress failed to renew the tax credit in 1999, 2001 and 2003, new construction plummeted between 73 and 93 percent the following year.
"The industry is at the edge of a cliff right now," Kaplan said.
Graham said there may be a few instances where wind farms make sense without the tax credit.
"But," he said, "it will be very few and far between."
Although wind prices have come down, the shale gas drilling boom has dropped the price of gas below $2.50 per thousand cubic feet. Coal is also a natural low-cost competitor, Kaplan said, but there are enough environmental regulations to slow the opening of new plants.
"If gas were to return to $6 or $8 per thousand cubic feet, wind would be competitive," he said.
The disappearance of the tax credit would be a serious blow to the industry, Kaplan said. Even if market conditions change in five years, and the price of natural gas rises in the United States, the industry couldn't afford to let its plants and infrastructure sit idle waiting for the market. There is still growth overseas, particularly in China, he said, so the big companies won't disappear, but their U.S. capacity will suffer.