Ranch land has been leased. Roads are being laid under the shadows of seabirds. And the $4 million wind turbines are on order.
Wind developers from around the globe have rushed into the Texas panhandle and Gulf Coast at a pace not seen since the industry’s early days in the mid-2000s.
More than 7,000 megawatts of new wind turbines are scheduled to be built by the end of next year, potentially increasing Texas’ wind power capacity by almost 60 percent. Whether developers will be able to carry through as advertised remains to be seen. But the volume of projects underway represents a dramatic acceleration for a Texas wind industry that has seen relatively modest growth since 2010.
“To put it in perspective, 7,000 megawatts is more than any other state has installed right now,” said Emily Williams, senior policy analyst for the American Wind Energy Association.
What has some skeptical is that many of the projects began construction in a frenzy late last year in an attempt to take advantage of the now expired tax credit for wind farms. If you began construction before Dec. 31 - under IRS rules, that could mean ordering wind turbines or laying a foundation - then you qualify for a tax credit that could be worth $5 million a year for a 200-megawatt wind farm.
But some of those projects have not yet obtained contracts to sell their power. And there is a finite amount of capital to go around, said Pattern Energy Chief Executive Officer Mike Garland, whose California company has two wind projects under development in the panhandle.
“It’s a case of people saying, ‘I’m willing to do a contract now because I think the [tax credit] is going to run out.’ We see this every few years,” he said. “You’re going to see a lot of those projects not come to completion.”
Improved economics is driving interest in Texas wind farms. For years, developers had to contend with limited transmission lines out of West Texas. That meant only so much power could get to market in cities such as Dallas and Austin. And farms would at times actually pay electricity retailers to take their power, so they could still take advantage of the tax credit.
But with the completion of Texas’ $7 billion Competitive Renewable Energy Zone project, there are now more transmission lines than needed. That has enabled developers to sell their power at higher rates, and the practice of selling electricity at zero profit or a loss has halted.
At the same time, turbines are getting more efficient, with longer and more aerodynamic blades. And with demand for equipment leveling off in recent years, project costs are down, insiders say.
But still, projections that power prices are likely to stay low for years because of the shale drilling revolution are throwing the wind industry a curveball.
John Billingsley Jr., the CEO of Dallas-based Tri Global Energy, has started construction on seven wind farms. One of them, the 1,100-megawatt Hale Community Energy project, would be the largest wind farm in the country if completed today.
Traditionally, wind developers would try to sign long-term power purchase deals with utilities for their power. But now they’re signing deals running as short as three years in the hopes power prices will pick up, Billingsley said.
“Nobody wants to sign on for a 20-year agreement anymore,” he said. “We’re looking for a five- to seven-year hedge, and we’re gambling at the end of the seven years prices are going to be higher than they are now.”
Power prices in Texas are tied to the price of natural gas, which was trading around $4.50 per million British thermal units earlier this week. That’s down by almost half from 2008.
Still, large power companies such as Duke Energy and E.ON, which is headquartered in Germany, continue to invest in Texas wind. E.ON operates more than 4,000 megawatts of wind capacity across North America and Europe, including an 800-megawatt farm in Roscoe. And now the company is building three 200-megawatt installations outside Amarillo.
“Wind power is getting more and more competitive every day,” said Jeff Clark, executive director of The Wind Coalition, which represents companies including E.ON and Pattern.
“The panhandle and South Texas are two of the best resources in the country,” Clark said. “As long as we keep policies that encourage development, we will see more and more turbines building here. There’s really good wind in Nebraska, but companies have not gone there.”
Business, Pages 19 on 04/21/2014