From the July 2008 issue of Investment Advisor • Subscribe!

Energy Is in the Air

Wind farms could go a long way toward reducing carbon emissions

Most reasonable people would agree that we have an energy problem, if not a full-blown crisis in this country. Yet our elected leaders seem, with few exceptions, to be afraid to actually have a serious and honest discussion of the issue. Instead of developing a workable and sustainable energy policy that will allow our economy to flourish and our standard of living to remain as high as it is today, we look for easy solutions. It's as if destroying the National Arctic Wildlife Refuge in search of oil that, according to the Natural Resources Defense Council, will lower the price at the pump by about two cents a gallon in 20 years, or eliminating the federal gasoline tax for the summer is the answer.

A lot of hot air comes out of Washington about the need to develop cleaner technologies that will reduce our dependence on fossil fuels and foreign sources of energy. It's hard to take such rhetoric seriously when nothing is being done to prevent the expiration of tax credits for development and production of renewable energy sources--wind and solar. In the most recent opportunity to adopt a tax policy that helps subsidize the development of those new cleaner technologies on June 10, a vote, largely along party lines, prevented a bill that had already been passed by the House from being considered.

The primary sticking point is that under Congress's fiscally responsible "pay-as-you-go" rules, those credits, totaling about $6 billion a year, would have to be offset by savings elsewhere, which in this bill called for reducing the tax credits given to the oil industry. Considering that ExxonMobil had a profit of more than $40 billion last year, not to mention the other petroleum giants, you have to wonder just why they need the tax break.

This lack of support for alternative energy isn't anything new in Washington, and it's not the first time that such tax credits have been allowed to expire. According to the American Wind Energy Association (AWEA), during previous periods when the wind energy production credit has lapsed--in 1999, 2001, and 2003--the number of new wind power installations has dropped by as much as 93% the following year.

Luckily, even though Congress and the current Administration don't appear willing to make a commitment to developing alternative and sustainable sources of comparatively cheap, yes, that's right, cheap energy, winds of change are blowing.

Where the Winds Are Blowing

Currently only about 1% of the nation's electricity needs are being met by wind power--that amount is higher in some of the windier parts of the country. Texas currently leads the pack in terms of wind power with some 3% of its electrical needs coming from wind turbines; it's also the site of four of the nation's five largest wind farms.

But as they say, everything's bigger in Texas and legendary oilman T. Boone Pickens has announced plans to build the world's largest wind farm in Pampa, a town of about 18,000 in the Texas panhandle. He's been heavily involved in developing natural gas as an alternative fuel for automobiles and his company, Clean Energy, is currently the largest supplier of vehicular natural gas in North America. Now he's turning his attention to renewable energy.

He's planning to invest some $2 billion in the initial phase of a project that will ultimately cost five times that amount. His company, Mesa Power, has already placed an initial order with GE to provide 600 turbines for the site.

As he noted in a statement announcing the project, "You find an oilfield, it peaks and starts declining, and you've got to find another one to replace it. With wind, there's no decline curve."

Pickens isn't alone in seeing the potential afforded by harnessing the power of the wind that blows free. Last year 3,100 wind turbines were erected and another 2,000 are reportedly under construction. In the first quarter of 2008 new installations with 1,400 MW of generating capacity were put in place.

The biggest obstacle to further rapid development of wind farms, in the short term anyway is a current shortage of turbines and their component parts. In late April AWEA held its first-ever power supply chain workshop in Des Moines, Iowa, in an attempt to expand the range of suppliers to the industry. There are some 8,000 components in the average wind turbine from the towers and blades to gearboxes, generators, castings, ball bearings, and electronics.

At the same time our elected officials were sidestepping the issue of wind power, some encouraging news came out of the executive branch, although putting the suggestions into action would go counter to many of the current Administration's policies.

Wind Energy 2030: Increasing Wind Energy's Contribution to U.S. Electricity Supply, a report released by the U.S. Department of Energy in May predicted that by 2030 wind power could provide as much as 20% of U.S. electricity needs. That would be 304 gigawatts, as opposed to the current production of 16.8 gigawatts. However, to reach that level, the report noted that wind turbine installations would have to dramatically increase, up to 7,000 a year by 2017 and then continue at that rate.

The upside of such a scenario is pretty high. The reduction in emissions from achieving the goal of getting 20% of our electricity from wind power would reduce carbon dioxide emissions from electricity generation by 25%, which would be equivalent to taking 140 million cars off the road.

The report stresses that its findings were not meant to predict that such growth in wind power would actually occur, only that it's a possibility.

There are a number of technical problems that would need to be overcome, but there were a lot of technical challenges involved in sending a man to the moon, or in creating a laptop computer with more speed and memory than the refrigerator-sized ones used for that previously mentioned moon mission. I don't have much doubt that the development of viable, renewable sources of energy is not only possible but inevitable, but the sooner we get there, the better off we'll all be.


Managing Editor Robert F. Keane can be reached at bkeane@investmentadvisor.com.

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