The Growth of Wind Power: A Rising Market in the United States’ Renewable Energy Industry
Writer’s Comment: In an attempt to understand the relationship between technological advancements, social change, and economic opportunity, I chose to research the growth of wind power in the renewable energy industry. What started as an assignment for Professor Chris Benner’s CRD 141 course—Organization of Economic Space—soon became an opportunity for me to pursue my interest in sustainability and environmental practices. Although my work is merely a glimpse into the renewable energy industry, I hope this paper can spark the reader’s interest in the subject. I owe many thanks to Professor Benner; his dedication as an instructor and enthusiasm for this course encouraged me to further my studies in community and regional development.
Instructor’s Comment: Students in my course on the Organization of Economic Space are asked to engage in a quarter long research project investigating how globalization and technological change have transformed a particular business, industry, or occupation of the student’s choosing. Carolyn’s research on the development of wind energy turned into an absolutely superb paper. She gathered substantial evidence of the growth of wind energy in the U.S., putting this growth both into the context of the global wind energy industry and the broader effort to develop renewable energies in the U.S. She documented the importance of new technological developments facilitating efficiencies and cost reductions in wind turbine manufacturing, as well as the importance of government policy in promoting wind energy. But she also made a strong argument about the ways that the structure of energy markets, including the externalization of costs associated with conventional energy, serve as barriers to wind energy adoption. In short, the paper combines solid research skills and critical independent thinking, along with clear and concise prose. A real joy to read!!
—Chris Benner, Department of Human and Community Development
“In response to core challenges, wind energy can already provide answers that will stand the test of time.”
—Aloys Wobben, Founder and Managing Director of Enercon
As the world economy continues to undergo dramatic growth and restructuring, natural resources are being depleted at alarming rates and irreversible damage has been done to our environment. Fossil fuels in particular remain in high demand as their availability dwindles and environmental concerns rise. The United States alone uses approximately 20.8 million barrels of oil every day, and 80 percent of our nation’s energy comes from fossil fuels (including oil, coal, and natural gas) (U.S. Department of Energy, 2009). With only four percent of the world’s population, the United States uses roughly 26 percent of the world’s energy (U.S. Department of Energy, 2009). Taking into consideration our large dependency on fossil fuels, the limitedness of this resource, and the harm it does to the environment, it is apparent that our nation needs to shift the way we think about energy consumption and, more importantly, energy production.
The renewable energy industry in the United States is gaining momentum in its efforts to bring this shift about. Technological advances and innovative thinking have led to much progress in the three generations of renewable energy technologies defined by the International Energy Agency: first-generation technologies, which are forms of renewable energy that have already been established and widely used; second-generation technologies, which include newer power sources that are beginning to enter the market as viable forms of energy; and third-generation technologies, which are still undergoing research and development. Over the past five years, the use of these technologies has increased at rates of 10-60 percent annually (REN21, 2009), and in 2008, renewable energy contributed to more than 50 percent of the power capacity added in both the United States and Europe (Renewables Global Status Report, 2009). Recently, the largest growth in the renewable energy sector has been in the production and use of wind power. Although small in comparison to more conventional technologies, wind power has grown rapidly during the 21st century. Between 2000 and 2006, the capacity of world wind generation quadrupled, and despite the economic downturn, the capacity of wind farms worldwide increased by 31 percent in 2009 (REN21, 2009).
Taking the lead in wind power generation, the United States has surpassed countries such as Germany, China, Spain, and India, reaching a current capacity of 35,000 megawatts (MW). This is equivalent to the amount of electricity needed to power 9.7 million homes. Between 2004 and 2009, the installed wind power capacity of the United States grew 39 percent (Bureau of Labor Statistics, 2009). With this rise in wind power production, competition between countries has increased and wind turbine manufacturers are working to gain the upper hand as they design, test, and manufacture more effective models. This raises a question: How has technology commercialized wind power? Additionally, how has globalization shaped the renewable energy industry, and in particular, the future of wind power production?
Growth in the U.S. Renewable Energy Industry
Recent technological progress has shifted the way we utilize renewable energy. As climate change concerns continue to grow, countries throughout the world are setting higher targets for renewable energy production and consumption (Renewables Global Status Report, 2010). The growth of wind power has been particularly rapid both nationally and globally. As of May 2009, 80 countries worldwide were successfully utilizing commercial wind power, and the industry has continually expanded as wind has become a more feasible and mainstream source of electricity production (World Wind Energy Report, 2009). Reaching record highs in 2008, the United States generated 25.1 percent of global wind power, followed by Germany at 18.5 percent, Spain at 14.5 percent, India at 7.2 percent, and China at 6.2 percent. Today, Italy, France, the United Kingdom, Portugal, and Denmark have joined the countries just mentioned as the largest generators of wind power. These ten countries combined are responsible for approximately 85 percent of global wind power generation (Renewables Global Status Report, 2010).
Although a second-generation technology, wind power has grown considerably in the United States over the past several years. Capacity grew from 6 gigawatts (GW) of power in 2004 to over 35 GW of power by the end of 2009 (Flowers, 2010). Although only 2.4 percent of the country’s electrical power is generated from wind, approximately 50 percent of all renewable energy in the United States is produced using wind power (Bureau of Labor Statistics, 2009). Furthermore, these numbers continue to rise as more states have begun producing considerable amounts of commercial wind energy (Flowers, 2010). Texas, Iowa, California, Washington, and Oregon are currently the five states with the highest installed wind power capacity in the United States (AWEA Annual Market Report, 2009). Texas installed the largest amount of new wind power capacity in 2009, reaching 9,405 megawatts (MW). If Texas were its own country, it would be the sixth largest contributor to worldwide installed wind power capacity. A report by the U.S. Department of Energy projected that 20 percent of our country’s energy needs could be met with wind power by the year 2030 (U.S. Department of Energy, 2008).
As the fastest growing sector in the renewable energy industry, wind energy technology is a large source of jobs in the United States. According to the AWEA, the wind power industry currently employs about 85,000 Americans (AWEA, 2010). As new developments such as offshore wind projects increase, this number will surely rise. While some residences and individual business establishments use wind power (often referred to as “small wind” on this scale), utility-scale wind generation accounts for the majority of wind power produced in the country and remains the largest growing sector within the renewable energy industry.
Barriers to Acceptance
Although wind power is a commercially viable source of electricity, this resource has not been fully utilized. The Earth has the potential to provide 72 terawatts (TW) of commercial wind power annually (compared to the 15 TW globally consumed in 2005); however, non-technical constraints and difficulty with wind variability and distribution prevent us from taking full advantage of this resource (Kempton, 2005).
Wind farms are organized systems in which turbines are interconnected and power is collected at medium voltage. With the use of power collection systems and substations, the medium-voltage electric current (usually 34.5 kV) is transformed into high voltage power and fed into electric power transmission systems, also known as power grids. However, the strength of wind varies by location, season, and time of day, making wind power a variable source of energy. Due to the inconsistency of their output, wind farms are not as reliable as conventional power plants.
When demand exceeds the amount of electricity that can be generated by the wind turbines at a given time, technology such as grid energy storage is often used, making it possible to save wind power generated during peak wind periods for use at a later time (Flowers, 2010). While this lends wind power a higher economic value over time, storage can add roughly 25 percent to the initial cost of producing wind power (Flowers, 2010). Furthermore, to provide a more consistent supply of energy, transmission lines need to be strengthened to power grids in different regions of the country. Although these methods would make wind power more feasible, the cost of these investments acts as a deterrent and makes it difficult to incorporate wind energy into the standard power grid.
Furthermore, the irregularity of wind energy means that wind farms are unable to produce the full amount of power, also known as the nameplate rating, of a given wind turbine. The amount of power produced is presented as a ratio of actual productivity to the supposed maximum. This ratio is also known as the capacity factor of the wind turbine. The capacity factor of a current wind turbine typically ranges from 20-40 percent depending on its location. For example, a 1 MW turbine with a 35 percent capacity factor will not produce 8,760-megawatt hours (MWh) in one year (1 turbine × 24 hours × 365 days). Instead, the turbine will produce 3,066 MWh (1 × 0.35 × 24 × 365). In comparison, power plants that use fuels such as coal typically maintain a 90 percent capacity factor (Flowers, 2010). In the end, this makes conventional power the simpler choice in our current economic system. In other words, although advancements in technology have made wind power a viable source of electricity, the market surrounding the renewable energy industry has limited the commercialization of wind power.
Although the total amount of wind energy available for use is substantially more than the current amount of power used from all energy sources combined, non-technical constraints have made the integration of wind power into the conventional power system very difficult. According to Associate Professor Benjamin Sovacool, “Some of the most surreptitious, yet powerful, impediments facing renewable energy and energy efficiency in the United States are more about culture and institutions than engineering and science” (Technology and Society, p. 372). Furthermore, high start-up costs in wind power make it more challenging to get wind power technology off the ground. Due to a phenomenon called technological lock-in, it is difficult to introduce alternative forms of energy into a system that caters to conventional power and centralized power plants. The Stern Review on the Economics of Climate Change explains how “National grids are usually tailored towards the operation of centralized power plants and thus favor their performance. Technologies that do not easily fit into these networks may struggle to enter the market, even if the technology itself is commercially viable” (Stern, p. 355).
To overcome this resistance, the government must require the implementation of renewable technologies (rather than simply encourage their usage). Currently, consumer incentives are minimal, the government still subsidizes fossil fuels, and complex zoning laws often stall the development of wind farms (Flowers, 2010). Furthermore, the United States’ market does not absorb the costs of conventional energy (i.e., pollution and negative health effects); rather, companies tend to pass these costs on to the consumer. This encourages the continued use of fossil fuels and fails to provide incentive for implementing alternative energy sources such as wind power (United Nations Dept. of Economic and Social Affairs, 2005).
Facilitating the Commercial Use of Wind Power
Despite the challenges facing the wind power industry, many proponents of renewable energy have helped facilitate its growth. In particular, wind turbine manufacturers, investors, and public policy-makers have contributed to the increased commercialization of this industry.
The commercialization of wind power refers to the development of wind farms (interconnected systems of wind turbines located in the same area), as well as the use of this power by consumers in the form of electricity. Some of the major actors in the commercialization of this industry have been wind turbine manufacturers, also known as original equipment manufacturers (OEMs). These companies design and build wind turbines and are additionally responsible for research and development in this sector. This enables progress in wind turbine manufacturing, and subsequently, wind farm expansion. To remain competitive, OEMs must continually utilize the latest technologies and effectively implement their new designs (Bureau of Labor Statistics, 2010). Currently, the ten largest wind turbine manufacturers are ACCIONA Energia, Enercon, Gamesa, GE Wind Energy, Mitsubishi Power Systems, the Nordex Group, Repower Systems AG, Siemens Energy Sector, Suzlon Energy Limited, and Vestas (Pike Research Report, 2009). Due to the increased demand for wind turbines and the inability of current companies to meet this demand, new designers and manufacturers of wind turbines are also beginning to enter the market. As of 2009, these included American Superconductor (AMSC) and Windtec, Clipper Windpower, Eozen, Nordic Windpower, Bosch Rexroth, and LM Glasfiber (Pike Research Report, 2009). As design, manufacturing, and integration of wind turbines continue to increase, production costs drop, enabling the industry to grow and commercialize rapidly. Despite the economic challenges facing the wind power industry, the sale of wind turbines is expected to reach $43 billion by 2015 (Pike Research Report, 2009).
Depending on the supply model of the OEM, the different components of wind turbines (blades, tower, and nacelle) may be produced by outside contractors or by the OEM itself. As the market for wind power continues to grow in the United States, new manufacturers are entering the industry and many foreign OEMs are beginning to locate in this country (David, 2010). This shift has allowed manufacturers to minimize the cost of transportation, reduce the risk of currency fluctuation, and avoid taxes on importing the large turbines. This also reduces challenges associated with the export of wind turbines and their various components. Due to the nature of the global market, the manufacturing of wind turbine components may also be contracted out to specialized companies (this is common for turbine parts such as blades or gears). Additionally, due to the complexity of the industry, there has been a noticeable expansion of wind farm finance companies, wind power consulting companies, research organizations, and wind power managing owners.
Major companies such as General Electric and BP have also invested in wind power, contributing to the commercialization of this industry (U.S. Department of Energy, 2009). As venture capital and research and development increase competition in the market, the industry has become more profitable. For example, global investment in alternative energy grew by 4.7 percent between 2007 and 2008, a $7 billion increase. This was matched by increased global revenue from renewable energy technologies (with wind power among the top contributors), which grew from $76 billion in 2007 to $115 billion in 2008 (Clean Energy Trends, 2009).
Investment in the renewable energy industry has been met with favorable public policies and increased political support. With the passing of the American Recovery and Reinvestment Act of 2009 (enacted by President Barack Obama), over $70 billion in tax credits and direct spending was allocated for clean energy and transportation projects related to renewable energy. More specifically, $27.2 billion was set aside for improved energy efficiency and renewable energy research and investment. Of this investment, $190 million was earmarked for wind and other renewable energy projects (Clean Energy Trends, 2009). Outside the United States, renewable energy targets and green stimulus programs are beginning to increase the use of clean energy on a global level. As new foreign programs are implemented, they place added pressure on the United States to conform if they wish to remain on top in the global market (U.S. Department of Energy, 2009).
Further government support in the United States, including a production tax credit and state renewable electricity portfolio standards, have helped facilitate the growth of the wind power industry. The federal renewable energy production tax credit (PTC) is generated by qualified energy sources and sold by taxpayers during the year. The PTC was first introduced in 1992 and has since been renewed and expanded. The PTC operates on a per-kilowatt-hour (kWh) basis, and in 2009, it reached 2.2 cents per kWh for wind power (DSIRE, 2010). Facilities using wind power can also choose to take a federal business energy investment credit (ITC) or cash grant from the U.S. Department of the Treasury for the equivalent amount. This encourages facilities to utilize renewable resources.
Renewable portfolio standards (RPS) are regulations that necessitate the increased use of clean energy sources such as wind, solar, and geothermal to produce power. The RPS requires electricity supply companies to produce a specific amount of their power using clean energy (United Nations Department of Economic and Social Affairs, 2005). Certified producers of renewable energy earn certificates for each unit of electricity that is produced using clean power. These producers can then sell the certificates to electricity supply companies, who in turn provide these certificates as proof of their compliance with renewable energy regulations. Although there is no federal equivalent of the RPS in the United States, 30 of the 50 states have implemented these standards (AWEA, 2009). RPS methods are often most successful when implemented with the federal Production Tax Credits, and they have helped facilitate the increased use and sale of renewable energy (United Nations Department of Economic and Social Affairs, 2005).
As such policies work in combination with the efforts of manufacturers and investors, it becomes more advantageous for electrical supply companies to utilize clean energy. When renewable energy such as wind power gains political and community support, the industry becomes more profitable. As a result, wind power becomes a commercially viable source of power.
Driven by environmental necessity and diminishing fossil fuel stores, the renewable energy industry has continued to grow to meet the needs of our consumer society. Although environmental problems persist worldwide, the United States is currently the largest consumer of fossil fuels that pollute our ecosystem. As the country’s economy continues to support the use of fossil fuels, the growing consumer nature of the United States is repeatedly scrutinized and critiqued. This places added pressure on government entities and electricity companies to utilize alternative energy, thus facilitating the continued implementation of superior energy sources such as wind power.
As globalization increases competition in the renewable energy market, and the wind power industry in particular, development and expansion are inevitable. With the demand for wind farms on the rise, and the need to replace outdated wind turbines growing, manufacturers are forced to innovate. Challenges such as wind variability and wind power distribution have been met with the development of new technology, and wind power production and storage are continually being improved. Furthermore, political leadership and public policies have helped make renewable energies such as wind power market-ready sources of electricity.
Overall, renewable energy production becomes cheaper as the cost of fossil fuels rise. This reality, coupled with the obvious need for improved environmental practices, has led to the commercialization of wind power within the renewable energy industry.
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