Wind Chill: Where is North America's wind energy industry headed?
Earlier this week, Mitsubishi announced that they would be indefinitely suspending construction of a wind turbine plant in Arkansas. A year and a half ago, the project was opened to great fanfare at a ceremony featuring a top Mitsubishi executive, the governor of Arkansas, and both the state's senators – but now the project apparently no longer makes financial sense. The company blames lagging demand in North American markets. What happened? Why did the prospects for wind power decline so rapidly between 2010 and 2012?
An obvious culprit would be the Chinese government's control over rare-earth metal production. The magnetic properties of rare-earths such as neodymium are in high demand for wind turbine production, and China produced 97% of the total world supply as of 2010. The Chinese government hasn't hesitated to use this control for political purposes – for example, during a territorial dispute with the Japanese government, rare-earth exports to Japan apparently halted. Has this monopoly made wind development in North America infeasible?
Probably not. Rare-earth prices have fallen by over 50% in the last year, driven by a combination of development of new sources, WTO action against the Chinese government, and the development of alternative production inputs. If high rare-earth prices weren't stifling wind turbine generation a year ago, then they certainly aren't a problem now. So what has changed?
More likely, wind energy is faltering in North America because room for subsidies is diminishing as government budgets tighten. Canada's ecoENERGY subsidy ended in March 2011, and at this point it looks very likely that the wind energy production tax credit in the United States will be allowed to expire at the end of this year. Subnational governments are heading in the same direction; Ontario is lowering tarrifs for renewable energy and Maryland has drastically reduced the scale of its offshore wind ambitions. These subsidies can definitely impose a steep burden on energy consumers and taxpayers, but they're a necessary evil if governments wish to expand wind energy generation. Without them, the high startup costs associated with wind power construction would make it totally infeasible.
It doesn't look like this need for subsidies is going away anytime soon, either. The US government's Energy Information Administration's Annual Energy Outlook 2011 (available at the link as a large PDF file) sees wind power as comparable in cost to coal by 2020, and significantly cheaper by 2035 – but even then, startup capital costs will remain high, which suggests that subsidies will likely still be necessary to encourage new development. In the past, the EIA's predictions for wind have been sunnier than the actual outcome, so this should probably be regarded as an optimistic case.
So despite its potential as a cost-effective form of energy generation, high startup costs will keep wind power in North America dependent on subsidies for the foreseeable future. Without substantial government incentives for initial construction, investment in new wind projects will probably be limited, and therefore producers like Mitsubishi won't be willing to supply the market. As governments at the national and subnational levels are pulling the plug on subsidies, this is not a reassuring situation for development of wind generation capacity in North America.