Ill Winds Blow for Clean Energy

Cheap, and Abundant, Natural Gas Diminishes Alternative Projects' Appeal
By KEITH JOHNSON
T. Boone Pickens's decision to pull the plug on a big wind farm in the Texas panhandle highlights the hurdles clean-energy projects are facing in the U.S., including competition from newly cheap and abundant natural gas.
While problems plague all kinds of green-energy efforts, wind power has been hit especially hard. Because of the complications, growth in wind-power capacity this year is expected to be three-quarters of the increase in a record 2008, according to the American Wind Energy Association trade group.
Even cash-flush foreign utilities that in recent years have entered the U.S. wind-power market, such as Spain's Iberdrola SA, have scaled back U.S. investment plans. And Mr. Pickens's decision, announced Tuesday, to shelve his project for the foreseeable future has left him scrambling to find homes for 667 wind turbines that he ordered in May 2008.
The solar-power industry, which was flying high just a year ago, spent the first half of 2009 announcing layoffs. Some big solar-power projects were shelved.

"The vast majority of commercial projects are on hold," said Rhone Resch, president of the Solar Energy Industries Association, noting that installations in California were down 60% in the first quarter compared with the year before.
One reason for the pullbacks is the plunge in natural-gas prices. Natural-gas futures on the New York Mercantile Exchange have fallen 72% from a year ago and dropped 2.2% on Wednesday to $3.35 per million British Thermal Units.
Inexpensive natural gas is generally bad news for renewable energy: Power plants that burn natural gas become even cheaper to operate when gas prices are low, making projects such as Mr. Pickens's planned wind farm less economical. Other clean-energy technologies, such as solar power, are even more expensive than wind.
When natural-gas prices are high -- as they were last summer when Mr. Pickens announced his Pickens Plan to wean the U.S. off foreign oil -- clean-energy projects become more competitive.
Natural-gas prices have fallen because of greater supply and weaker demand, as U.S. natural-gas production has soared over the past year because of the exploration of new reserves. But the economic slowdown has curtailed gas demand, especially in the industrial sector, and analysts expect prices to stay relatively low for the next few years.
Because gas prices are so volatile, short-term price movements alone don't make or break long-term investment decisions on projects like power plants. But just as cheap oil in the 1980s helped derail the U.S. clean-energy sector, relatively cheaper fossil fuels undermine investor interest in alternatives.
And that is without the credit crunch, which has been even more of a problem for clean-energy projects than some other sectors.
"Access to capital has been very hard," said Bracken Hendricks, an energy analyst at the Center for American Progress, a Washington think tank. "It's just so difficult to build large-scale, capital-intensive projects" when many of the banks that specialized in underwriting clean-energy deals were sideswiped by the financial crisis.
Another problem is electricity transmission. Wind farms and other forms of clean energy are usually located in remote locations and require huge new transmission lines to carry the electricity to cities. Mr. Pickens initially hoped to finance the construction of his own transmission lines but was unable to secure funding.
The U.S. Department of Energy last year cited transmission as the biggest hurdle to full-scale wind-power development in the U.S., a notion seconded by many energy analysts.
"The question for the country is whether you want wind farms in the optimal locations at half the cost, or whether you build projects in lower-quality sites that have transmission lines," said Rob Gramlich, senior vice president for policy at the American Wind Energy Association.
Congress is trying to tackle the transmission question. The Senate is working on legislation that would give the federal government greater authority to authorize new transmission lines, which could help overcome some delays caused by state-level planning.
The administration of former President George W. Bush laid out plans to build 6,000 miles of electricity-transmission corridors across federal lands in Western states. But critics contend that the transmission corridors were designed to align with coal-fired power plants, not renewable-energy plants, and earlier this week filed suit to try to block the plan.
—Stephanie Simon contributed to this article.
Write to Keith Johnson at keith.johnson@wsj.com