About 40% of US electricity is generated by burning natural gas. Another roughly 30% comes from burning coal and about 10% is generated by nuclear fission. Wind-generated power accounts for 1.8% of all US generating capacity.

The US added 10,000 megawatts of wind generation in 2009, bringing the total capacity to about 35,000 megawatts. On average, a single US home consumes about 1.1 megawatt/hours of electricity annually. If there are three people in an average household, all the wind energy in the US provides enough electricity annually for about 3.5 million of the 110 million or so US households, according to the American Wind Energy Association.

In Europe, wind power generates 142 million megawatts hour, just over 4% of the EU’s total demand for electricity, and enough to supply some 35 million households. EU countries added just over 10,000 megawatts of capacity in 2009, almost exactly the same amount as the US added.

China added 12,400 megawatts of wind power in 2009, and is now third in the world behind the US and Germany in wind power generation with a capacity of more than 25,000 megawatts. Unfortunately, in 2008, nearly 4,000 megawatts of turbine capacity was not connected to China’s power transmission and distribution grid. There’s no data available for 2009 yet.

China’s experience reveals one of the fundamental problems facing wind generation: government-mandated development nearly always makes at least one serious blunder. That’s because governments are under strong and diversified pressure to make winners out of everyone.

While China’s central planning culture may be the poster child for how government can foul things up, Germany’s experience illustrates some related problems. In 1990, Germany instituted a feed-in tariff system to encourage the development of renewable energy. Under the law, renewable energy suppliers are guaranteed that they will be able to sell their electricity at a profit for 20 years. Germany’s feed-in tariff worked, to the extent that the country now gets about 15% of its total electricity from renewable sources.

Now, though, the country has decided to cut feed-in tariffs that subsidize solar power generators by 16% while maintaining full support of wind power. Last December, Germany solar panel maker Q-Cells wrung some concessions out of LDK Solar (NYSE:LDK) on a ten-year contract under which LDK provides wafers to Q-Cells. The result was a lowered level of shipments from LDK in 2010, with possible price adjustments going forward. LDK shares lost 25% in two days and have never recovered.

German politicians have a selfish reason for keeping the feed-in tariff high for wind power: the two global leaders in wind turbine technology are both German companies, Enercon and Siemens AG (NYSE:SI). Keeping foreign investment flowing in and employing thousands of people are in the government’s best interest.

Germany also boosted the feed-in tariff for wind power, making the construction of large offshore windfarms in the Baltic and North Seas financially possible. And the Germans also hope to take advantage of growth opportunities in the US and China.

Returning to China and its uselessly spinning wind turbines, another issue related to wind generation rears its head. Most wind power requires that the grid be upgraded to accommodate the new wind farm. In China in 2009, as much as 15,000 megawatts could have been lost to an insufficient grid. Some Chinese who work for the companies that run the country’s grid have called wind and solar power “rubbish electricity”, citing the cost of maintaining and operating the grid to get these relatively small amounts of power on the transmission lines.

But building out the electricity grid in a country the size of China or the US is very costly. One estimate of upgrading the US grid made in 2008 came in at $880 billion. In Germany, which is much smaller also faces rising costs to build out its grid, which like those in the US and China, was designed around large, central generation plants, not widely distributed, and smaller, solar and wind power generators.

In the US there are about 200,000 miles of power lines. Much of that grid is nearing 50 years of age and is located nowhere near where wind power can be most efficiently used to generate power. The windiest places in the lower 48 states are the Dakotas. To build transmission lines from there to New York City would cost about $13 billion. The investment would eventually be recovered in cost savings, but the up-front money needs to come from somewhere.

One idea that could work is to combine wind power on a local scale with some kind of storage for those times when the wind isn’t blowing. The city of Presidio, Texas, just brought a 4 megawatt battery-storage facility on line that uses solar power to generate electricity and a house-sized battery to store it. Power lines to Presidio are about 60 years old and routinely fail. BOB, which stands for ‘Big Old Battery’, cuts in when power from the grid goes out and can meet the demands of the city’s 4,800 residents for up to eight hours.

In Europe small, mostly solar-powered combined heat and power plants are used on the neighborhood level to provide both hot water and electricity to a relatively small number of homes and businesses.

Wind power, which is often seen as a replacement for a large coal-fired plant, could just as easily generate electricity that is stored for use at those times when the wind isn’t blowing. Storing electricity on a utility scale and transmitting it to where it will be used is hugely expensive. It’s far more economical to build natural gas- or cleaner coal-fired plants.

The US Energy Information Administration estimates that electricity consumption from all sources will grow by about 1.2 billion kWh between 2008 and 2035. Renewables grow from a current level of 9%, including hydropower, to 17% in the same period. As the EIA points out though, without federal and state incentives and portfolio requirements all bets are off.

Paul Ausick

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