HardAssetsInvestor

Written by Julian Murdoch  |

July 09, 2009

Pickens’ Epic Wind Fail

Details

• The Pickens plan
• What went wrong
• The future for wind

It's all over the headlines: T. Boone Pickens' huge wind farm has been scrapped - or at least postponed. After warning last year that he was having difficulty securing financing for the project, and was terminating land leases in March, this week's announcement isn't a huge shock, but it does bring up some things to think about, and for Pickens' detractors, an opportunity for schadenfreude. After all, Pickens reportedly spent nearly $60 million last fall just advertising how awesome his plan was.

Why It Didn't Work: A Perfect Storm

Between the credit crisis, falling oil and natural gas prices, and a general decrease in energy demand due to the state of the economy, it frankly would have been more surprising if the large wind farm in Texas got up and running as scheduled.

Wind farms are expensive to build. The 667 wind turbines that Pickens' company purchased from GE came to a grand total of $2 billion. The total cost for the project was to be $10 billion. With credit tight everywhere and energy prices down, lining up financing just for the turbines was a bit more difficult than expected, but Mr. Pickens said he did it, and will in fact be looking for homes for those 667 turbines. Anyone want a small backyard wind farm? Pickens may be calling.

The next challenge was transmission lines.

Wind farms tend to be out in the middle of nowhere. To get the electricity from the middle of nowhere to the middle of somewhere, transmission lines have to be strung. Without those lines, the power is like a tree falling in the woods - it may make a sound, but who cares?

This has long been brought up as a roadblock to increasing green energy usage - the electrical grid in the U.S. is old and in need of repair and upgrading. New high-capacity transmission lines cost between $2-4 million per mile, according to a recent report by the Pew Center on Global Climate Change. If the goal is to increase wind's percentage of energy production to 20%, the amount of new transmission lines needed to handle the electrical load is estimated to be between 12,650 and 19,000 miles - over $60 billion worth. When I wrote about the stimulus plan in February (Is Alternative Energy Dead?), I mentioned that the U.S. had only $11 billion earmarked for investment in transmission projects.

As far as Pickens' Mesa project is concerned, the Public Utility Commission in Texas had a plan to invest $5 billion in transmission lines, but the lines wouldn't have gone all the way out to the Mesa project. Whoops.

Energy Prices

Oil is sitting around $60, and natural gas is a steal at $3.35. In fact, natural gas is so cheap that coal - the down and dirty go-to fuel for cheap electricity - will likely see a downtick in consumption. The U.S. Energy Information Administration revised its coal demand outlook for 2009 downward, and is now forecasting U.S. power plants will burn 987 million tons of coal.