Back in November, the US wind sector could never have imagined that four of its leading wind states would be a greater source of industry uncertainty than President Donald Trump.

Events in Oklahoma have raised concerns over states’ readiness to continue subsidy support in an era of budget cutbacks and fiscal constraints, while potential trouble is also brewing in California, Iowa and Texas, suggesting that the industry’s ability to lobby effectively on crucial issues will soon be put to the test.

In March and April, by an overwhelming margin, Oklahoma’s Republican-dominated Senate and House voted to roll back the remaining state tax incentive for wind energy to 1 July, breaking an earlier pledge to preserve it until the end of 2020. It was signed into law by Republican Governor Mary Fallin on 17 April.

The wind industry feels betrayed. “Changing the investment rules in the middle of the game sends a message to every investor in America that Oklahoma can’t be expected to honor its economic development commitments,” says Jeff Clark, executive director of regional advocacy group The Wind Coalition.

Facing large budget shortfalls, Republican Governor Mary Fallin is in no mood to debate the issue, saying the sector was “incentivised sufficiently to now be a major player in the Oklahoma energy industry”. She also wants to also slap a $5/MWh tax on wind energy production — five times what Wyoming collects, the only other state to do so.

With relations strained between developers and Oklahoma officials, the outlook is uncertain in the nation’s number-three state for wind capacity.

In neighbouring Texas, the leading wind state, the industry is under attack from lawmakers who want to limit or prohibit counties and school districts from using a popular ten-year property tax abatement scheme known as Chapter 313 to attract new wind projects. The programme, which developers view as crucial for expansion, has drawn $32bn wind investment into Texas, enabling it to become the world’s sixth largest market, if it were a country.

Meanwhile, in California, zoning boards and other regulatory bodies are, for various reasons, restricting land use so much that wind activity has slowed to a crawl. The number-four wind state did not install a single megawatt in 2016 and had only 131MW under construction this year.

Analysts warn that if this trend continues, California could have to import 80% of the estimated 10GW of new wind capacity it may need to meet a 50% renewables mandate by 2030.

And in Iowa, the second-ranking wind state, merchant transmission developer Clean Line Energy Partners is struggling to obtain necessary regulatory approvals for its $2bn Rock Island project that it says would lead to $7bn in new wind farm investments. The line would provide a direct conduit to deliver 3.5GW of low-cost energy from the state’s northwest and neighbouring South Dakota to the Chicago area and further east.

Without it, the industry will not be able to continue all its planned massive wind expansion there, as future supply will exceed domestic needs. Iowa already generates more of its electricity from wind power — 36.6% in 2016 — than any state.

Lessons from Oklahoma

Oklahoma’s early sunset of the $5/MWh Zero-Emissions Facilities Tax Credit is particularly troubling for the wind industry, as it represented a high-profile political setback in one of its fastest-growing markets. The move will also be financially painful for developers.

“This is the type of thing the industry doesn’t want to have happen. It sets a precedent and empowers other states to pursue similar legislation,” says Luke Lewandowski, research manager at MAKE Consulting.

It also was a wake-up call for the sector for other reasons.

First, a deal is a deal only if both sides respect it. Oklahoma legislators did not. In exchange for their pledge in 2015 to retain the zero-emissions tax incentive for six more years, the industry agreed to have two others phased out at the end of 2016. Doing this will reportedly save the state $500m over 10 years. Yet, for all that, wind paid a price by being the first — and only — industry to offer to work with lawmakers to phase out all tax incentives from which it benefits. Such a move is now unlikely in other states.

Second, it shows how politically powerful the oil & gas industry remains in the US heartland. In recent years, it fought hard for elimination of all wind subsidies in Oklahoma and won the lobbying battle — while apparently preserving its own tax breaks that will cost the cash-strapped state $513m in the financial year that begins on 1 July, according to the Oklahoma Policy Institute.

The independent, non-partisan think tank estimates this would be an increase from an estimated $460.5m year earlier — a huge chunk of lost revenue considering the entire state budget is less than $7bn. By comparison, latest official data shows wind energy producers claimed $59.7m in zero-emission credits and $29.6m in for an exemption on local property taxes in the 2016-17 financial year. Wind investment in Oklahoma over the last decade exceeds $12bn.

Third, Oklahoma’s decision could encourage oil sector lobbyists in other states to step up their campaign against the wind industry.

Fourth, lawmakers have made no attempt to tax the large amounts of coal that utilities in Oklahoma import. Other wind states, if they experience fiscal problems, might also opt to target the wind industry ahead of coal importers.

Oklahoma wind developers currently use the zero-emission incentive to reduce their tax liability during the initial decade a wind farm generates power. Unused credits are also refundable in cash for 85% of face value. So developers stand to lose millions of dollars if they cannot bring under-construction projects into operation by 1 July.

Obviously, developers had factored these incentives into their project forecasts before signing fixed-price power-supply deals and bank loans. Contracts covering components and services are also expensive to break or renegotiate.

“Having the rug pulled out from underneath us in a very short period of time changed the economics of those projects quite a bit,” says Matt Langley, vice-president of finance and origination at developer Infinity Renewables.

“We’re building 30-year infrastructure and it will typically take us three to five years to develop a project from scratch. I can’t build a wind farm in Oklahoma, pick it up and move it to Nebraska. We rely on stable policies.”

Any tax on wind energy production, he adds, which would require a steep three-quarters “supermajority” vote in the legislature to enact, “would basically close the state for business for us”. Republicans control 87% of seats in the Oklahoma Senate, and 73% in the lower House — although they could reach the supermajority if they secure the two vacant House seats.

Clark says policy uncertainty has already led several of The Wind Coalition’s members and their financial backers to go elsewhere.

Industry opponents call such talk largely hot air, arguing that the federal $24/MWh production tax credit will enable developers to continue generating healthy profits for years to come as all projects under construction and many of those in their pipelines will have qualified for it. They contend that Oklahoma will continue to lure investment because of its world-class wind resource and lower corporate tax burden compared with many states.

Byron Schlomach, director of the 1889 Institute, a public policy group in the state capital that favours limited government, disputes the notion that Oklahoma is turning against the wind industry or engaging in discrimination. He says the industry no longer needs incentives as the state did what it could to help it grow. Oklahoma also met its voluntary 15% renewables mandate by 2015.

“I think everybody feels like we’ve done our part,” he says. “We’ve done enough for them at this point and they need to stand on their own two feet.”

Past, present, future

These challenges raises the question of whether the wind industry is too reliant on a handful of states for future growth.

Between 2013 and 2016, almost 70% of 21.1GW of installed US wind capacity was in Texas, Oklahoma, Iowa and Kansas. At the start of this year, 64% of capacity under construction was in those states, and that proportion is set to increase once MidAmerican Energy’s 2GW PTC-qualified Wind XI expansion in Iowa is counted.

Anthony Logan, an analyst at MAKE Consulting, notes that once the pipeline of PTC-qualified projects runs dry in 2020-21, it may be uneconomic to place facilities outside the country’s interior wind belt region — except in states that have renewable energy mandates or are incentivising offshore development in the Northeast.

“To that extent, potentially the whole wind market will be involuntarily contracted into these central states,” he says, which also include Nebraska, North and South Dakota, and parts of Colorado, Minnesota, New Mexico and Wyoming. And despite the strong wind resource in those states, not all projects would make financial sense without the PTC, he adds.

Another key element will be availability of transmission infrastructure for export since Iowa, Kansas and Oklahoma have relatively small internal markets.

As a would-be importer of wind energy from multiple states, California is important to the industry’s future — providing that the required transmission lines can be built.

But even in liberal California there are political obstacles. As it already imports a quarter of its electricity supply, some state leaders prefer local development of solar energy to imported wind, to create local jobs and boost local economies.

But the Golden State’s grid operators already have a growing glut of daytime electricity produced by solar installations, which causes real-time power prices to plummet, leading to costly curtailments and wasted energy.

Nancy Rader, executive director of the California Wind Energy Association, notes that if more wind power is not imported, California — which is aiming for 50% renewables by 2030 — is going to end up paying much higher prices for solar — to compensate curtailed power or to buy storage to prevent that curtailment.

“Either way, it is going to be a lot more expensive than buying wind energy to complement solar energy,” she says. “That is what the state really needs to grapple with. I don’t think it has yet.”

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The coming threat from US wind states