Another constraint is financing for wind energy projects, which tends to be somewhat less readily available and more costly than financing for conventional energy facilities. Wind energy projects are typically developed by independent power producers, which obtain financing on the strength of power purchase agreements with electric utilities. At the current avoided cost for electricity (i.e., what the utility would have to pay for additional capacity using another fuel source), standard power purchase agreements are generally insufficient to support investment in wind farms. Only in very special cases can wind energy compete against conventional power. Also, lenders perceive risks in wind technologies and their performance. For example, if the technical estimates of the performance of a wind energy project prove overly optimistic, revenues may fall short of expectations, and the borrowing independent power producer may be unable to service its debt. To compensate for this risk, lenders typically charge comparatively high rates of interest for such projects and demand relatively large amounts of equity.(18) Investors demand higher rates of return on their equity. Overall capital costs may be moderately higher than for utilities or less risky power plant investments.
A third constraint on the integration of wind capacity into electric utility systems is the variability of wind energy potential by geographic region and daily weather conditions. Wind-driven electricity generating facilities must be located at specific sites to maximize the amount of wind energy captured and electricity generated. However, many good wind energy sites are on ridges or mountain passes, where siting and permitting difficulties, land restrictions, aesthetic objections, the potential for bird kills, and harsh weather conditions often constrain development. Further, transmitting electricity from good resource sites to population centers, where demand is greatest, can result in higher costs. These obstacles, as well as those imposed by environmental exclusion areas, bear critically on the development of wind energy capacity in this country.
A fourth constraint on the integration of wind power into electric utility system applies once wind capacity exceeds about 15 to 20 percent of installed system capacity. At this level of penetration, utility system studies indicate that additional spinning reserve(19) and load-following generation may be needed. These forms of support are necessary to maintain system area control in the event of fluctuations in wind farm output. Because of these requirements, the value of wind power may decline markedly once wind system penetration exceeds about 15 to 20 percent of a utility system's installed capacity. No utility has reached this level of penetration thus far.
Finally, while wind power is considered to be environmentally benign relative to conventional energy technologies, it does face certain environmental hurdles. First, some consider large-scale commercial wind farms to be an aesthetic problem; second, high-speed wind turbine blades can be very noisy, although technological advancements continue to improve this problem; and third, differential pressure gradients around operating turbines can cause birds to be drawn into the path of the blades.