AEP Kills Plan for Largest U.S. Wind Farm After Texas Rebuff

American Electric Power Co.’s $4.5 billion Wind Catcher project was done in by shaky economics, and may become a teaching moment for other developers planning big clean-energy projects.

Wind Catcher at a glance

The proposed Wind Catcher Energy Connection would have included the largest wind farm in the US and an innovative dedicated power line connection. Read our full story at here.

  • Purpose: To boost wind power generation and transmission to meet growing demand
  • Scope of project: Includes construction of 2,000 MW wind farm in the Oklahoma panhandle and a 765-kV 350-mile dedicated generation tie-line that would deliver energy to the existing power grid near Tulsa. From there the energy would travel to customers in Oklahoma, Arkansas, Louisiana and Texas.
  • Project Cost: $4.5 billion
  • Project Timeline: Wind farm is currently under construction. Stakeholders hope to complete wind farm and power line and have the project operational by 2020.
  • Status: Approvals have been granted by Arkansas and Louisiana; approvals still pending from Oklahoma, Texas and the Federal Energy Regulatory Commission.

Main players included:

The company pulled the plug Friday on what would have been the biggest-ever U.S. wind farm. Texas regulators rejected the project Thursday because it didn’t offer enough benefits for ratepayers, and Oklahoma came to a similar conclusion in February.

The decision shows that regulators are looking very closely at major wind projects as they face more competition with cheap natural gas. While some of the big wind farms already in operation got the green light in part because of renewable-energy mandates, new projects increasingly will have to hold their own based on the numbers.

“More and more wind projects are being presented as cost savings for consumers, as opposed to just for meeting renewable energy goals,” said Paul Patterson, an analyst at Glenrock Associates LLC. “And that means the economics of projects are going to be heavily scrutinized.”

The 2-gigawatt wind farm had faced significant barriers from the start. American Electric was seeking up-front guarantees from regulators that customers would pay the costs, plus a profit, and the cancellation raises questions about whether that model will help utilities build other big renewable energy projects. Changes to the federal tax code and increasing competition from natural gas changed Wind Catcher’s economics, creating doubt about its potential benefits for ratepayers.

“Basically it commits customers to pay $4.5 billion for a new system and you don’t know how that’s going to compare over time to what power would have cost,” Kit Konolige, a New York-based analyst for Bloomberg Intelligence, said Friday.

Fair Questions

“It would have been a big increase in the rate base. When and how it would have paid off — those are fair questions,” Konolige said.

The project that Invenergy LLC was developing in Oklahoma would have also served customers in Texas, Louisiana and Arkansas. American Electric’s Southwestern Electric Power had proposed owning 70 percent of it.

Oklahoma, which hadn’t made a final decision, found in February that American Electric had failed to prove there was an economic need for the project and it left customers shouldering too much of the risk. Arkansas and Louisiana had already approved the project.

A coalition of Texas industrial energy users in March said that federal tax cuts approved in December were likely the “final nail in the coffin for the Oklahoma wind farm,” according to a filing with the Texas Public Utility Commission. Lower tax rates reduced the gross value of federal production tax credits for Wind Catcher by about $245 million, the group said.

“These huge projects have always been a challenge,” said Amy Grace, a New York-based analyst at Bloomberg New Energy Finance. “It’s hard when you’re competing on economics with some of the cheapest wholesale power prices in the world.”

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