Credit crunch puts crimp in Pickens' energy plan

T. Boone Pickens' $10 billion wind farm – the cornerstone of his plan to build thousands of wind turbines from Texas to Canada – is about to be downsized because the oil tycoon can't raise money in the current credit crunch, the billionaire confirmed to the Observer.

Pickens visited the Observer this week to talk about the Pickens Plan, aimed at reducing U.S. dependency on foreign oil. He wants to use natural gas and wind energy as oil substitutes and slash imports by 30 percent in 10 years.

He acknowledged the need for subsidies for natural gas and electric-powered vehicles, while sidestepping questions about the need for government money to pay for new alternative energy infrastructure and related projects. He said private enterprise will play a large role.

Asked about his plans to build a giant wind farm in the Texas Panhandle, Pickens said: “I've started it, but let's don't go into that, my project is getting ready to get downsized pretty quick.

“You can't get financing,” he said. “But that will all come back.”

He declined to talk further about the project, originally estimated to one day power 1 million homes. It would be built on 400,000 acres and is expected to be the southern anchor of a corridor that would stretch to South Dakota.

He sees wind power, which now makes up 1 percent of electricity generation, accounting for 22 percent of that pie in 10 years. Natural gas currently generates about 20 percent and that energy would be used to power vehicles.

Earlier this year, Pickens had reportedly ordered $2 billion worth of wind turbines from GE. The total project was estimated at the time to ultimately cost between $10 billion and $12 billion and be finished by 2014.

“The capital markets are problematic for everyone, and we are keeping an eye on them,” Pickens said Thursday in a statement. “We are committed to wind development projects and believe it's a viable business for us. The capital markets may lead us to scale back a bit but we are still going forward with our wind business.”

The stall comes at a time when half the investors in the energy-related hedge fund he runs, BP Capital Management, have taken their money out of the fund, which posted 60 percent losses so far this year, the Wall Street Journal reported.

During an interview on “60 Minutes” Oct. 26, Pickens said he and his fund were down $2 billion as a result of the slumping oil and natural-gas prices.

Jamie Webster, senior consultant in the Gas & Upstream Group of PFC Energy, said the slowdown could prove a good thing for the alternative energy movement. He said other wind and renewable energy projects are having problems securing funding because of tightening credit markets, but he declined to provide specifics.

“There's a higher bar,” he said. “People may not be willing to test new concepts, new technology and new ideas as readily as they would have been just 18 months ago.”

Wind now makes up about 1 percent of total U.S. energy use, according to the Energy Information Administration. Last year, the U.S. primarily relied on petroleum, coal and natural gas for energy. Renewable energy, which includes wind, accounted for about 7 percent. Nuclear made up 8 percent.

Pickens acknowledged that getting the captured energy from wind distributed to users will require a massive power grid upgrade, something he estimates could cost $70 billion.

“Our power grid is pitiful,” he said. Upgrading it “will create jobs.”

Ultimately, Webster said, U.S. electricity demand is going to continue to increase. Since 1949, demand for electricity has fallen from year-to-year only twice, he said.

Renewable energies had been growing at a fast clip – around 20 percent – since the about the beginning of the decade. This “hiccup,” Webster said, could prompt some proponents to lobby for increased federal subsidies.

“I don't think this puts a black-eye on things,” he said. “Renewable energy is going to continue to grow within the U.S.”