If he could have ever seen the FPL Group’s new wind farm here, Don Quixote would have certainly fallen off his horse. With jagged rows, scores of miles long, of 421 wind turbines scraping the big West Texas sky with blades as long as 132 feet, it is by far the biggest in the world.

There is little quixotic about wind power anymore: the FPL Group is now building a second giant wind farm right next door. And just as the cows shelter in the shadows of the turbines to escape the hot sun, a growing number of copycat companies are lining up to imitate the big bet by this company, based in Juno Beach, Fla., that wind power can work as well for shareholders as it does for environmentalists.

The nation’s wind energy capacity grew last year by 27 percent, with the industry investing $4 billion to install more than 2,400 megawatts of power — enough to provide electricity equal to the needs of more than 500,000 homes. This year, wind power could increase 26 percent, according to the American Wind Energy Association, and Wall Street is increasingly eager to finance the investment.

But the wind turbines rest on shaky financial foundations. And the industry faces a challenge in the marketplace, one that may well be crucial for the nation’s ability to wean itself from fossil fuels and deal with global warming.

The problem is that the staying power of these companies is ultimately dependent on tax benefits from the capricious hands of lawmakers in Congress. A critical test comes at the end of next year, when the tax provisions fueling the initial wind power boomlet are due to lapse. It takes only a brief visit to the office of Michael O’Sullivan, a senior vice president of FPL Energy at its Juno Beach headquarters, to see that the market experiment in renewable energy is far from settled.

Amid maps detailing wind speeds and transmission lines around the country, a large protest placard rests on Mr. O’Sullivan’s windowsill that proclaims: NO WIND FARM.

It is a sardonic trophy from an unsuccessful FPL Energy effort to build a wind farm in Illinois five years ago, a time when the company was also just emerging from various internal controversies, including a virtual mutiny by several important employees and criminal charges against a senior executive for industrial sabotage. “I keep this here to keep my development group humble,” Mr. O’Sullivan said matter-of-factly about his poster. “We don’t drink our own whiskey.”

Still, many environmentalists remain high on wind power, and there is increasing bipartisan support for it. The production tax credit for wind is becoming increasingly expensive at a time of tight budgets, especially for an energy source that still generates less than 1 percent of the country’s power.

The extension from 2006 to 2007 cost the Treasury $2.75 billion by one Congressional estimate, and that number will mushroom as the industry continues to grow.  “There is always the risk the tax credits aren’t renewed,” said Brian M. Youngberg, a utilities analyst for Edward Jones, the investment firm, “and the business essentially stops growing.”

A decade ago, when many other utilities viewed wind as a half-baked idea for tree huggers, executives of the FPL Group cast an accountant’s eye on the prospect of further developing wind power. The tax credits have lapsed (and been restored) three times since then, and despite the stops and starts, the FPL Group has persevered. As a result, even if the tax benefits lapse a fourth time, the FPL Group appears to be the company best positioned to keep its current wind power going.

FPL Energy, the company’s national wholesale power supplier, slowly began amassing a small wind farm empire in the late 1990s, gradually reaching nearly 50 wind farms in 15 states. Its 6,400 wind turbines now provide electricity for the equivalent of 1.2 million homes. “You have to look at the fundamentals and take a bet,” said Moray Dewhurst, the FPL Group’s chief financial officer. “The bet now is that public policy will continue to support those forms of energy production that can help address the climate change problem.”

Wind now represents 12 percent of the FPL Group’s diversified energy portfolio and it is growing along with natural gas and nuclear — other bets that the threat of climate change will increasingly determine what utilities can and cannot build to meet electricity demand. The company was responsible for a third of all the country’s new construction of wind power installations last year, far more than anyone else.

By the end of this year, the company will have $6 billion invested in wind energy production, including three of the nation’s five biggest wind farms. Around the world, the FPL Group is the second-biggest wind generating utility, after Iberdrola of Spain.

More than 20 states have requirements that utilities use some percentage of renewable power, and talk is increasing in Washington of enacting a federal standard for utilities and eventually some kind of carbon tax to penalize the use of fossil fuels that produce global warming gases.

“FPL is looking pretty smart right now,” said Brandon Owens, an expert on renewable energy markets at Cambridge Energy Research Associates, a consulting firm. “They have been instrumental in helping the industry mature and be viewed as legitimate, particularly with the financial community.”  Wind does not blow on every street corner, of course, and Mr. O’Sullivan readily acknowledged that in some places where the wind does blow hardest, the transmission lines to carry its energy are scarce or expensive to build. People are not always enthusiastic about having 400-foot wind behemoths as neighbors or having them mar their view, either.

All this limits the potential of wind. But beyond the uncertainty over local opposition and tax credits, Mr. O’Sullivan said that he was also worried about the spiraling 60 percent to 80 percent increase in the cost of wind turbines in the last three years. That increase relates to sharply higher prices for steel, copper and other commodities, and the stronger euro, which makes important equipment from Europe more expensive.

“There are plenty of issues and challenges ahead of us that we have to deal with day in and day out,” said Mr. O’Sullivan, who is the chief development planner for FPL Energy. “Somebody has to pay the bill for wanting this form of energy, and if that price is too expensive, at some point public policy support may erode for renewables or wind specifically.”

The current production tax credits that expire soon provide 1.9 cents in credit per kilowatt hour for wind-generated electricity over the first 10 years of a project. Whenever the credits lapsed since they were first enacted in 1992, wind development virtually ground to a halt for months at a time, creating market uncertainty. More than half the value in a typical wind project comes from tax incentives, so executives at the FPL Group concede that their program would again be halted if the tax credits lapse at the end of 2008.

But as a diversified utility, the FPL Group is somewhat sheltered. The company would still benefit from the tax credits for wind farms already built, and it could always shift future investments into other energy sources.  Its main cash cow, Florida Power and Light, a regulated utility providing electricity for Florida residents, does not have any wind power at all. Florida’s breezes are not strong and steady enough to make wind farms profitable. The FPL Group’s path toward wind was not a straight one, and not only because of lapses of the tax credit.

When utilities were partially deregulated in the late 1990s, companies looked at various money-making ideas, including investing in casinos and real estate. Many invested in too many gas-fired plants. The FPL Group initially fumbled around with some broken deals. It eventually came upon wind, mostly because of the tax advantages.

“There wasn’t a green messiah who was the piston in the engine,” said Pat Wood, a former chairman of the Federal Energy Regulatory Commission. In 2000, an early president of FPL Energy was forced to leave the company when his wife complained that he was consorting with an employee. (The executive later married the woman when his marriage collapsed.)

That made way for Lewis Hay III, who was the FPL Group’s chief financial officer at the time. Handed the reins, with no time to prepare, he found the company in total turmoil, he said. There was rampant backbiting and intrigue and, to his chagrin, the wind development business had been dropped in favor of natural gas.

Mr. Hay said the company had made a disastrous bet with a multibillion-dollar order of gas turbines from General Electric at a time when a gas generation glut was building. Looking for a way out, he scrambled and persuaded G.E. to switch the order to wind turbines instead. “Wind was the first thing we came across,” recalled Mr. Hay, who is now the chairman and chief executive of the FPL Group. “and thank God we did.”

(By Clifford Krauss, The New York Times, 01/06/2007)