It was once little more than a quixotic idea blowing in the breeze. But electric power generated by wind has become a factor in the U.S. energy portfolio.

Wind still fuels a fraction of electricity output. Its 25.8 billion kilowatt hours of juice produced last year were enough to power 2.3 million homes. But that was just 0.64% of the electricity generated in the U.S., according to the Energy Department.

Coal's 1.987 trillion KWh cooked up 49% of the total. Nuclear plants were 19% and natural gas nearly 20%.

Yet wind is the fastest growing power source by far.

Picking Up Power

This decade U.S. wind farms have cranked up electrical output a staggering 361%.

Coal generation edged up barely 1%. Gas climbed 34%. Nuclear output rose 4.4%. Oil generation, with its huge cost increases, sank 43%.

Last year alone, wind power picked up 45%.

In fact, the U.S. installed more wind power capacity than any other nation. Total wind capacity grew to third largest globally.

Not bad for a nation often vilified around the world for the volume of energy it uses up per person.

And industry sees no slowdown. Big turbine makers have sold all their production through 2008, said Xcel Energy (XEL) 's Mark Stoering, vice president of portfolio, strategy and business development.

The growth of wind power comes as critics accuse the U.S. of doing too little to staunch carbon-dioxide emissions and stem global warming.

How to continue the industry's gains is a topic at its Windpower 2007 conference this week in Los Angeles. A mix of economics and eco-politics explains the surge in wind power, said Randall Swisher, the executive director of the American Wind Energy Association.

"Wind would not be advancing in the market the way it is today if it weren't within a competitive range costwise with other energy options," Swisher said.

Upfront construction costs for so-called wind farms compare favorably with most fossil-fuel power plants. Projected costs per kilowatt hour of eventual output, including everything but financing costs, according to the Energy Department, are:

• Nuclear, $2,081.

• Coal, $1,290.

• Wind, $1,206.

• Natural gas-oil combination, $594.

"Installation of natural gas plants is cheaper," said Bob Gates, senior vice president of Clipper Windpower, which develops wind farms for utilities and other clients. "But next (the utility manager has) got to buy natural gas. Then he's got to pay for upkeep."

For wind to win customers, it must clear other hurdles. One is reliability. In recent years manufacturers improved the ability of wind power generators to operate without breakdowns, said Vic Abate, vice president of renewables at GE Energy, (GE) a unit of the conglomerate.

"Being able to operate less than 98% of the time is not acceptable to most customers, including utilities," Abate said. He says GE's turbines achieve that level.

The second hurdle involves wind's intermittence.

"Wind doesn't always blow, so you've got to be able to plug a wind farm into a power-delivery grid that also gets electricity from other sources," Abate said.

But wind's contribution to the overall national power grid is a key to its appeal.

"It doesn't matter if wind isn't blowing at any one wind farm," Gates said. "What does matter is plugging wind farms into the grid.

"When they do provide power, you can cut back electricity from plants fired by coal or oil or whatever. That helps preserve those nonrenewable sources. And it can cut emissions."

Still, a lot of business is driven by customers' desire to go green.

Even when wind-generated electricity costs more, some customers insist on it.

"They are willing to pay a slight premium," said Xcel's Stoering. (XEL) "We offer that choice in Minnesota, Colorado and New Mexico. Demand for wind power equals or (tops) supply."

The Minneapolis-based utility serves customers in eight states in the West and Midwest. Its electricity is fueled by everything from natural gas, coal and nuclear energy to wind and water.

"The demand for wind-generated power starts with customers' growing environmental concerns, growing carbon concerns, growing emissions concerns," Stoering added. "They want more energy from renewables."

Gov't Says Green Up

States are also pressuring providers to green up their acts. In Xcel's service area, Minnesota says 30% of utilities' power supply must come from renewable energy by 2020. About 25% of that must come from wind. Colorado has a similar mandate.

Key incentives have come from the federal government. The Public Utilities Regulatory Policies Act of 1978 created a legal framework that encouraged the creation of small power producers. Many resorted to wind for energy.

In 1992 Congress created the Production Tax Credit. "The idea was to offer wind power producers a level playing field with other energy sources," Gates said, "which already had various types of help." For instance, coal miners get a depletion tax allowance.

Wind farmers now get 1.9 cents per KWh for selling electricity.

The trouble is that the credit comes and goes as political winds shift on Capitol Hill.

The credit was renewed in mid-2005. But that was the first time it was extended before it lapsed.

"The 2005 renewal has given the industry three years of stability," said AWEA's Swisher. "That's helped companies ramp up production and plan for the future."

Prior lapses contributed to a boom-and-bust cycle for the industry, Swisher said. The credit is due to expire again after December 2007. "That's a cause for worry," he said.

Gates added, "Without the credit, you'd see far fewer wind farms."

Xcel's Stoering expects Congress to renew the credit , given concern over energy prices and emissions.

All told, market and government incentives have quietly made wind power into big business.

GE Energy is the equipment manufacturer with the largest installed capacity in the U.S. It has 1,146 megawatts on line, according to AWEA. Siemens (SI) is next, with 573 megawatts.

FPL Energy, a unit of the utility holding giant FPL Group, (FPL) is the biggest owner of wind farms. It corrals 4,016 megawatts worth of wind turbines.

And Xcel is the utility with the most wind power on its system.

Critics say towering turbines are wind farms' downside. The spinning windmills threaten birds and pose radar hazards. Underwater structures endanger fish and can interfere with marine navigation.

"Some people say the noise bothers them too," Swisher said. "But visual impact is the biggest criticism."

Marred views are a reason some owners of multimillion-dollar oceanfront homes have fought a plan to build the nation's first offshore wind farm.

The proposal is for 130 turbines rising 440 feet above sea level across 25 miles in Nantucket Sound. The waters are off the southern coast of Massachusetts.

Among nearby homeowners is Sen. Edward Kennedy, D-Mass., whose family's storied waterfront compound is in Hyannisport. Kennedy at one time proposed federal legislation that would let the state governor veto such projects.

The Senate energy committee blocked the 2005 energy bill until it lost such riders that would have killed the Nantucket Sound project.

"We're not going to become a country of windmills," Swisher said. "But windmills are becoming a help to the country."