The EIA says the US wind energy sector faces several challenges, primarily around changes to a tax credit regime, which make it less effective to invest in wind generation.

Most distributed wind turbines installed in 2014 were connected directly to distribution lines to serve local loads.

Distributed wind turbines can also be installed either off-grid or grid-connected at local sites to offset all or a portion of a site's electricity consumption.

Compared with electric utility-scale wind facilities, distributed wind turbine installations are often smaller units, below 1 megawatt and may not appear on EIA's survey of utility-scale electric generators, which has a 1MW threshold at the project level.

Although some large-scale turbines are used in distributed generation applications, large-scale turbines are more often used at wind farms for wholesale power generation, which is sent through transmission lines to more distant customers.

Based on information in the US Department of Energy's Distributed Wind Market Report, most of the 2014 distributed wind capacity was installed on institutional sites, such as schools, universities, and electric cooperatives.

Government installations on city, municipal, or military facilities made up more than one quarter of 2014 installed capacity.

Other sectors - industrial, commercial, agricultural, and residential - were relatively small in terms of capacity, but larger in terms of number of installations, as the average turbine size on these sites is relatively small compared with institutional and government sites.

Some customers who install these turbines are eligible for federal tax credits, which can provide a 30% cost incentive for turbines with capacities of 100 kilowatts or less.

The investment tax credit was one of the largest factors in both the increase in installations from 2010 to 2012 and the decline after 2012.

In 2009, as part of the American Recovery and Reinvestment Act, the US Treasury allowed projects to receive cash payments instead of tax credits, but they needed to be under construction or in service by the end of 2011.

Even though these tax credits are still available, the expiration of the cash payment option appears to have drastically reduced the installation of small and mid-size wind turbines.

Further affecting the outlook for distributed wind is the Internal Revenue Service's new requirement, that small wind turbines meet performance and safety standards in order to qualify for the credits.

Other factors cited in the EIA's report are the relatively low price of grid electricity and lower cost of solar photovoltaic systems, which also receive the 30% tax credit.

Further, permitting and installation costs for small wind farms have also not fallen as far as they have for photovoltaics, and US based manufacturers have been more vulnerable to market downturns.