T. Boone Pickens has officially downsized his Texas-sized wind power plans.

The oil tycoon has scrapped his plans for a 4-gigawatt wind farm in Texas, planning instead to build five or six much smaller wind farms using the General Electric wind turbines he's already ordered.

That's according to an interview Pickens gave to the Dallas Morning News last week, in which he blamed falling financial markets and natural gas prices for the change of heart.

But Pickens' big plans for a massive wind farm for the Midwest has been on hold since October or so, a victim of the ongoing economic collapse, falling natural gas prices

In July 2008, when Pickens launched his plan to spend about $10 billion on what was to become a 4-gigawatt wind farm, his hedge funds were managing about $4 billion (see T. Boone Pickens Has a Plan).

By October, however, the value of those funds had been cut in half, stalling his plans (see Knocking the Wind Out of Pickens). Now Pickens' hedge funds manage about $1.5 billion, the Dallas Morning News reported Monday.

Natural gas prices also play a role, since Pickens' plan called for using wind power to replace electricity made from burning natural gas. That could free up the fossil fuel to be used for transportation fuel – the second half of the Pickens plan, and one closely aligned with his business interests.

But wind power was far more competitive with natural gas-fired electricity last summer, when gas was selling for $9 per British thermal unit, Pickens told the Dallas Morning News. Today that price is closer to $4, he said, putting wind power at a competitive disadvantage and making financing for the project difficult.

Pickens is still seeking to push natural gas as a transportation fuel, and has called for $28 billion in federal stimulus spending to help convert about 350,000 big rigs to run on the fuel, as well as build a network of fueling stations to support them (see Pickens Wants Natural Gas-Fueled Big Rigs).

Pickens co-founded Clean Energy Fuels (NDSQ: CLNE), a natural gas distributor in Seal Beach, Calif. with investments in natural gas-powered transportation (see Clean Energy Fuels Buys Landfill Gas Plant).

The company spent $17 million last year to back a failed California ballot initiative calling for the state to raise $5 billion in bonds to fund rebates for buying and retrofitting vehicles to run on alternative fuels including natural gas (see States Tackle Green Ballot Initiatives).

In the meantime, Mesa Wind, the company Pickens formed to build the wind farm, still has about $2 billion worth of wind turbines on order from GE.

The 637 wind turbines ordered are set to start being delivered in 2011, and as Pickens told the Dallas Morning News, "I don't have that big a garage to put them in, so I've got to start getting ready to use them."

That's where the smaller wind farms come in. Pickens said he's looking at building farms of about 150 turbines apiece and is scouting locations in Texas, Oklahoma, Kansas and Wisconsin.

Beyond the financing and economic challenges, Pickens said there just isn't enough transmission capacity for a wind farm of the size he first envisioned.

The country will face this problem if it seeks to build massive scale wind and solar power projects in the more remote areas where those natural resources are at their best for producing power, renewable energy backers say (see Solar and Wind Groups Lobby FERC to Lead Grid Expansion and Texas Approves $5B Worth of Transmission Line Projects).