The future of the robust U.S. wind market is uncertain as subsidies and mandates end
Energize Weekly, August 16, 2017
The wind energy market is being spurred by declining prices and rising efficiency, but faces a challenging future with the loss of federal subsidies, competition from other types of generation and weak wholesale power markets, according to a U.S. Department of Energy report.
The study, 2016 Wind Energy Technologies Market Report, was done by researchers at the Lawrence Berkeley National Laboratory, and it paints a robust picture of the industry for last year.
Wind power installations continued to be added “at a rapid pace” in 2016 with $13 billion invested in projects, according to report.
There was an 11 percent increase in overall capacity, with the installation of 8,203 megawatts (MW) bringing total capacity to 82,143 MW. About 90 percent of the projects were located in the interior region—a swath of the country running from Texas to the Dakotas.
Texas installed the most capacity, 2,611 MW, and has nearly three times as much wind generation—20,322 MW—as any other state.
The nation’s first offshore project was also commissioned in 2016, the 30 MW Block Island Wind Farm in Rhode Island.
Though these trends should continue to 2020 after that the market is likely to cool as the Production Tax Credit (PTC)—wind’s prime federal subsidy—is scheduled to end, the report said.
The PTC provides a credit equal to 2.3 cents for each kilowatt-hour a wind facility produces for the first 10 years of operation. The subsidy is being reduced in steps until it reaches zero in 2020.
“The availability of federal tax incentives underpins recent low-priced power purchase agreements for wind energy, and is a significant contributor to the near-term expected surge in wind capacity additions,” the report said. “The PTC phase down, on the other hand, imposes risks to the industry’s competitiveness in the mid- to long-term.”
A decline in wholesale power prices recently has also hampered the economic competitiveness of wind power, although over time, wind power prices will compare favorably with natural gas-fired generation prices forecast by the federal Energy Information Administration (EIA), the report said.
Wind power development also faces a tough path as the 29 states with renewable portfolio standards (RPS), which require utilities to get a set percentage of their electricity from renewable sources, begin meeting those renewable requirements.
Over the past decade, RPS requirements led to the addition of about 11.3 gigawatts (GW) a year of renewable generation, but going forward to 2030, they’ll need only about 3.9 GW of renewable projects a year, the report said.
The U.S. wind industry reported 25,819 MW of wind capacity under construction or in advanced development as of the end of the second quarter of 2017, a 41 percent year-over-year increase, according to the American Wind Energy Association (AWEA), an industry trade group.
AWEA is forecasting an average of 9,000 MW a year between 2017 and 2020. By the second quarter of 2017, there was a total of 84,405 MW of installed wind capacity in the United States.
The U.S. was the second largest global market in 2016, but at 8,200 MW, was three times smaller than the Chinese market. What happens going forward for the domestic market is less clear.
“Forecasts for 2021 to 2025,” the report said, “show a downturn in additions in part due to the PTC phaseout. Expectations for continued low natural gas prices, modest electricity demand growth, and lower near-term renewable energy demand from state RPS policies also put a damper on growth expectations, as do inadequate transmission infrastructure and competition from other resources (natural gas and solar, in particular) in certain regions of the country.”
To be sure, these obstacles don’t spell the demise of wind power as the performance of the industry over the past five years, boosting performance while trimming costs, has improved its competitiveness, the report said.
“Declines in the price of wind energy over the last half decade have been substantial, helping to improve the economic position of wind even in the face of challenging competitive pressures,” the report said.
Helping to fuel wind power’s growth has been a steady drop in wind turbine and installation prices, and an uptick in the efficiency of wind farms. In 2016, the report found the capacity-weighted average installed project cost was $1,590 a kilowatt—a 33 percent decline since 2010.
Technological advances created bigger turbines and increased generating capacity, the report said. The average nameplate capacity for turbines installed in 2016 was 2.15 MW, or up 11 percent, from the average of the five previous years as rotors and towers have gotten taller.
The average tower height in 2016 was 139 meters, and there are pending projects already approved by the Federal Aviation Administration (FAA) at 146 meters. The FAA is now studying projects with towers at 152 meters.
The result of bigger, more efficient turbines, towers and blades has been an increase in capacity factors—the actual output as a percentage of the potential output. The average capacity factor for projects built in 2014 and 2015 was 42.5 percent. That is 10 percent better than the capacity factor for projects built between 2004 and 2011, and a 17 percent improvement over wind farms built from 1998 to 2001.
These improvements have led to the lowest “levelized cost of energy” (LCOE) for wind on record. The 2015 (the study looked at prices between 1998 and 2015) average national LCOE for wind was $44 a megawatt-hour (MWh). For some projects, it was as low as $36 a MWh.
The LCOE for an advanced combine-cycle natural gas-fired plant going into operation in 2022 is calculated at $53.8 a MWh, according to the EIA’s 2017 levelized cost study.
“The potential for continued technological advancements and cost reductions enhance the prospects for longer-term growth, as does burgeoning corporate demand for wind energy and continued state RPS requirements,” the reported concluded. “Moreover, new transmission in some regions is expected to open up high-quality wind resources to development. Given these diverse and contrasting underlying potential trends, wind additions, especially after 2020, remain deeply uncertain.”
At the end of 2016, there were 142 GW of wind power capacity seeking transmission interconnection, representing 34 percent of all generating capacity in the reviewed interconnection queues—higher than all other generating sources. In 2016, 67 GW of wind power capacity entered interconnection queues (the largest annual sum since 2009).
For more on the future of wind power, check out EUCI’s Wind Project Development and M&A Due Diligence Conference taking place November 6-7, 2017 in New Orleans, LA.