Wind stays competitive in the face of low natural gas and wholesale energy prices, DOE says
Energize Weekly, September 5, 2018
Wind generation, while facing some challenges in wholesale electricity markets, has continued to be competitive with prices for power purchase agreements and turbines continuing to fall, according to a new study by the U.S. Department of Energy (DOE).
After reaching $70 a megawatt-hour long-term power purchase agreements (PPAs) in 2009, prices dropped to as low as $20 a megawatt-hour, in some cases lower, by 2017.
The best prices remain in the central U.S., from the high plains to the Gulf of Mexico, where the winds are strongest and most consistent. In that region, the high PPA price had topped out at $55 megawatt-hour in 2009.
The low PPA prices are the product of a combination of increasingly efficient turbines, declining costs of installation and record-low interest rates.
Wind turbine prices have dropped by as much as 40 percent since 2008, even as the size of turbines has increase. Prices in 2017 were in the range of $750 to $950 per kilowatt in 2017 compared with $1,600 a kilowatt in 2008.
“These price reductions, coupled with improved turbine technology, have exerted downward pressure on project costs and wind power prices,” the DOE study said.
The trend to improve efficiency and reduce costs came as the economic competitiveness of wind power was pressed by declines in the wholesale market prices as low natural gas prices boosted natural gas-fired generation.
“Given the location of wind projects and the hourly profile of wind generation, the average wholesale energy market value of wind has generally declined since 2008,” the DOE study said.
After a sharp drop in wholesale energy prices in 2009, average wind PPA prices tended to exceed the electricity wholesale market prices through 2012. “Continued declines in wind PPA prices, however, brought those prices back in line with the energy market value of wind in 2013, and wind has generally remained competitive in subsequent years,” the study said.
The federal Production Tax Credit (PTC) has also been a “key enabler,” the report said.
In December 2015, the PTC was extended for five years with the full credit, about $22 for each megawatt-hour generated during the first 10 years of a projects operation, for projects started before the end of 2016.
The credit then is being stepped down from 80 percent for 2017 projects to 60 percent in 2018 and 40 percent for 2019.
“According to various sources, 30–70 GW [gigawatts] of wind turbine capacity had been qualified for the full PTC by the end of 2016, with another 10 GW qualifying for the 80 percent PTC,” the DOE report said.
Energy consultant, Wood Mackenzie Power & Renewables, in its August North American Wind Power Outlook, said there would be an installation boom of 30 gigawatts for wind power between 2018 and 2020 to capture the remaining tax credits.
“After 2021, wind will struggle as it first fights full-subsidy solar PV [photovoltaic] with 60 and 40 percent PTC phase-out values in 2022 and 2023 and then must compete on an unsubsidized basis with phase-out-subsidy solar PV and natural gas capacity additions from 2024 onward,” Wood Mackenzie said.
Still, even with the expiration of the PTC, Wood Mackenzie said wind projects will still be cheaper than new combined-cycle natural gas in 20 states, growing to 28 states in 2027.