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    Founding Editor Herman K. Trabish



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    Wednesday, December 17, 2014


    The state of the U.S. wind industry (and what it means for utilities); Wind PPA prices now beat natural gas prices.

    Herman K. Trabish: August 25, 2014 (Utility Dive)

    The wind industry is facing strange times.

    A record amount of new capacity is in construction, much of it backed by utilities, but Congress may not renew the industry’s vital federal support.

    Without a production tax credit (PTC) and bigger state renewables mandates imposed on utilities, growth could stop cold—or record low prices might drive a utility-led renaissance.

    “Utilities are recognizing they can buy wind at $0.025 per kilowatt-hour or even $0.03 per kilowatt-hour and save on fuel expenses,” explained Research Scientist Mark Bolinger, co-lead author of Lawrence Berkeley National Labs’2013 Wind Technologies Market Report. “If they can do that without incurring capital expense or risk by offloading those to the developer using PPAs, there is little reason not to.”

    The state of the U.S. wind industry

    Growth faltered in 2013 because Congress was slow to renew the PTC. But it was finally renewed with an in-construction provision that will keep developers busy through 2015, according to the report. The unpredictability of Congress, natural gas prices, and innovation make growth beyond 2015 uncertain.

    Cumulative U.S. capacity grew only 2% in 2013, to 61,110 megawatts, on a $1.8 billion investment. China led the world in new capacity, with 16,088 megawatts, and cumulative capacity, with 91,460 megawatts, in 2013.

    Though wind has been a third of new U.S. electricity capacity since 2007, it was only 7% of new electricity capacity in 2013, as natural gas and utility-scale solar emerged. The U.S. got about 4.5% of its electricity from wind last year, while Iowa got 27%, South Dakota got 26% and seven states got over 12%.

    Data from grid operators’ 2013 interconnection queue foretells this year's construction boom. There were 114 gigawatts of wind being reviewed forinterconnections at the end of 2013. It was second only to natural gas and totaled 36% of all generating capacity being considered.

    Utilities own 13% of U.S. wind and independent power producers own 83%, with the remaining 2% owned by self-generators. Electric utilities were 2013’s dominant off-takers, owning 4% and buying 70% of the wind power produced. Merchant projects sold the rest into wholesale markets. That percentage could grow significantly with wind’s increasingly competitive price. Presently,utilities own 15% and buy 54% of all U.S. wind power capacity, with merchants accounting for 23%, and competitive market players taking the other 8%.

    The price of wind

    “Most of the PPAs signed in 2013 were, on a levelized basis, at $25 per megawatt-hour to $30 per megawatt-hour because of a combination of falling costs and higher capacity factors,” Bolinger said.

    The falling costs are attributable to technology advances and economies of scale. A turbine's cost in 2013 was between $900 per kilowatt and $1,300 per kilowatt. Wind’s 2014 installed cost is estimated at $1,750 per watt, down almost $500 from the 2012 installed cost.

    Whole-year average capacity factors now range to nearly 50% in some regions. That comes from technology advances allowing for taller towers, longer blades, more power production, and the harvest of lower speed winds. In 2012, turbines capable of utility-scale output from low to moderate winds made up half the new fleet; in 2013, they made up 90%.

    There was also downward market pressure on prices. “With the price of natural gas as low as it is, wind developers have to offer the low prices to compete," Bolinger said. "But they are not giving it away. They are earning a return and they are attracting investors.”

    The report compares near term wholesale electricity market prices, dominated by natural gas, to wind’s PPA prices. It is not an exact comparison because gas prices fluctuate while a PPA locks in wind’s price. “You have to consider the long term hedge value,” Bolinger said.

    That is why there were so many examples last year of utilities contracting for two and three times the amount of wind for which they issued RFPs, he explained. Examples reported by Utility Dive last year include:

    Austin Energy’s RFP for 200 megawatts ended with PPAs for 570 megawatts in the $23 per megawatt-hour to $33 per megawatt-hour range

    Westar Energy’s RFP for 80 megawatts ended with PPAs for 200 megawatts

    Public Service of Oklahoma’s RFP for 200 megawatts ended withPPAs for 600 megawatts at an estimated utility cost savings of $53 million in the contracts’ first year.

    The opportunity for utilities

    The expiration of the 2013 PTC leaves utilities with two ways to take advantage of wind’s present low prices, Bolinger said. The newest IRS guidance indicates PTC-qualified projects that are sold can retain the tax benefit, so utilities can still buy projects from independent developers. And PTC-qualified projects being built by developers on a merchant basis can be signed to PPAs at the current low prices.

    There are approximately 12,600 megawatts of PTC-qualified wind capacity under construction in 106 projects across 21 states, according to the American Wind Industry Association’s 1H 2014 market report.

    In Texas, only 18% of the 8,300 megawatts under construction have PPAs and the other 82% will be selling into the market. Of the 6,200 megawatts under construction outside Texas, 44% have PPAs, 26% are utility-owned and 30% will be selling into the markets. That is approximately 8,750 megawatts that could be available at $0.025 per kilowatt-hour to $0.03 per kilowatt-hour.

    “One way to think about wind right now is as a ‘no-regrets’ strategy,” Bolinger said. “If you can buy wind at a price that is cheaper than gas and lock it in for 20 years, chances are you will be in a good position, especially if gas prices rise.”

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