Insight for Industry – Capital-Intensive Wind Energy Projects Will Rely on Streamlined Processes and Supportive Policies
Continued wind industry growth depends on near- and long-term actions that can facilitate continued cost reductions, add transmission capacity, and streamline permitting activities to complement government policies. Domestic wind deployment has increased in recent years despite low natural gas prices and associated low power prices challenging project economics. However, alongside opportunities for higher penetration, the wind industry is challenged by increased competition, policy uncertainty, transmission/interconnection access, and somewhat flat energy demand growth.

In particular, expirations and short-term extensions of the renewable energy production tax credit (PTC) investment tax credit (ITC) have created notable fluctuations in wind deployment. Offshore wind energy projects can be more capital-intensive than land-based projects, causing developers to prefer the ITC. Developers of less capital-intensive land-based projects may opt for the production tax credit if expected to yield higher savings – a $0.023/kWh credit for the first 10 years of electricity generation.

The current policy climate does not indicate an extension to the PTC in the very near term. A January 29 vote for a longer extension – in the form of an amendment to the Keystone XL legislation – failed by a vote of 51-47, with the majority of Republicans opposing the subsidy. Still, streamlined project siting and permitting practices, combined with efforts to minimize environmental impacts, will help facilitate offshore wind development.

Periodic Federal Tax Incentive Expiration have Challenged Wind Development

In 2012, wind installation represented 13 GW of generation – surpassing natural gas – and was the greatest annual addition of any technology. By comparison, in 2013, wind capacity additions declined by 92 percent, representing only 1.1 GW of added capacity. Wind investments dropped from $25B in 2012 to $2B in 2013.

The DOE underscored that expirations and short-term extensions of the federal tax incentives have created notable fluctuations in wind deployment. The renewable energy production tax credit (PTC) – originally enacted through the 1992 Energy Policy Act – provided a $0.023/kWh tax credit for the first 10 years of utility-scale wind electricity generation. The renewable energy investment tax credit (ITC) – available as of 2013 – provides a credit for 30 percent of investment costs. In January 2013, the PTC and ITC were extended through the American Taxpayer Relief Act. Projects larger than 100 kW qualify for PTC or ITC if construction commenced before January 1, 2014 (turbines under 100 kW are eligible until 2016) and placed into service by 2015 year-end. Due to this extension, cumulative U.S. wind energy installations surpassed 65 GW in 2014, and are expected to eclipse 70 GW in 2015 (Figure 1).

Recent wind power deployment levels have been influenced by low natural gas price impacts on wholesale energy markets, low energy demand growth, and lack of supportive long-term federal policy. Wind deployment potential is also impacted by coal and nuclear power plant retirements. The Environmental Protection Agency’s (EPA) Mercury and Air Toxics Standards (MATS) and proposed existing power plant emission standards through the Clean Power Plan are expected to cause more than 40 GW of coal plant retirements by 2020. Wind energy can potentially help replace coal-fired plant retirements in regions where it can economically compete with natural gas-fired generation.

Despite the PTC policy uncertainty, wind is becoming a significant power generation resource and a more reliable component of the U.S. electricity mix. Increased wind deployment offers positive implications for the nation’s energy mix, environmental goals, and economic development. On March 12, 2015, the Department of Energy (DOE) released its Wind Vision report analyzing the feasibility, costs, and benefits of increased wind power deployment to inform policy decisions at the federal, state, tribal, and local levels. The report analyzed wind power penetration levels of 10 percent of total electricity demand by 2020, 20 percent by 2030, and 35 percent by 2050.

Lower Costs and Favorable Policy Helped Wind Power Generation Triple from 2008-2013 

From 2008-2013, wind power supply of annual electricity end-use tripled from 1.5 percent to 4.5 percent, and accounted for approximately 33 percent of U.S. generation capacity additions. Over the same period, wind power costs declined by more than 30 percent and new wind investments averaged $13B/year. The levelized cost of electricity (LCOE) – the cost of an energy-generating system including costs over its lifetime – for wind is influenced by project capital costs, ongoing operation and maintenance costs, financing terms, and performance. These factors, combined with federal and state incentives also drive wind energy power purchase agreement (PPA) terms.

At the end of 2014, installed wind generating capacity totaled more than 65 GW across 39 states (Figure 2). The U.S. manufacturing base has expanded to support annual wind deployment levels from 2 GW/year in 2006 to 13 GW/year in 2012. According to the American Wind Energy Association (AWEA), in 2013, the domestic wind energy supply chain included more than 560 facilities across 43 states. Leading wind turbine manufacturers installing utility-scale turbines in the U.S. include GE Energy, Siemens, Vestas, Gamesa, and REpower.

The LCOE of wind declined by more than 33 percent from 2009-2013, allowing the resource to compete with traditional fossil fuels in some regional markets. Overall cost reductions were facilitated by technology advancement, turbine scale-up, and efficiencies attributed to larger manufacturing volumes. Key wind energy benefits in 2013 include:

• Wind power generation is estimated to have reduced power-sector water consumption by 36.5 billion gallons
• Wind power projects delivered at least $180M annually to local landowners through lease payments
• Wind power was estimated to have reduced direct power-sector carbon dioxide (CO2) emissions by 115 million metric tons

According to the National Renewable Energy Laboratory, the U.S. has more than 15,000 GW of onshore and offshore technical wind potential that can be harnessed through utility-scale and distributed wind installations. Wind power growth is attributed to its strong resource potential (more than 10 times current electricity demand); economic development potential; competitive, long-term stable pricing; and environmental attributes (emissions reduction, air quality improvement, and reduced water use).

Nine states – Colorado, Idaho, Iowa, Kansas, Minnesota, North Dakota, Oklahoma, Oregon, and South Dakota – currently generate more than 12 percent of their annual electricity from wind; Iowa and South Dakota generate more than 25 percent.

State policies that support wind growth include mandatory Renewable Portfolio Standard (RPS) programs, utility resource planning initiatives, state renewable energy funds, voluntary green power programs, state tax incentives, and state/regional carbon-reduction programs. Permitting processes vary across onshore, offshore, and distributed wind applications and across local, state, and federal jurisdictions. Lack of uniformity in regulatory requirements creates uncertainties in project timelines and deployment.

Technology Advancements can Support Economic Wind Energy Growth

Technology advancements can enhance energy production efficiencies, lower capital and operating costs, and improved reliability. With technological advancements, lower wind speed sites have become more economically viable in regions with limited wind potential. Cost reductions facilitated by technological advancements will support economic growth and wind industry jobs. Transportation costs need to be addressed with increased turbine component sizes to support larger projects. The DOE finds that raw materials availability or manufacturing capability is unlikely to be constrained by domestic manufacturing limitations. Wind turbine technology advancements, such as longer blades and taller towers, innovative drivetrain designs, and improved controls and sensors have facilitated cost reductions.

Wind turbine technology continues to progress toward larger turbines with higher nameplate capacity. Though industry is gaining more understanding to improve reliability, offshore turbine manufacturers are faced with unique design issues. Advancements in wind plant technology, performance, reliability, and safety are required to support recent growth trends.

Immediate and Long-Term Actions will Support Continued Wind Industry Growth
The DOE highlights the need for immediate and long-term actions that facilitate cost reductions, add necessary transmission capacity, and support siting and permitting to complement policies. Wind power expansion is challenged by energy demand, transmission and integration limitations, raw material cost fluctuations, policy uncertainty, siting issues, and other resource competition (primarily natural gas). Despite the reliable and effective integration of large wind projects into electric power systems, several wind resource sites lack access to transmission facilities. Transmission expansion is challenged by siting, planning, and cost-allocation issues.

Offshore Wind Energy Industry Challenged by High Costs

From 2004-2012, costs have increased as industry began facing the actual costs and risks of developing projects in technically challenging offshore sites. The cost trend is attributed to projects shifting toward greater depths and longer distances to shore; increased spending on risk mitigation and contingency budgets; and lack of competition in the supply chain. Offshore project costs remain uncertain. In 2010, the Bureau of Ocean Energy Management issued the first offshore commercial wind leas to Cape Wind. However, in January, National Grid and NSTAR announced a decision to cancel their PPAs with Cape Wind, citing Cape Wind’s failure to meet a December 31, 2014 deadline to close financing.

However, offshore wind has the potential to reduce wholesale electricity clearing prices and consumer costs in transmission-congested coastal regions. It can also help diversify coastal states’ fuel mix and protect against future price increases or supply disruptions of natural gas. The offshore wind energy is in the early development stage, however significant progress is underway to facilitate project siting, leasing, and construction in federal and state waters. Although there are currently zero completed U.S. offshore wind installations, the DOE highlights that offshore wind projects are advancing and forecasts offshore wind to supply 2 percent of electricity demand in 2030 and 7 percent in 2050.

Originally published by EnerKnol.

EnerKnol provides U.S. energy policy research and data services to support investment decisions across all sectors of the energy industry. Headquartered in New York City, EnerKnol is proud to be a NYC ACRE company.