As many expected, newly installed U.S. wind capacity is taking a steep dive this year. However, a just-released report reveals a major success story of 2013: More and more, utilities are embracing wind power.
According to the American Wind Energy Association's (AWEA) third-quarter 2013 market report, U.S. utilities have locked in more than 5.67 GW of wind under long-term power purchase agreements (PPAs) and announced over 1.87 GW of self-builds since the beginning of this year – a total surpassing 7.5 GW.
‘It is certainly one of the largest numbers we've seen," Elizabeth Salerno, AWEA's director of industry data and analysis, tells NAW. "Having a PPA is a critical step in project development," she notes, adding, "In the past, it has been a challenge."
Salerno says utilities' increasing interest in wind power is mostly a matter of economics, as the cost of wind has dramatically fallen. Citing U.S. Department of Energy data, she says wind PPA prices dropped 43% on average across the country between 2008 and 2012. Last year, the PPA price range was anywhere from $30/MWh to $80/MWh. And the costs may be getting cheaper still.
For example, Minnesota and Colorado regulators recently approved Xcel Energy's wind PPAs totaling 850 MW. According to AWEA, Xcel CEO Ben Fowke expects the company to pay only $25/MWh to $35/MWh over the contracts' 20-year term.
"It's incredible that they can get 850 MW of wind for that price," comments Salerno.
Thanks to the favorable costs, she says, another emerging trend is that utilities are buying more wind power than they originally seek. AWEA reports that utilities across the country have cumulatively issued at least 27 requests for proposals (RFPs) for new capacity due this year, including 12 RFPs that specified wind.
Several utility companies, such as American Electric Power's Public Service Co. of Oklahoma (PSO), have gone beyond their RFP goals in an effort to cash in on the cheaper energy. In fact, the PSO just signed 600 MW in new wind deals, triple the 200 MW that the utility requested. Â
According to a company press release, "The decision to contract for an additional 400 MW was based on extraordinary pricing opportunities that will lower costs for PSO's customers by an estimated $53 million in the first year of the contracts. Annual savings are expected to grow each year over the lives of the contracts."
Of course, renewable portfolio standards also play a critical role in boosting wind procurement in the 29 states – plus Washington, D.C. – that have such policies, but Salerno notes that the price of wind is becoming too attractive to ignore for utilities nationwide.
"Alabama Power, Georgia Power, Tennessee Valley Authority, Arkansas Electric Cooperative – all of these utilities have signed long-term contracts with wind, not driven by policy, but purely by the economics," she explains.
Game changers
So, why is wind power becoming more inexpensive? According to Salerno, "There are lots of tweaks and improvements that are being made across the industry to push down costs and push up performance – which lowers the price of energy. We're reaping the benefits of all that."
She notes technology innovations, such as taller towers and longer blades, as well as better siting techniques focused on how each turbine reacts with another. Furthermore, she says, operations and maintenance practices continue to become more efficient.
"Year after year, machines are down less and availability is up. The smallest changes of shortening downtime from three hours to one hour can greatly change the output of a project."
Then, of course, there is the production tax credit (PTC), which many utilities themselves have cited as a major incentive for wind procurement and self-builds. Currently at $0.023/kWh, the PTC helps developers offer better prices and find financial backing.
Fallout
In 2012, wind power was the No. 1 source of new U.S. generating capacity, installing a record 13.1 GW. This year, however, the industry continues to feel the effects of the late PTC extension in January.
"We knew 18 months ago or more that installations were going to suffer if the uncertainty of the PTC ruled the day," says Salerno. "And so, here we are."
According to AWEA, the U.S. wind industry commissioned a single 1.6 MW wind turbine, located at North Dakota's Lake Region State College, during the first half of this year. During the third quarter, the country saw little more than 68 MW of wind come online. This includes a 1.8 MW project and a 0.9 MW turbine in Alaska, a 42.7 MW phase at Pattern Energy's Ocotillo wind farm in California, and 23.8 MW at Alliance Power's Colorado Highland project.
"This is a story we've seen before," Salerno says. "As an industry, we've been in a situation where the PTC is set to expire, and as we approach that expiration date, the industry activity associated with new project development slows down or entirely halts. That's what happened in 2012."
As Salerno explains, most developers were focused solely on completing advanced projects by Dec. 31, 2012, in order to qualify for the expiring incentive. Under the new PTC rules, developers now have more breathing room, as they are not required to complete projects by year-end. Rather, they must meet several milestones, such as spend 5% of the project's cost and be able to demonstrate continuous construction.
Outlook
The U.S. is currently home to over 60 GW of installed wind capacity and slowly growing. As of Sept. 30, AWEA reports there were more than 2.3 GW of wind projects under construction, and Salerno expects that number will rise significantly in the fourth quarter. Nonetheless, she admits, "This is going to be a tough year."
Projects are under construction across 13 states, with Texas leading the way with over 530 MW. Michigan, Nebraska, Washington and Kansas round out the top five states, respectively. The bulk of those projects are slated to come online next year or in 2015.
