A Perfect Storm for Southern Wind Power Purchases?

Guest Blog | May 18, 2016 | Energy Policy, Wind

This blog is part of the Southern Wind Energy Association’s Windy Wednesday series leading up to the wind energy industry’s largest annual event, WINDPOWER 2016, being hosted in New Orleans May 23-26. Registration and details available here. You can read the other blogs in this series by clicking on #WindyWednesday.

This year may be the biggest year for wind energy in the South. A number of factors are working together to create a massive market for wind energy all across the country. Some of the important factors include: technology has significantly improved, utilities are becoming more familiar with integrating wind energy, key federal tax incentives have been renewed and utilities are beginning to hedge against risks associated with fossil fuels.

New turbine technology is more suitable for the south:

Over the past five years, wind turbine technology has significantly improved. Taller turbines with longer blades are now better capable of harnessing the power of the wind. These new turbines operate more reliably, more predictably and at lower costs. Wind energy costs have declined by about 61% since 2009. The south is beginning to see renewed interest in developing wind farms in the region, and just this year North Carolina broke ground on its first wind farm.

Utilities are more familiar with wind energy integration:

Utilities throughout the south have started to develop a track record with wind energy. Approximately 3,600 megawatts of wind energy contracts have already been signed with utilities in the south. Many of the concerns about wind energy are falling to the wayside as electric companies learn that the worse-case scenarios initially envisioned have failed to develop.  That’s a good deal for ratepayers because wind power has a tendency to reduce ratepayer costs. As the utilities become more adept at handling wind energy, there appears to be a desire to purchase higher quantities of wind power. In fact, utilities like Arkansas Electric Cooperative Corporation plan to receive over 15% of its electricity from wind energy in just a few years. Approximately 1,500 megawatts of renewable energy contracts may be signed this year or next year with utilities in the south.

Key federal tax incentives have been renewed:

Now is the right time to buy wind power. In December 2015, Congress passed a long-term extension of the federal production tax credit (PTC) for wind energy. The PTC is a tax incentive that reduces the cost of wind energy, and those savings are passed on to ratepayers and utilities. Wind energy projects in the Great Plains have hit record low pricing – with some contracts coming in below $20 per megawatt hour (or 2 cents per kilowatt hour). However, this important tax credit will begin to phase-out starting next year, and will be completely eliminated by 2020. Billions of dollars in wind power savings will be lost if utilities do not act fast enough to contract for significant amounts of wind power.  resources.

Utilities are hedging against risks associated with fossil fuels:

Finally, utilities are beginning to hedge against fossil fuel price and regulatory volatility. In short, fossil fuels (including natural gas and coal) are becoming a risky investment strategy for electric utility companies. Diversifying energy portfolios with wind energy can help reduce risks associated with new carbon emission regulations, natural gas regulations, water limitations, and fossil fuel price volatility.

This year is shaping up to be a big year for wind energy in the south. We have entered a “sellers market” where wind developers may be able to turn down request for proposals (RFPs) that are too small, take too long to receive approval, or have excessive burdens placed on them. Why would wind developers wait for a 50 MW deal in 2018, when they could sign a 200 MW deal, today? Utilities need to recognize that other utilities are competing against them for low-cost wind energy. Quick moving utilities will lock in all-time-low pricing for wind energy, and their service territories will reap the benefits of extremely low cost, clean energy.

With all the activity in the south, it seems only fitting that WINDPOWER 2016, the wind energy industry’s largest conference, is being hosted in New Orleans on May 23-26th. Registration and details available here

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