Wind Energy’s Two Cents: Utilities Should Buy Now

Guest Blog | August 19, 2016 | Energy Policy, Wind

The Lawrence Berkeley National Lab has just published their annual Wind Technologies Market Report. Just last year, long-term contracts for power have been signed for below $20/MWh. That’s two cents per kilowatt hour. The average installed price for wind energy capacity is down 24% in just five years. While it may cost a little more to import those lowest cost wind energy resources into the Southeast using existing or new transmission, the fact remains that wind power is likely the lowest cost of new energy generation for much of the south.

Late last year, Congress passed a long-term phaseout of the federal Production Tax Credit (PTC) for wind energy. According to the LBNL report, wind energy installed capacity is expected to increase by about 40 gigawatts over the next few years, thanks in part to the long-term PTC extension. Wind farm developers must place orders on wind turbines this year in order to safe harbor a full-value (100% PTC), but can finish construction as late as 2020. After this year, the PTC value drops by 20% and every year thereafter, until it is completely phased-out in 2020.  Wind energy buyers that wait a single year could lose millions of dollars in savings due to the PTC phaseout. As my colleague John Wilson briefly commented yesterday, utilities and corporate buyers should move quickly to secure the lowest cost wind energy resources.

The LBNL report tracks trends in cost and performance among other metrics for the wind energy industry nationwide.

Forecasted Wind Power Capacity Additions - LBNL 2016

The recent trend of installing taller turbines with longer blades continues. Taller turbines reach better wind speeds, and longer blades do a better job at collecting those wind resources.

Because of improved wind turbine technology, capacity factors at recently installed wind farms have improved 64% compared to their 1999 counterparts, even as these wind farms are built in sites with lower wind resources than earlier wind farms. Some of the best wind energy resources were identified decades ago and earlier wind farm development already locked up those areas, leaving newer development to have to venture into lower quality areas. You might expect this to result in diminishing results, however since wind turbine technology has vastly improved, average wind farm capacity factors have in fact improved with newer turbine vintage.

The LBNL study shows that even low wind speed areas can perform as well, if not better than the earlier developments thanks to the new wind turbines, which is particularly important to note for utilities in the South. Furthermore, as older turbines are retired, replaced or retrofitted with new turbine technology, those high-wind speed sites will gain a huge boost in capacity factor and energy output.

With all-time low prices, this is wind energy’s end-of-year-closeout. And it’s a sellers market. Utilities that are too slow to snatch up these wind power deals will lose out to faster movers. That’s wind power’s two cents.

Wind energy capacity factor by turbine vintage. LBNL 2016
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