US Wind Power's Surge Finally Slows

According to 'Wind Technologies Market Report', a new study released by the US Department of Energy and prepared by the Lawrence Berkeley National Laboratory (LBNL), utility-scale wind power capacity additions were 20% over the previous US record set in 2008, while cumulative wind power capacity grew by 40%. This was achieved despite the financial crisis that roiled the wind power industry in 2009, and the significant reductions in wholesale electricity prices that began in mid- to late-2008 and have continued to the present day.

The report identifies a variety of market drivers that allowed year-on-year installation growth to persist in 2009, including the carry-over of projects initially planned for completion in 2008 as well as elements of the American Recovery and Reinvestment Act of 2009 and state renewable portfolio standards (RPS) programmes.

Commenting on the study, co-author Ryan Wiser, a scientist in Berkeley Lab's Environmental Energy Technologies Division (EETD), observed: "At this pace, wind power is on a path to becoming a significant contributor to the US power mix". He added: "Wind power projects accounted for 39% of all new electric-generating capacity added in the US in 2009, and wind energy is now able to deliver 2.5% of the nation's electricity supply."

Market Growth

After four years of leading the world in annual wind power capacity additions, the United States dropped to second place in 2009, capturing roughly 26% of the worldwide market, well behind China's 36% market share. Nonetheless, at the end of 2009, cumulative wind power capacity in the US stood at more than 35,000 MW, ahead of both China's 25,853 MW and Germany's 25,813 MW.

In the United States, Texas is again leading the field by achieving higher annual capacity additions than other states. And, while four states have surpassed 10% wind energy penetration, with 2292 MW installed in 2009 alone, Texas dominated the 28 other states in which new large-scale wind turbines were installed in 2009. The next-highest two states were Indiana with 905 MW and Iowa with 879 MW. In terms of estimated wind energy supply as a proportion of in-state electricity generation, Iowa is also a front runner with 19.7%. South Dakota (13.3%), North Dakota (11.9%) and Minnesota (10.7%) also show high levels of wind penetration. Meanwhile, some utilities are seeing even higher percentages of wind energy supply than these state totals, with nine utilities estimated to have in excess of 10% wind energy on their systems.

At 10 GW, wind power additions in the US over 2009 set a new installation record (Source: Nordex)

Beyond the US, several countries are also beginning to achieve relatively high levels of wind energy penetration in their electricity grids. For example, at the end of 2009 wind power capacity is projected to supply the equivalent of roughly 20% of Denmark's electricity demand, 14% of Spain's and Portugal's, 11% of Ireland's, and 8% of Germany's.

Recent studies show that wind energy integration costs are below $10/MWh — and often below $5/MWh — for wind power capacity levels up to or exceeding 40% of the peak load of the system in which the wind power is delivered. Moreover, a number of strategies that can help to ease the integration of increasing amounts of wind energy — including the use of larger balancing areas, the use of wind forecasts, and intra-hour scheduling — are being implemented by grid operators across the United States.

Transmission development also appears to be gaining traction, although siting, planning and cost allocation issues remain key barriers to transmission investment. In June 2010, the Federal Energy Regulatory Commission (FERC) issued a proposed transmission cost allocation rule aimed at easing planning and cost allocation barriers. Progress was also made in 2009 on several transmission projects designed, in part, to support wind power.

To date, all wind power installations in the United States have been located on land, but there is also growing interest in offshore wind power development and 2476 MW of offshore projects have advanced significantly in the permitting and development process. Of those projects, three have signed or proposed power purchase agreements with terms and details that have been made public. Notably, after nine years in the permitting process, the Cape Wind project was granted approval by the Department of Interior in April 2010, and a variety of other recent project and policy announcements demonstrate accelerated activity in the offshore wind energy sector.

Overall, the study's authors argue that data from interconnection queues demonstrate that an enormous amount of wind power capacity is under consideration. At the end of 2009, there were roughly 300 GW of wind power capacity within the transmission interconnection queues administered by independent system operators in the US, regional transmission organisations, and utilities — nearly nine times the installed wind power capacity. This capacity represented almost 60% of all generating capacity within these queues at that time, and was nearly three times as much capacity as the next-largest resource (natural gas). The vast majority (93%) of this wind capacity is planned for the Midwest; the Mountain States; Texas; the Pennsylvania, New Jersey and Maryland Power Pool (PJM); the Southwest Power Pool (SPP); and the Northwest. Not all of this capacity will ultimately be built as planned, but these data demonstrate the high level of developer interest in wind power.

Manufacturing Capacity and Technology Trends

Domestic wind turbine and component manufacturing investments remained strong in 2009, but the financial crisis and weak turbine sales slowed the sector's growth. Seven of the 10 largest wind turbine manufacturers in terms of market share in 2009 now have one or more manufacturing facilities operating in the United States, and two of the remaining three have announced specific plans to open facilities in the future. These figures compare to just one utility-scale wind turbine manufacturer — GE — assembling nacelles in the United States in 2004. In addition, a considerable number of new component manufacturing facilities were either announced or opened in 2009, by both foreign and domestic firms.

GE remained the top turbine manufacturer in the US market, although other manufacturers are capturing market share, the study finds. GE secured 40% of US market share (by capacity) in 2009, followed by Vestas (15%), Siemens (12%), Mitsubishi (8%), Suzlon (7%), Clipper and Gamesa (6% each), REpower (3%), Acciona (2%), and Nordex (1%). Manufacturers with modern wind turbines installed in the United States now hail from not just the US, Europe and Japan, but also from India and, for the first time in 2009, China. In 2009, US-owned GE was the second-largest supplier of turbines globally, while Clipper was ranked 13 as a global supplier. On a worldwide basis, perhaps the most significant story of 2009 was the growing market share of Chinese turbine manufacturers.That sales growth has been almost entirely to the Chinese market, but Chinese manufacturers began to show strong interest in the US market in 2009.

Even so, a growing percentage of the equipment used in US wind projects has been sourced domestically in recent years. US trade data show that the country remained a large importer of wind power equipment in 2009, but that wind power capacity growth has outpaced the growth of imports in recent years. As a result, a growing amount of the equipment used in wind power projects is being sourced domestically as both local and foreign companies seek to minimise transportation costs and currency risks by establishing domestic manufacturing capabilities. Imports of wind turbines and select components in 2009 are estimated at $4.2 billion, down from $5.4 billion in 2008. When presented as a fraction of total equipment-related wind turbine costs, the overall import fraction is estimated to have declined from roughly 50% in 2008 to 40% in 2009 as domestic manufacturing investments outpaced import growth, the study finds.

Nevertheless, weak demand for new wind turbine orders and the poor state of the US economy led to a net loss of 1500 wind turbine and component manufacturing jobs in 2009, according to the American Wind Energy Association (AWEA). As a result, AWEA estimates overall US employment in the wind energy sector held steady at 85,000 full-time jobs in 2009. Of these, some 18,500 are estimated by AWEA to be in turbine and component manufacturing.

Average nameplate capacity, hub height, and rotor diameter of turbines installed in the US increased in 2009, the study finds, with the average nameplate capacity rising to roughly 1.74 MW, up from 1.66 MW in 2008 and 1.65 MW in 2007. Since 1998-1999, average turbine nameplate capacity has increased by 145%, but growth in this metric has slowed in recent years due to the dominance of GE's 1.5 MW turbine and as a result of the logistical challenges associated with transporting larger turbines to project sites, LBNL says. In addition to nameplate capacity ratings, average hub heights and rotor diameters have also scaled up with time to 78.8 and 81.6 metres, respectively, in 2009. These figures have increased by 40% and 69% over the past decade.

Boosted primarily by higher hub heights and larger rotor diameters, cumulative capacity factors have, in general, gradually increased over time, from just over 24% in 1999 to a high of nearly 34% in 2008, before dropping back to 30% in 2009. The drop in 2009 is, in part, attributable to a relatively poor wind resource year in many parts of the country along with greater wind power curtailment. Curtailment was particularly high in Texas (home to more than one quarter of the nation's wind power capacity), with 17% of all potential wind energy generation within the Electric Reliability Council of Texas (ERCOT) curtailed in 2009. The sample-wide average US capacity factor of 30% in 2009 would have hit 32% without the curtailment experienced in ERCOT and the Midwest, the authors say. Other factors that may have slowed the rate of capacity factor increase for projects installed in more recent years include an enhanced emphasis on lower-quality wind resource sites (due to transmission and siting constraints), a slower increase in average hub heights and rotor diameters, and some challenges with turbine reliability.

The average size of wind projects also resumed its upward trend over 2009, averaging nearly 91 MW — below the 120 MW average size of projects built in 2007, but otherwise larger than in any previous period. Larger project sizes reflect an increasingly mature energy source that is beginning to penetrate into the domestic electricity market in a significant way, the authors contend.

A Changing Wind Market Structure

Private project ownership remained dominant in the US, with independent power producers (IPPs) owning 83% of all new wind power capacity installed in the country in 2009 as well as 83% of cumulative capacity. However, in a continuation of the trend begun several years ago, 16% of total wind power additions in 2009 are owned by electric utilities, which now own 15% of cumulative US wind power capacity. Community wind power projects account for the remaining 2% of both annual and cumulative capacity.

Investor-owned utilities continued to be significant purchasers of wind power, with 36% of the new 2009 capacity and 44% of cumulative capacity selling power to these utilities under long-term contracts. Publicly owned utilities purchased another 22% and 18%, respectively. Surprisingly, given the tightening of credit requirements in the wake of the financial crisis, as well as sharply lower wholesale electricity prices, merchant/quasi-merchant projects were abundant in 2009, accounting for 38% of all new capacity and 26% of the cumulative capacity. It is possible that many of these merchant projects may now be seeking longer-term power purchase contracts in order to gain increased revenue stability, the authors observe.

Consolidation among project developers has also continued with at least six significant acquisition or investment transactions involving roughly 18 GW of in-development wind power projects announced in 2009, compared to the five transactions and 19 GW in 2008. This is well below the 11 transactions and 37 GW in 2007, and the 12 transactions and 34 GW in 2006.

The more subdued pace of activity since 2007 may be due to the fact that many of the prime targets for investment and/or acquisition were acquired in earlier years. In addition, the authors suggest, some traditional buyers of wind assets may have decided to rein in new investments following aggressive purchases in previous years, while some developers that might otherwise entertain offers may be holding out for better pricing as the market recovers.

Looking ahead, the relatively weak demand for wind energy projected in 2010, coupled with an influx of cash from the Section 1603 Treasury grant programme, may drive continued consolidation. The Recovery Act enables projects to temporarily take a 30% cash grant administered by the US Treasury in lieu of either the production tax credit (PTC) or a 30% investment tax credit (ITC). Owners of more than 6400 MW of capacity installed in 2009 elected the grant in lieu of the PTC, and as much as 2400 MW of this capacity may not have been built in 2009 had the cash grant not been available. Only about seven of more than 60 projects listed in 2009 that elected the grant were financed using third-party tax equity; many of the rest substituted project-level term debt — increasingly available as 2009 progressed — in place of third-party tax equity.

Pricing Wind

Upward pressure on wind power prices continued in 2009 and although some cost pressures of recent years have eased, it will take time before relief flows through the project development pipeline to impact overall average wind power prices, the study finds. As such, 2009 was another year of rising wind power prices. The capacity-weighted average 2009 sales price for bundled power and renewable energy certificates, based on projects in the sample built in 2009, was roughly $61/MWh (in 2009 dollars), up from an average of $51/MWh for the sample of projects built in 2008, and nearly double the average of $32/MWh for projects built during the low point in 2002 and 2003. Among projects in the sample, those in Texas and the Heartland region have the lowest average price, while those in New England, California and the East have the highest.

The increase in wind power prices in 2009, combined with the deep reduction in wholesale electricity prices (driven by lower natural gas prices), pushed wind energy from the bottom to the top of the wholesale electricity price range in 2009. Although low natural gas prices are, in part, attributable to the recession-induced drop in energy demand, the discovery and early development of significant shale gas deposits has reduced expectations for increases in natural gas prices going forward, putting the near-term comparative economic position of wind energy at some risk.

In addition, among a large sample of wind power projects installed in 2009, reported installed costs had a capacity-weighted average of $2120/kW — up by $170/kW (9%) from the weighted-average cost of $1950/kW for projects installed in 2008, and by $820/kW (63%) from the average cost of projects installed from 2001 through 2004. Installed costs may — on average — remain high for some time as developers work their way through the dwindling backlog of turbines purchased in early 2008 at peak prices. There are expectations, however, that average costs will decline over time with the easing of the cost pressures (e.g. rising materials costs, the weak dollar, turbine and component shortages) that have challenged the industry in recent years. Differences in average installed costs among regions and by project size are also apparent in the data.

Turbine price declines of as much as 15%, along with more favourable contract terms, have begun to emerge.
(Source: REpower)

Since hitting a low point of roughly $700/kW in the 2000—2002 timeframe, average wind turbine prices have increased by approximately $800/kW (by more than 100%) through 2009. Though turbine price increases have been the rule for a number of years, evidence is beginning to emerge that those days have ended, at least temporarily. However, visibility of turbine transaction prices declined in 2009 as the financial crisis took its toll and developers sat on turbine supply frame agreements that exceeded near-term development plans. Cost pressures have also eased since mid-2008. As a result, estimates of turbine price declines of as much as 15%, along with more favourable contract terms, have begun to emerge. These price reductions and improved terms can be expected, over time, to exert downward pressure on project costs and wind power prices, the study concludes.

The Landscape for Wind

Looking ahead, expectations are for a slower year in 2010, due to a combination of the financial crisis, lower wholesale electricity prices, and lower demand for renewable energy. Wind power capacity additions in 2009 were buoyed, in part, by projects that were initially slated to be completed in 2008 but that carried over into 2009 when the PTC was extended, somewhat masking the underlying challenges facing the sector. With the extension of federal incentives through 2012, there is less motivation to complete projects in 2010 — though many projects are likely to start construction in 2010 in order to be eligible for the 30% Treasury cash grant.

Industry analysts project a range from 5500 MW to 8000 MW of wind power capacity likely to be installed in the United States in 2010, a drop of 20%—45% compared to the nearly 10,000 MW installed in 2009. After a slower 2010, most predictions show a market resurgence in 2011 and 2012, as the Recovery Act programmes mature and as financing constraints ease. Beyond 2012, however, the picture is considerably less certain, due to the scheduled expiration of a number of federal policies at the end of that year, including the PTC, the ability to elect a 30% ITC in lieu of the PTC, and the ability to receive the 30% Treasury cash grant for projects that initiated construction by the end of 2010.

David Appleyard is chief editor of Renewable Energy World. The full study, '2009 Wind Technologies Market Report', can be downloaded here.