Wind Power Faces a Post-PTC ‘Valley of Death’

Wind power capacity in the U.S., whose explosive growth has tripled since 2008-even overtaking hydropower to become the nation's largest source of renewable electricity-could face a period of stagnation once the production tax credit (PTC) is phased out in 2021.

Analysts at WINDPOWER 2018 in Chicago last week called the period between 2021 and 2026 the "valley of death," and though forecasts vary, many expect that new onshore wind capacity additions will slow if not grind to a halt. That's despite a number of market drivers wind power has enjoyed recently.

According to the American Wind Energy Association (AWEA), which hosts the annual wind industry conference, 89.4 GW of wind power from 54,000 wind turbines was installed in the U.S. by the end of the first quarter of 2018. Another 33.5 GW was under construction or in advanced development.

A Certain Dip But When?

Max Cohen, an associate director for IHS Markit's North American Integrated Energy Research arm, introduced the phrase "valley of death" in one of the first sessions at the conference. He pointed to a pronounced dip in gross onshore wind capacity additions beginning in 2021, when capacity additions would hover just above 6 GW. According to IHS Markit, wind capacity additions will fall to less than 2 GW in 2024, before seeing a moderate rise again in 2025, when they climb to just above 2 GW, and grow steadily to 4 GW by 2030.

Meanwhile, IHS Markit projects that natural gas generation will continue its upward slope but coal generation will fall as more retirements are announced. By 2030, wind's share of the national generation mix may equal coal's share.

Wind will face competition from an array of sources, including solar photovoltaic-both utility-scale and distributed generation. Cohen noted that wind and solar are slated to compete on price with regional variation, but other experts noted solar's future costs are murky owing to the solar tariff.

The emergence of offshore wind is another emerging disruptor, though Cohen and a number of experts at WINDPOWER noted that the first U.S. offshore projects will be expensive. Offshore proponents at the conference said offshore's contribution shouldn't be discounted, pointing to falling prices in Europe, the Interior Department's issuance of 13 leases along the Atlantic Coast, and a slew of recent state subsidies or policies that are poised to bolster the fledgling sector. However, David Hostert, an analyst at Bloomberg New Energy Finance (BNEF), said the U.S. might have an "established market" for offshore by 2028, but a realistic forecast, considering hurdles, is only about 6.2 GW of state-mandated build by 2030.

Buoyant on its Own Merits

Wind, however, will have the benefit of soaring capacity factors, which could boost its uptake even after the PTC is phased out in 2021, Cohen said. A new generation of technology-such as longer blades and the integration of more digital technologies to improve forecasting accuracy, predictive maintenance, and siting-is also poised to significantly boost wind capacity factors as well as lower operations and maintenance (O&M) and development costs.

As BNEF's Hostert noted, another factor driving up wind installments is a surge in utility wind ownership, a trend that is bolstered by a recent plunge in wind turbine pricing. Xcel Energy, for example, in 2017 proposed adding 11 new wind farms in seven states-a total 3,380 MW of new wind to its system- by 2021, citing "historic low prices" for wind, which it said will benefit customers "now and for decades to come."

Corporate demand for wind power will also likely stay strong for now. Hostert said that 2.3 GW of corporate power purchase agreements (PPAs) for wind were signed nationwide in 2017, and 1.8 GW of PPAs will be signed in 2018. Of late, most corporate PPAs have been virtual PPAs-basically a form of price hedge in which the company enters into a contract on an agreed take-off price, he noted. In a virtual PPA, a project owner, who sells power into the local wholesale market on a merchant basis, pays the company if the power is sold above the agreed price, and the company pays the project if it is below the agreed price. For utilities, which are "chasing low-cost wind and regulated returns," the arrangement makes sense.

BNEF's projections for the "valley of death" in 2024 is slightly rosier than IHS Markit's. Only 3.4 GW of new capacity will be added in both 2024 and 2025, Hostert said. Before the PTC expires, wind turbine project owners will also rush to retire older turbines and repower or retrofit them, Hostert noted.

Stabilized by State Support?

For now, wind continues to benefit from evolving state and provincial policies, including renewable targets and mandates, as well as regional greenhouse gas pricing policies in California and the Northeast. Five states plus the District of Columbia have renewables portfolio standards (RPS) requirements of 50% or more (and Minnesota and Maine are considering similar mandates). Seven states plus the District of Columbia have increased RPS requirements since 2016.

However, Bruce Hamilton, director of Navigant's Energy Practice, pointed out that of the 13.3 GW of construction as of the end of 2017, 80% were in states that had no immediate renewables mandate. For Hamilton, a peripheral set of market drivers are boosting wind uptake. Several grid entities are grappling with retirements of massive amounts of baseload capacity that are coal-fired or nuclear plants, he noted. Navigant's own coal retirement and retrofit model projects "73 GW of coal-fired units will be retired over the next decade-more than with the Clean Power Plan," he said. Between 2018 and 2027, owners of about 82 GW have to date announced retirements: 32 GW from coal; 26 GW, gas; 15 GW, nuclear, and 9 GW from other sources.

At the same time, transmission development is increasing. Some 4,200 miles of projects are planned for completion through 2023, and that's relevant because "181 GW of wind projects was in [transmission] queue at the end of 2017-the highest level in six years," Hamilton said. Curtailment has also dropped significantly, he noted. Average curtailment in the U.S. was 2.1% in 2016, the lowest since 2007, he said. In MISO, it was about 4% and in ISO-NE it was less than 2%. Yet another critical consideration is that "improvements in storage, demand storage, electric vehicle integration, and frequency regulation support by wind turbine will help to facilitate issues around wind integration," he said.

For Navigant, the "valley of death" begins around 2022, though it projects recovery within a year. By 2027, Hamilton said, it is likely that wind will make up 12% of total U.S. capacity, up from 8% in 2016.

-Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)

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