Energy & Sustainability Legal Feature - November 2018: Recent Department of Energy Report Shows Positive Signs for the U.S. Wind Market

In August, the U.S. Department of Energy (DOE) disseminated its 2017 Wind Technologies Market Report. The report tracked trends in installation, technology performance, cost, and price of wind power. Overall, the DOE reported strong growth in 2017 and predicted that trend to continue until the end of the decade and possibly longer.

In 2009, power purchase agreements (PPAs) for wind power peaked at a price of $70/MWh. Over the last decade, that price has steadily declined, settling at $20/MWh in 2017. The report notes that the “interior region,” which compromises most of the Great Plains, has a lower average PPA price than the rest of the country. The interior region’s low average PPA price certainly contributes to the overall decrease in price, but all other regions have had decreases in average PPA prices since the peak in 2009. These other regions also had much higher average PPA prices in 2009, increasing the nationwide average price far above that of the interior region. As this report does not address offshore wind power, it follows that most wind power projects and the lowest prices would reside in the interior region, which has the highest and most consistent wind speeds in the country.

The wholesale energy market value of wind has steadily declined since 2008. Wholesale electricity prices have declined since 2009, in part due to the declining price of natural gas over that time period. PPA wind prices were higher than wholesale wind energy prices for most of the last decade. In recent years, PPA wind prices have leveled out with the wholesale energy value of wind. The report focuses so heavily on the prices of PPAs because PPAs better reflect the cost of wind than the wholesale energy value of wind does. The decrease in PPA prices for wind energy to levels close to the wholesale energy price of wind indicates that developers of wind power have increasingly contracted at comparable levels of cost and value as those participating in wholesale electricity markets. There has been a reconnection between the two methods of selling wind energy, and the prices have dropped overall.

Installed project cost and turbine price trends followed a similar pattern to wind pricing. Between 2003 and 2008, turbine prices steadily increased above $1600/kW. After 2008, prices began to rapidly decline, falling to between $750/kW and $950/kW. As a result of decreased turbine prices, project costs have also declined. The low costs have produced downward pressure on wind power prices.

As the price of wind energy has decreased, the wind power market in the United States has expanded, largely due to federal and state policies. The federal production tax credit (PTC) has been the biggest motivator for investment in wind power projects. In 2016, Congress extended the PTC for five more years. The trends in wind power deployment highlight the importance of the tax credit, which stood at $24/MWh in 2017. When the PTC lapsed in 2000, 2002, 2004, and 2013, the addition of new wind capacity starkly decreased, and each year before the lapse of the PTC, there were spikes in the addition of new wind capacity. The impending PTC phaseout poses a threat to the industry in the near future due to the industry’s heavy reliance on the PTC as an incentive for deploying wind power.

Despite the risk from the PTC phaseout, the DOE expressed optimism that wind power will have long term value. The record-low prices of PPAs will continue through the life of their contracts, and the DOE predicts that wind prices will continue to fall. Additionally, the DOE predicts that wind power could provide a hedge against the uncertainty of natural gas prices in the future. The current decline in price and the predicted future reductions provide optimism for the continued deployment and expansion of wind projects in the United States.

Subscribe To Viewpoints