This blog was written by Simon Mahan, former Energy Policy Manager at the Southern Alliance for Clean Energy.Guest Blog | December 18, 2017
Recently, Lawrence Berkeley National Laboratory (LBNL) published its 2016 Wind Technologies Market Report. Wind power resources are growing by leaps and bounds, and prices continue to remain exceptionally low. For utilities or other energy buyers, now is the time to buy wind power and lock-in exceptionally low prices.
Old arguments regarding variable energy resources, like renewable energy, appear to be falling flat. LBNL found that in 2016, wind energy surpassed 10% of total generation for fourteen states. While Texas remains king for total wind farm capacity installations at over 20,000 megawatts, Iowa generated nearly 37% of its electricity from wind energy in 2016, making it the top wind energy performer. [I think you are rebutting the argument that there can be too much wind. But you don’t really write that.]
Prices Keep Plummeting
Average wind farm installation prices have dropped to roughly $1,590/kW (kilowatt). Some projects in the Interior region of the country were installed for roughly $1,200/kW. The national average levelized cost of power purchase agreements (PPA) has reached $20 per megawatt hour ($20/MWh), or 2 cents per kilowatt hour, with a number of projects in the Interior region venturing below 2 cents. Those prices are below long-term fuel costs for natural gas power plants.
Wind Power Growth is Strong
Wind power remains the top energy resource entered into various interconnection queues, with just over 140,000 megawatts entered, with nearly half that amount entered just in 2016. Solar power is also experiencing explosive growth, with over 80,000 megawatts of solar power capacity entered in to queues last year. Wind, natural gas and solar power combined now represent nearly 400,000 megawatts of new proposed power capacity in the queues. To be sure, not all power stations entered into various queues will be installed and constructed, but with new planned nuclear and coal units virtually eliminated, it’s clear there are massive changes underway in the electric markets. One final point – while wind, gas and solar are the top three planned resources, the fourth most planned resource is…energy storage. Energy storage, like large scale battery installations, along with expanded transmission line capabilities will further expand renewable energy opportunities.
Wind Power Protects Prices Against Fuel Cost Increases
Future projections suggest the cost of natural gas, simply as a fuel (not including the cost of installing new power plants), is likely to reach the $30-$40/MWh range by 2020. And it’s very unlikely natural gas prices would remain low enough, and stable enough to guarantee that prices remain well below $40/MWh for the next few decades. As such, purchasing wind power resources as a hedge against ever increasing natural gas prices is likely to be a wise financial decision, even if wind power prices are slightly higher than today’s wholesale power costs. Over the long term, wind power prices are simply cheaper than alternatives.
Tax Credits Help but Won’t Be Necessary in the Future
LBNL notes that low PPA prices do include the federal production tax credit (PTC), which likely drops prices by about $15/MWh. The PTC is slated to phase-out over the next few years, and currently stands at $24/MWh, but because of how the tax equity market works, and the 10-year timeframe to receive the PTC, its “full” value is much less than its face value. Per LBNL, “the PTC will phase down in 20%-per year increments for projects starting construction in 2017 (80% PTC value), 2018 (60%), and 2019 (40%). Under the current schedule, projects that commence construction in 2020 and after will no longer receive the federal PTC.” Even excluding the federal production tax credit (PTC) for wind power, levelized cost of energy estimates (which are different than actual PPA prices) dip as low as $36/MWh.
What about the South?
Now is the time for us to also diversify our energy portfolio and incorporate more renewable energy. The South maintains a strong manufacturing base for the wind industry. Wind turbines continue to be heavily dependent on domestic manufacturing. Those are good quality jobs, right here in the South, that help diversify our economy. Earlier this year, North Carolina installed its first wind farm, a 208 megawatt project near Elizabeth City. Southern utilities are already purchasing over 3 gigawatts (3,000 MW) of wind power resources from outside the region. But, more needs to be done. With historically low wind power prices, now’s the time for southern utilities to make major purchases and secure low cost energy for ratepayers for decades to come.