The forces shaping the wind energy market are dynamic and require industry leaders to be agile and resilient to succeed in the face of constant change. The Clean Power Plan, renewable portfolio standards, fossil fuel retirements, transmission line infrastructure proposals, corporate and industrial (C&I) power purchase agreements (PPAs), and the U.S. Department of Energy Wind Vision are influencing the future of wind energy. Yet, the most important influence is the phaseout of the federal production tax credits (PTCs). The critical question industry leaders are asking is how can wind continue to thrive in a post-PTC environment?
Our wind energy team set out to learn how industry leaders are viewing the future of wind. We surveyed more than 400 wind industry professionals during the American Wind Energy Association’s (AWEA) WINDPOWER 2016 Conference & Exhibition in New Orleans. The Internal Revenue Service (IRS) had just released favorable guidance on the PTC phaseout just weeks before. At the time of the survey, leaders were assessing the guidance impacts and rapidly developing plans to capitalize on the phaseout, while also devising strategies for life after the PTC. Here’s what the findings revealed:
Twenty-nine percent of respondents said their PTC strategy centers on taking full advantage of immediate opportunities, such as the IRS guidance that allows developers qualifying for projects in 2016 four years to complete construction of their wind projects and receive 100% of PTCs. Many companies are taking an aggressive position in the market to capitalize on the 100% tax credit window. Recent announcements of wind expansions include MidAmerican Energy’s 2,000 MW project and Xcel Energy’s 600 MW Rush Creek Project, followed by an additional 1,500 MW in the Midwest and Alliant Energy’s 1,000 MW project. In addition, NextEra Energy Partners is forecasting up to 3,800 MW of additional wind installations. Successful implementation of these strategies will create near-term opportunities, but others we surveyed were focusing their strategies elsewhere.
Twenty-five percent said they are focused on being more strategic in future project and geography choices. Aligning wind resources with load demand and favorable power prices is a constant challenge for the wind industry. In a separate question, we polled leaders on which regions of the country offer the best overall environment for wind development now and five years from now.
The Southwest and Midwest today represent the strongest geographic regions for wind development in the views of survey participants. Five years from now, the Midwest is still believed to be the best environment for wind development, but the Southwest’s desirability is expected to be much lower in the future. MISO’s transmission queue grew by 10 GW from 2015 to 2016, whereas congestion in the Southwest will make the region less favorable for wind development when compared with other regions.
The Mid-Atlantic and Northwest regions are projected to be promising environments for wind development as the PTC begins to phase out five years from now. More than 14 GW of coal retirements are expected by 2025 in the Mid-Atlantic region, creating new opportunities for renewable energy. Strong power prices and proximity to load demand also make the Mid-Atlantic region attractive to wind developers. Expanding transmission, access to the California market and green energy policies at the state level are expected to drive wind development in the Northwest, as per survey respondents.
Successful wind development hinges on a profitable off-take strategy. Wind developers often struggle to align transmission capacity and timing with a viable off-take solution. Mortenson surveyed utilities and independent power producers (IPPs), asking, “What advice would you give to a wind developer trying to secure a PPA?”
What is the most important factor for utilities and IPPs? It is bringing them a complete package, including ensured transmission. A respondent shared the following insight: “A well-situated site on the transmission system may be more valuable to me than one with better wind resources.” Knowing and aligning with business goals emerged as another critical factor to securing a PPA.
An insightful statement from one power purchaser read, “Understand my business model and how I make money and what is important to me.” Additionally, utilities and IPPs need to have confidence in the firms with which they are entering into long-term agreements. Having a robust balance sheet and/or financing is viewed as essential by power purchasers. One industry leader advised, “Be creative in structuring finance. Find alternative homes for basis, and shape risk.”
Utilities and IPPs are not the only off-take solutions for wind developers. C&I power purchasers have recently emerged as important players in today’s wind market. AWEA reported in its 2015 U.S. Wind Industry Annual Market Report that more than 50% of PPA agreements last year were by non-utility entities. Procter & Gamble, Walmart, Dow Chemical, Google, and Amazon are representative of the numerous firms that signed PPAs in 2015. Will this trend of C&I PPAs continue?[adright zone=’190′]
We asked wind industry professionals, “How much will future wind growth be driven by C&I PPAs?” Twenty-six percent of those surveyed felt C&I PPAs would be a significant factor in future wind growth. A full 50% of respondents believed C&I PPAs would have a moderate effect on the future of wind. Survey participants believe corporate sustainability goals and hedges against future energy costs are the primary drivers fueling C&I participation in the wind market.
The near-term future of wind is bright, but there are challenges looming ahead for our industry. Many wind leaders recognize solar as a competitive threat in a non-PTC environment. When asked, “Absent government subsidies or credits, which is the most competitive renewable energy source for generating new investments?” 57% of survey participants said solar energy would be more competitive than wind energy five years from now. Utilities were even more bullish on solar, both utility-scale and distributed, with 67% saying it would be the most competitive in five years.Solar is not the only challenge wind will face in the future. We asked industry leaders to look into the future to predict the likelihood of wind energy experiencing a disruptive technology in the next five to 10 years. Forty-four percent of those asked agreed a disruptive technology would meaningfully challenge the wind industry in that time period. Although many felt a disruptive technology is possible, there was less clarity on what form it would be. One individual made the case for disruption with the following insight: “I don’t know what the technology will be, but we didn’t expect fracking to make natural gas such a dominant player five years ago.”
Energy storage is on the forefront of change for the wind industry. Ninety-six percent of people we talked to agreed energy storage will ultimately be a game-changer for the wind industry. Additionally, they predict the cost per kilowatt to decrease by 41% in the same time period. The impacts of energy storage on the wind industry will become clearer as the market evolves and distinct strategies emerge.
Wind industry leaders are confident in the future of wind despite future challenges. Eighty-five percent of the professionals we interviewed were optimistic about the future of wind. Everyone needs to keep an eye toward the future to capitalize on today’s opportunities. Collaboration and innovation to reduce the cost of generation will be critical to securing the future of wind. The wind industry has accepted the challenge of the PTC phaseout and is strongly focused on developing strategies to thrive in a post-PTC era.
Wendy Davidson is the director of business development for Mortenson’s Wind Energy Group. She can be contacted at (763) 287-3574 or firstname.lastname@example.org.