Where are all of the wind power purchase agreements (PPAs)?
Despite all of the bluster surrounding the five-year extension of the production tax credit (PTC), activity out there seems thin. Is it just me, or do you also suspect that off-take agreements for wind are far less plentiful this year than in years past?
No doubt, there have been some notable off-take agreements – some with recognizable, blue-chip corporations, and some with traditional, regulated utilities – but nothing approaching what was expected shortly after the PTC was extended last year.
According to Keith Martin, partner at law firm Chadbourne & Parke, many factors could be responsible for the decline. In a macroeconomic sense, he notes that low gas prices continue to be an obstacle for wind developers.
Nonetheless, off-take agreements with non-utility buyers – once a fast-growing segment – suffered a sharp decline this year.
Last year, PPAs by non-utility buyers, such as Facebook and Walmart, fell 33% from the previous year to 2,194 MW compared with 3,260 MW in 2015, according to data from Renewable Energy Choice. The totals were far more disappointing when you consider that estimates at the start of 2016 had the non-utility segment at 4,000 MW.
“What happened was that by midyear, there was a growing sense among corporate buyers that wholesale electricity prices are falling,” Martin explains. “[Corporate buyers] had less interest in locking in prices under long-term contracts.”
As for PPAs signed by traditional utilities, he says, most of the activity is in states with renewable portfolio standards. However, many utilities have already signed PPAs to meet their near-term requirements.
“There are pockets of need,” Martin explains, “but they tend to be small contracts.”
This begs the question, is there light at the end of the tunnel? Does the U.S. wind market gradually turn to merchant power – that is, wind projects designed specifically to serve spot electricity markets? That seems unlikely, as merchant power has never gained much traction in the U.S. Certainly, the concept has merit (in smaller markets, for example, energy trades at a higher rate), but absent a national renewable electricity standard or carbon legislation, merchant wind projects seem a ways off.
The wind industry needs to come to grips with how its development pipelines sync up with off-take market projections. So, look past the damning headlines that detail how former wind-friendly states are reversing course (I’m looking at you, Oklahoma); the off-take agreement – and how to obtain one – is the only story that matters now.