It’s American Wind Week, and the U.S. wind industry has a lot to celebrate.
The American Wind Energy Association launched Wind Week last year when wind power became the country’s largest source of renewable energy capacity. Today, the industry employs more than 105,000 U.S. workers and is building more power than ever before.
There was one notable setback to the near-term U.S. wind forecast last month, however.
American Electric Power’s Wind Catcher Energy Connection project was slated to be the largest wind farm in the United States — by a long shot.
The 2,000-megawatt, $4.5 billion facility would have brought Oklahoma wind power to 1.1 million customers in the South Central U.S. The Alta Wind Energy Center in California is currently the largest wind farm in the U.S. at 1,548 megawatts, and it was built in 13 phases. Southwestern Electric Power Co., a subsidiary of AEP, proposed to build Wind Catcher in one.
In addition to deploying 800 wind turbines, Wind Catcher called for the construction of a 360-mile transmission line from the wind farm to Tulsa, Oklahoma, where AEP said the existing grid would take the wind power to customers. The transmission line faced local opposition, and with a price tag of $1.6 billion it added significant expense to the project, which made regulators wary.
“This was a really wild proposal,” said Anthony Logan, North America wind power analyst at MAKE Consulting, a Wood Mackenzie company. “This was a giant, hyper-ambitious project that came very close to succeeding, but might have gone a bit too far.”
Wind Catcher got tangled up in political, regulatory and market challenges, and in late July AEP announced it was pulling the plug. The decision came after utility regulators in Texas concluded that Wind Catcher didn’t offer enough benefits to ratepayers and rejected the project.
“AEP made a good case about this being the cheapest wind power there is going to be for a decade, but that doesn’t necessarily fly with public utility commissions — they typically have to have a need for the power,” said Logan. AEP did not make a strong enough case for the need to justify such a large project, even at a competitive price.
Year-over-year cost reductions, combined with the Production Tax Credit, make 2020 “the sweet spot” for wind projects on a cost basis, said Logan. As a result, MAKE is predicting enormous growth over the next few years, as developers take advantage of the PTC before it begins to decline in 2021.
More than 32 gigawatts of new wind capacity is forecast to be built in the U.S. over the next three years, according to MAKE’s latest North America Wind Power Outlook report. MAKE projected 13 gigawatts of new wind would be built in 2020, although that number includes Wind Catcher, Logan noted.
It’s unlikely Wind Catcher will be replaced by multiple smaller projects, he added, because the 350-mile transmission line was critical to building out that capacity. So unless Wind Catcher is revived, new U.S. wind capacity in 2020 may be closer to 11 gigawatts.
For the broader wind industry, Logan said that means it's still “full steam ahead.”
New projects from Apple and PacifiCorp
While Wind Catcher has been scrapped, the rest of the U.S. wind market shows no sign of slowing down as customers and developers look to take advantage of tax credits — while they last. These incentives recently led to a bid for the largest offshore wind project in the U.S. coming in well under analyst expectations, starting at $74 per megawatt-hour.
Corporations are also getting in on the action. Just in time for Wind Week, Apple spearheaded an agreement with Swiss Re, cloud service provider Akamai and e-commerce company Etsy to develop two new wind and solar energy farms in Illinois and Virginia. The projects will collectively generate 290 megawatts for the PJM electric grid, which serves much of the Eastern U.S.
Akamai, Etsy and Swiss Re previously struggled to access large renewable energy projects in PJM territory. By collaborating with Apple, the companies were able to procure power from the new projects on favorable terms.
“At Apple, we’re proud to power all of our operations around the world with 100 percent renewable energy,” says Lisa Jackson, Apple’s vice president of environment, policy and social initiatives. “In the process, we’ve charted a course for other companies and organizations to purchase renewable energy and transition their own operations to greener power.”
With technical assistance from 3Degrees, the companies will collectively purchase 125 megawatts from a wind farm near Chicago and 165 megawatts from a solar PV project outside Fredericksburg. The projects will be developed by sPower and Geronimo Energy, respectively.
More and more utilities are also looking to invest directly in wind power. The same month that AEP’s big wind project suffered a regulatory setback, PacifiCorp got the go-ahead to significantly expand its wind energy portfolio.
On July 20, the Idaho Public Utilities Commission approved a proposal from Rocky Mountain Power, a PacifiCorp subsidiary, to build three new wind projects in Wyoming totaling 1,150 megawatts of new wind capacity. The utility also got the green light to build a 140-mile high-voltage transmission line in Wyoming and to repower 900 megawatts of existing wind resources.
Idaho was the final state in PacifiCorp’s six-state service territory that needed to sign off on the wind power expansion, which is part of the company’s Energy Vision 2020 initiative. The new wind projects will increase the amount of owned and contracted wind capacity on PacifiCorp’s system by more than 60 percent and will be able to power more than 400,000 average homes once up and running.
The utility estimates its total investment for the Energy Vision 2020 projects will be just over $3 billion, a reduction from Rocky Mountain Power’s initial $3.5 billion cost estimate. The lower cost estimate is due to reduced project scope and reduced project costs through a competitive procurement process.
By completing the projects before 2020, Rocky Mountain Power will be able to realize the full benefit of the PTC. In the event that any of the projects do not qualify, the Idaho PUC order required the utility to bear the risks.
The utility provided “substantial and competent” evidence that “seizing this opportunity will result in a better outcome for its customers,” the regulators stated. “However, because the justification is economic in nature, as opposed to purely reliable and safe service, we find that the risk inherent in this business decision should not be entirely borne by the ratepayers.”
According to Logan, one of the main differences between PacifiCorp and AEP's wind projects is that Wind Catcher was designed with a direct tie line to serve Tulsa, while PacifiCorp's projects are part of a larger expansion plan to serve the larger West. In the former, the benefit to ratepayers in other states was harder to prove to regulators.
Utilities become strong market drivers
The practice of rate-basing utility-owned wind projects is still in its infancy, said MAKE's Logan. And because the justification is mostly driven around price and the declining PTC, some regulators are hesitant to support these projects. But that’s starting to change, which is good for longer-term wind industry growth.
“As the economics continue to improve and gas prices and wholesale prices rise around 2022, you’ll see an increasing willingness by utilities to procure wind directly and to rate-base it. […] And they'll be able to come before their PUC and, unlike Wind Catcher, say, ‘We need this power; it’s not a purely driven calculation,’” said Logan.
If the current pace of coal retirements continues, it appears more and more likely that U.S. utilities will be looking for new power and wind is going to increasingly become an attractive choice. Utilities first sprang into action after the Internal Revenue Service clarified the guidance of the PTC in late 2016.
At that point, wind prices were low enough that utilities could go before a PUC for project approval and not get laughed out of the room, said Logan. Utilities also had tax incentive clarity that they could incorporate into their projections to help them get through multiple state PUC proceedings — which is not a fast process.
An additional benefit for utilities in windy states is that MAKE expects projects built in 2021, with access to the 80 percent PTC, will still be cost-competitive with solar PV and gas capacity. And if costs continue to drop, that could extend to 2022 and possibly beyond.
“Utilities are one of the strongest market drivers because their needs aren’t so tied to market dynamics,” Logan said.
Commercial and industrial buyers, like Apple, are focused on wholesale prices, because they’re looking at renewable energy deals as a hedge against higher future prices. Utility-led deals, like those proposed by PacifiCorp, are expected to provide a needed backdrop of stability to the U.S. wind market forecast in the years ahead.
