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United States

Project cost drop causes controversy

UNITED STATES: Sluggish electricity demand, declining turbine prices and new technology are pushing down the cost of US wind power -- as evidenced by a 40% discount on a 200MW project for US wind-power company Xcel Energy in Colorado.

A report from the US Department of Energy's Lawrence Berkeley National Laboratory (LBNL) says that, since 2008, turbine prices have declined by an average of 20%, but in some cases up to 33%. "The downward price pressure in the majority of the country is in fact extreme," said the laboratory's Ryan Wiser, co-author of the report. "Not only are prices declining, but you're getting larger and more efficient turbines for those lower prices."

The opportunity for Xcel, the top wind operator among US utilities, followed its 2009 request for proposals, where the winning bid for a 200MW project stalled because a rancher took legal action over allowing transmission on his land. But the apparent misfortune allowed Xcel to convince the Colorado Public Utilities Commission that reopening solicitations would benefit electricity ratepayers, which resulted in 9GW of new proposals early this year.

The winning bid, US renewables firm NextEra Energy's 200MW Limon wind project, is in a different location and comprises 125 GE 1.6MW turbines with 100-metre rotors. It cuts 40% from the price of the scuttled project by averaging roughly $35/MWh over a 25-year power-purchase agreement (PPA).

NextEra was able to provide such a low price partly because of the larger rotor-swept area - a typical GE machine has a rotor-swept area of around 80 metres.

While turbine prices have dropped worldwide as manufacturers struggle to find buyers, low natural-gas prices force US developers to compete for PPAs in a time of flat electricity demand. Technological advances have in effect upgraded GE's 1.5MW machine to 1.6MW - meaning roughly eight fewer turbines to produce 200MW. Increased blade lengths have brought an uptick in capacity factors - the percentage of power a turbine produces relative to the number on its nameplate.

Rising capacity factor

Tim Kawakami, director of purchased power for Minnesota-based Xcel's eight-state service area, said: "Capacity factors that we had seen in previous solicitations, which ran into 30% and the low forties, are now into the high forties and even 50% in some cases."

Not everyone, however, believes that the race to lower project costs is for the best. "I think it's very dangerous," said John Calaway, director of wind development for US wind and transmission firm Pattern Energy, which has recently completed major projects in California and Canada. "If we set up the expectations that those types of returns are acceptable, then the industry will suffer dramatically."

"Prices are in the tank," he said. "And that's why we're not participating at all in the centre of the United States right now. We can't make any business sense whatsoever of the economics. There are going to be people like NextEra who take low returns and, if they want to stomach it, then good luck to them. Their cost of capital is probably the lowest in the business."

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