"We need to step up what I call the incremental success the industry has had to date to lead a major transformation in the energy sector," Susan Reilly, CEO of RES Americas and incoming chair of the American Wind Energy Association (AWEA) told delegates at AWEA's annual conference in Las Vegas in May.
Central to that transformation, she said, is the need to reduce greenhouse gas emissions. "I think carbon is going to be a major driver for our industry," Reilly said.
Utilities and large corporations, such as Exxon and Microsoft, are increasingly taking steps to price carbon within their business projections, said Gabriel Alonso, CEO of EDP Renewables North America. "The trend is there. There is growing concern about carbon risk," he said.
That concern has yet to prompt Congress, long reluctant to wade into the climate-change debate, to act. "Fundamentally we need policies that properly value carbon-free electricity like wind, which is not happening today," Alonso said.
AWEA's main priority will be to change that, said Reilly. But for now, the industry is pinning its hopes on new Environmental Protection Agency (EPA) rules limiting carbon emissions from existing fossil-fuel generation. "We're very optimistic that the EPA regulations could create up to 17GW of demand for our industry," said Mark Albenze, CEO of Siemens Energy's wind business in the Americas.
Tighter carbon-emission rules
The EPA is currently collecting feedback on its proposal, with an eye to finalising the regulations in June 2015. But there could be roadblocks to overcome if some coal-producing states decide to challenge the agency's plan.
"There may be litigation in the future," said Jay Godfrey, managing director of energy marketing and renewables at American Electric Power (AEP), one of the country's largest utilities. "We are all just going to have to ride the wave until it hits the beach and we see what happens."
Analysts expect the biggest impact of the EPA regulations for wind energy will be an increase in power prices as cheaper base-load coal supply is replaced largely with gas generation. "Then wind can compete by selling into that power price," said Amy Grace, North American wind analyst at Bloomberg New Energy Finance.
With the increase in gas use, regulators and state policymakers will also be looking to wind as a hedge against some of the risk associated with gas-price volatility.
Water usage by gas-fired plants is also a growing concern, with 2013 being the driest year in recorded California history and some states, such as Oklahoma, have been grappling with severe drought conditions for the last four years. "I think water scarcity is going to be a significant issue, and I do believe it will significantly favour wind and solar as a consequence," said Dan Shreve, a partner at Make Consulting.
Every advantage wind energy can present to potential buyers will be critical to creating new opportunities, delegates heard. Load growth in the US is relatively flat and the state renewable-energy mandates that have driven much of the demand for wind energy to date are beginning to wane. Only about 28GW of new wind capacity will be needed to meet state renewable portfolio standards (RPS) through 2025, noted Tom Darin, AWEA's director of western state policy. "We need more tools to create demand," he said.
Selling the value of wind energy to regulators that approve utility generation acquisition plans is one of those tools, said Ron Binz, former chair of the Colorado Public Utilities Commission. He pointed to an analysis Xcel Energy did as part of its 2013 Colorado integrated resource plan showing that the addition of gas generation by itself was more expensive than adding the same gas plant along with new wind generation. Key to Xcel's findings were the fuel savings the utility would realise by backing off gas generation when the wind capacity was generating.
It is not the kind of analysis that regulators, who are focused almost entirely on the relative cost of competing generation sources, are used to seeing. "But it is the kind of argument that has got to be sharpened and presented to people who are making decisions about wind on a dollars and cents basis," Binz said.
Regulators can have an enormous influence on the role wind plays in utility supply mixes, agreed AEP's Godfrey. "Ironically, the two states where we've added the most wind, Indiana and Oklahoma, do not have an RPS. But they have state utility commissions that are willing to listen."
While the focus of the conference was clearly on moving the US wind sector past its dependence on the on-again, off-again production tax credit (PTC), it was equally clear the industry is not ready to give up on the $0.023/kWh incentive in the near term.
"Without it, industry would not have had the tremendous growth it has. We still need some support here to enable us to get the technology development cycles that are necessary to compete in a subsidy-free world," said Anne McEntee, GE's vice-president for renewables.
The PTC has a material impact on the market for US wind, with analysts such as Bloomberg's Grace forecasting annual installations in the 3-5GW range without the tax credit, compared with 7-8GW with it in place. But it also has detrimental effects that are becoming more pronounced as the industry works to lower the cost and increase the competitiveness of wind.
"One of the interesting things about the US market is that you can't innovate too much because of the PTC structure," said Scott Baron, global product line leader at developer and turbine manufacturer Acciona Windpower.
Tax-equity investors and other financiers tend to be risk-averse, requiring the use of proven technologies in projects. "You can't push something too radical into the market," said Baron. "Generally you are better off making incremental improvements to your platforms." The cyclical nature of the PTC also adds to costs. During PTC booms, towers are more expensive because of shortages in supply, for example, but during the bust part of the cycle tower makers struggle to keep plants open in the face of depressed demand.
"The relatively high volatility in the market is not necessarily supporting reductions in the levelised cost of energy," said Peter Nickelsen, head of product integrity at Siemens Wind Power.
The latest expiration of the PTC, at the end of 2013, has created a whole new set of issues for developers and turbine makers alike. Projects had to begin construction by the end of 2013 to qualify for the credit, either by spending 5% of total project costs or actually starting physical work on the project. They also need to come online by the end of 2015 in order to avoid scrutiny by the Internal Revenue Service (IRS).
While many larger, well-capitalised developers were able to incur at least 5% of project costs, a standard that can be measured with relative ease, some smaller companies could not get access to the capital to make that kind of investment. "Their projects weren't actually mature enough, but yet they are still trying to qualify in this window," said David Hardy, vice-president of sales at Vestas.
Their only choice was to start physical work on their projects, but there is significant uncertainty about how much they actually had to get done to satisfy the IRS. Until that is clarified, investors are sitting on the sidelines, unwilling to commit to projects that may or may not be eligible to collect tax credits. As much as a third of the 12GW of US projects under construction at the end of 2013 could be in jeopardy - a prospect that is reverberating through all parts of the industry.
For turbine makers, there is significant uncertainty about whether some of the orders currently on their books will fall through. "That, of course, puts a lot of stress on the entire supply chain," Nickelsen said.
For developers, time is running out to firm up their turbine orders if they want to assure delivery in time to meet the 2015 commissioning deadline. "If we wait three more months or so it is going to be a bad situation," said Gonzalo Onzain, Gamesa vice-president of sales and marketing.
Another PTC extension would ease the situation by giving everyone more time to bring projects to fruition. The uncertainty could also drive significant mergers and acquisition activity. "If some of the smaller developers who have a power purchase contract are having difficulty executing on their project, they'll be snapped up by the larger independent power producers," said Andy Lubershane, a senior analyst at IHS Emerging Energy Research. "That will allow projects to get built. Not all of them, but some."
MIXED BAG — NUMBERS DOWN BUT MOOD HAS LIFTED
While a drop in attendance, from an estimated 10,000 in 2014 to nearly 8,000 this year, seemed reflected in a less-than-bustling exhibition floor, there was also a sense of optimism that the potential for continued growth is strong. "We're seeing developer talk not only about current projects but also future projects," said Daniel McDevitt, CEO of Nordex USA. "That's a good sign compared to let's say a year or so ago."
There was also a lot of discussion, both in and out of the conference's educations sessions about operations-and-maintenance strategies and enhancing the performance of existing facilities. "There is a lot of money and huge investment opportunities associated with a 61GW installed capacity base," said Shreve.