US wind energy prices hit lowest level in eight years

Climate Progress

Aside from the threat of losing a major federal tax incentive, 2012 was a great year for the US wind industry.

Wind energy installations soared to 13.1 gigawatts (a 90 percent increase over 2011) and average long-term wind power prices fell to their lowest point since 2005, according to a new report by the Department of Energy (DOE).

The record amount of installed capacity not only made wind power the leading source of new U.S. electric-generating capacity in 2012, it also allowed the U.S. to narrowly overtake China as the global leader in capacity additions for the year (regaining the title it had lost in 2009). Though, as the table below shows, the U.S. still lags behind China in cumulative wind capacity.

Due in part to the increased deployment of wind power, average levelized prices for wind power purchase agreements (PPA) have fallen about 43 percent since 2009 — going from a high of nearly $70 per megawatt hour (MWh) in 2009 to around $40 per MWh in 2012. According to the report:

This level approaches previous lows set back in the 2000–2005 period, which is notable given that installed project costs have not returned to 2000–2005 levels and that wind projects increasingly have been sited in lower-quality wind resource areas. Clearly, turbine scaling has more than overcome these headwinds to drive PPA prices lower. PPA prices are generally lowest in the Interior region, highest in the West, and in the middle ground elsewhere.

The chart above shows nationwide and regional average PPA prices since 1996.

In addition to lower wind power prices, the report shows that while the U.S. remained a large importer of wind power equipment in 2012, the wind industry managed to significantly decrease the percentage of wind equipment imports used in wind power projects. By increasing the percentage of equipment sourced domestically, the wind industry is also giving a boost to domestic manufacturing.

Specifically, DOE’s analysis found that “focusing on selected trade categories, and when presented as a fraction of total equipment-related wind turbine costs, the overall import fraction is estimated to have declined considerably, from 75% in 2006–2007 to 28% in 2012.”

The DOE report also mentions state and federal policies and their role in the continued growth of the wind industry. State renewable portfolio standards (RPS) that mandate certain levels of renewable energy have been integral in wind energy deployment, but those policies will not be enough at their current levels. DOE points out that the percentage of wind power capacity in RPS states was 83 percent in 2012 and those states are only expected to add an average of 3-5 gigawatts of renewable energy per year between 2013 and 2020.

Federal incentives have had a significant impact on deployment as well. Extended in January 2013, the federal production tax credit (PTC) allows developers of wind projects that begin construction before the end of 2013 to take a 30 percent tax credit and is expected to help boost installations through the end of the year and into 2014. But without long-term policies that can help drive continued wind energy investment, the future for the wind industry is uncertain.

This article was originally published on Climate Progress. Reproduced with permission