DNV GL shares insights from the Infocast Wind Power Finance and Investment Summit: What’s next for wind power market in 2014?
Steady is not a word typically used to describe the US wind power market, nor would one combine the words “stable” and “market conditions” when speaking about the history of US wind power. The industry’s primary federal support mechanism, the Production Tax Credit (PTC), has been allowed to expire several times in the last decade, only to receive a last minute or retroactive extension. It is all the more impressive, therefore, to observe what the wind power industry can achieve in a short time, and what is happening now is simply stunning. The American Wind Energy Association (AWEA) recently reported that over 12 GW of new wind farms were under construction at year end 2013, as wind farm developers sought to qualify their wind farms for the PTC under the rules contained in the most recent one-year PTC extension passed in January 2013. These encouraging figures confirm the optimism we expressed late last summer at the AWEA Wind Energy Finance & Investment Seminar, where we estimated a similar GW figure based on our pipeline of advisory work for wind farms under development.
At the recent Infocast Wind Power Finance and Investment Summit, the focus was undoubtedly on how to capitalize on the current market, rather than lament the policy uncertainty. Wind farm developers, investors, and lenders came to this event for one primary reason: to do deals. With over 90 projects under construction and a healthy amount of capital eying a piece of the market, the mood was positive and conditions ripe for deals to be done.
Short-term, practical issues were the primary focus of discussions—how will the IRS define continuous construction and are there enough hedge providers remaining in ERCOT following the Volcker rule to enable the completion of 7 GW of wind farms in construction in Texas? There was also some quiet grumbling that this latest wind rush in West Texas will create a new round of transmission congestion issues, fearing that the Competitive Renewable Energy Zone (CREZ) transmission lines recently completed will be quickly maxed out. These are surmountable issues, however, and a sign of the industry’s success in achieving cost competiveness. In Texas, if they run out of transmission capacity, they will likely build more lines.
To be sure, the wind power market is anything but certain beyond 2015—the year many wind farms currently under construction will reach commercial operation—and spending on longer-term wind farm developments has stalled amidst the policy instability. There are continual efforts led by AWEA to secure a PTC extension now and long-term policy in the future, but common wisdom suggests a PTC extension will not happen until later in the year in a lame duck congress, due to election year politics and the general state of political theater. We do not laugh enough, in my view, at the irony of increased legislative activity in a “lame duck” session.
Coal plant retirements resulting from EPA limitations on greenhouse gas emissions will also likely aid the wind power industry, but the timing of a meaningful impact on new wind development is not assured, amidst legal challenges to the EPA regulations and the slow-moving nature of our government. The success of the CREZ lines in Texas notwithstanding, even if we are able to secure a PTC extension, the challenge of building adequate transmission lines from our wind rich interior to coastal load centers remains.
While the US wind power industry continues to search for the comfort of a stable policy environment, I’m continually impressed by its ability to build so many wind farms in such a short time frame. As any industry would do, the US wind industry is constantly trying to maximize the potential of favorable short-term market conditions. When the US wind market is in a boom period, it really booms: in 2012, we installed over 13 GW of new wind farms, and 11 GW of new wind capacity started construction in the 4th Qtr of 2013 alone. I like to imagine that at some point in the future we will have a stable long-term policy, and we will achieve new wind farm installation records because we can, not because we have to in order to capitalize on short-term incentives. For now, I am encouraged by the industry’s ability to make a lot happen fast and feel honored to play a small part in it.