Navigant Research Blog

US Wind Generation Sets New Records throughout 2016

— December 7, 2016

TurbineThe past decade of steady wind plant commissioning throughout the United States is paying dividends, with new records being achieved on the proportion of electricity demand sourced by wind. The Electric Reliability Council of Texas (ERCOT), the grid operator for the state, recently announced it had hit an all-time record of wind output on November 27, with 15,033 MW of wind online just after noon that day. This represented around 45% of total electricity demand in the state, with over 24 million residents served by the ERCOT grid. The portion of load served by wind that day ranged from about 35% to more than 46%, averaging nearly 41% throughout the day. The previous wind generation output record of 14,122 MW was set on November 17, 2016. The current record for percentage of load served—48.28%—was set on March 23, 2016, at 1:10 a.m.

On an overall annual basis, in 2015, wind generation provided 11.7% of the energy used in the ERCOT region. As of the end of October, wind had served 14.7% of the region’s energy needs so far in 2016. With over 18,531 MW installed, Texas has more wind capacity online than any other state. This is largely thanks to a combination of high energy demand, strong wind resources, a permissive permitting environment, and major proactive state-based investments in transmission. In fact, Texas has so much wind on its system that electricity retailers are offering plans to consumers that include free electricity at night.

Across the Country

Texas isn’t the only state breaking records for wind capacity. The American Wind Energy Association (AWEA) has surveyed other grid operators and compiled other noteworthy examples of wind providing substantial proportions of electricity demand. North of ERCOT, the Southwest Power Pool (SPP) also benefits from similarly strong wind resources and abundant land for wind farms and easy permitting. On the same day ERCOT surpassed 15,000 MW, the SPP grid surpassed 11,300 MW, also representing a similar proportion of 48% electricity demand.

In the Midwest Independent System Operator (MISO) market, wind reached 25% of demand in late 2012. This is a large market, and its historic peak load for all generation was 126,337 MW in July of 2011. In the Northwest corner of the country, the Bonneville Power Administration says the record for wind capacity as a percentage of total demand peaked at 42.7% with 4,594 MW. Colorado saw wind supply 66.4% of total generation in the state, with 2,352 MW on the system.

New Projects, New Records

These daily records will continue to be surpassed as developers continue to commission wind projects. These records also underline that wind is making a very meaningful impact on the US electricity grid and that massive amounts of wind can be reliably integrated at very low cost. Wind energy output can be easily accommodated because changes in weather and wind speeds occur gradually and can be forecast by grid operators. Major flexibility is built into the power system to accommodate large and abrupt swings in electricity supply and demand. Some additional power generation reserves are needed to balance additional wind on the system, but studies by ERCOT have shown the cost to be around $0.04 per electric bill and 4% of total generation reserve costs.

More than a dozen wind integration studies by US grid operators and others have found that wind energy can reliably supply at least 20%-30% of the nation’s electricity, with some studies analyzing wind providing 40% of total electricity on an annual basis. The National Renewable Energy Laboratory’s Renewable Energy Futures study found no reliability problems for a case in which wind and solar provide nearly 50% of total electricity. If the recent records are any indication, these levels are a real possibility in the future.

 

What GE’s LM Wind Power Acquisition Means for the Wind Industry

— October 13, 2016

TurbineThe wind power markets awoke to the surprise news on Tuesday morning that US industrial conglomerate GE had inked a $1.65 billion deal to acquire LM Wind Power, the world’s largest independent wind blade manufacturer.

This acquisition represents a major shake-up in the global wind market on a number of levels, primarily because Denmark-based LM has more blade capacity installed and turbine supplier relationships than any other blade vendor. LM has the capability to produce almost 10,000 blades annually from 13 factories, representing around 6.3 GW of capacity. This is approximately a 17% market share among 18 global independent wind blade manufacturers, as assessed by Navigant Research for the upcoming Wind Turbine Blade Technology & Supply Chain Assessment report. The company’s blades are installed on over 77 GW of the world’s 432 GW of wind turbine capacity globally.

Up until now, GE has outsourced 100% of its blade capacity, with LM as its largest supplier. Most turbine OEMs favor a blade sourcing strategy of make-and-buy, which blends in-house supply with outsourcing to guarantee supply while maintaining better flexibility. Bringing production in-house is a strategy for GE to ensure critical blade supply with a make-and-buy sourcing strategy.

GE also says that with blades and rotors being such a critical part of the wind turbine, this is the ideal time to fully bring blade manufacturing capabilities in-house where GE can leverage its skills in system design, materials science, and analytics skills to better optimize blades with a whole turbine approach.

M&A Continues to Shake Up Market

Leveraging GE’s manufacturing aptitude is one part of this deal, but so too is its competitive strategy. The wind turbine market is in a phase of consolidation, with a number of other high-profile M&A deals inked over the past few years. Notable examples include Siemens and Gamesa, GE and Alstom, Nordex and Acciona, Vestas and Mitsubishi, ZF and Bosch Rexroth, Vestas’ acquisitions of UpWind and Availon, and Siemens and Adwen.

Interestingly, Siemens recently announced for the first time since it entered the wind business in 2005 that it would partner with LM to have LM build blades for its new low-wind 3.15-142 turbine. This is purely speculation, but GE’s acquisition of LM could be a preemptive move on GE’s part to prevent Siemens from acquiring LM. Following Siemens’ acquisition of Gamesa this year, the German conglomerate needs to harmonize its blade manufacturing strategy since Siemens manufactures blades differently than Gamesa.

Siemens produces all of its blades in-house with a unique one-piece molding process, while Gamesa builds 2-piece bonded shell designs and also outsources, with LM as one of its largest suppliers. The Siemens manufacturing process is reportedly more expensive than the process built by Gamesa. Siemens would likely have benefited from the acquisition of LM in order to reduce its blade manufacturing costs and harmonize its blade sourcing strategy.

How GE’s acquisition of LM will affect other players depends partly on how much of LM’s manufacturing capacity will be allocated to GE’s needs. GE says it will operate LM as a standalone company that will retain all of its previous turbine customer relationships. But the wind blade market is a highly competitive landscape, rife with intellectual property concerns. Would other turbine OEMs truly consider LM independent and feel they are getting the same value as LM’s parent GE, their competitor?

Conversely, is a blade company under GE’s control likely to sell blades to GE’s competitors at the same capacity levels, especially if GE increases its in-house sourcing from LM for its own needs? In general, there still is an oversupply globally of wind blade manufacturing capacity, but this move by GE could tighten supply among the Western wind turbine OEMs and shift capacity around among other independent blade suppliers.

 

Key Developments Are Laying Foundation for US Offshore Wind Market

— September 16, 2016

TurbineAmericans who don’t obsessively follow the wind power industry were recently greeted with the news from mainstream media outlets that the United States has installed its first offshore wind installation. The 30 MW Block Island project off Rhode Island is developed by Deepwater Wind, and commissioning and grid connection will be finalized over coming weeks. The broader question to industry followers and the American public alike is whether this heralds the beginning of an offshore wind market in the United States.

The US wind market still lacks the long-term policy certainty and incentives that counterparts in Europe and China have implemented. By the end of 2015, total global offshore wind capacity reached nearly 12,000 MW. A remarkable 3,755 MW of that total came online in 2015 alone, driven largely by Germany, and China is expected to install over 1,000 MW of offshore wind this year. Those figures put the one 30 MW US project in perspective.

However, the foundations are in place to see a strong US market develop in the early 2020s when multiple large-scale projects in the 300 MW or above range are likely to be built. The following are key developments driving the US offshore wind industry now and in coming years:

  • Federal Ocean Leases: More than 16,000 MW in the offshore wind project development pipeline is slowly advancing due to 11 offshore wind site lease auctions orchestrated by the federal Bureau of Ocean Energy Management (BOEM), plus favorable Northeastern state policies.
  • Tax Credits Extended: Supportive tax policies in the form of the Production Tax Credit (PTC) and the Investment Tax Credit (ITC) were reinstated in late 2015, and critical new timeline flexibility announced in mid-2016 now allows wind projects that begin construction by 2017 to have 4 years to complete construction and receive 100% tax credit value. The next 3 years provide declining tax credit values (80%, 60%, and 40%) if projects begin construction in years 2018, 2019, and 2020, providing a window of policy enactment that will see wind projects being installed through 2023.
  • US Department of Energy (DOE) Demonstration Projects: The DOE has awarded three Advanced Technology Demonstration Projects in New Jersey, Ohio, and Maine for the Fishermen’s Energy Atlantic City Windfarm, Lake Erie Energy Development Corporation’s Icebreaker, and the University of Maine’s New England Aqua Ventus I projects, respectively. All three are eligible for up to $40 million each, contingent on reaching milestones and congressional appropriations.
  • Massachusetts: Legislation was passed in July 2016 requiring utilities to contract for 1,600 MW of offshore wind.
  • New York: Long Island utility company PSEG has selected Deepwater’s 90 MW project as the winner of its all-resources RFP. NYSERDA will also participate in the upcoming BOEM New York lease auction to support a future offshore wind RFP.
  • Carper-Collins ITC Bill: There is a current bill on the docket in the US Senate to extend the 30% ITC to up to 3 GW of offshore wind. Recent cost estimates have taken the cost of the bill from $3.5 billion down to $535 million, making it more attractive to lawmakers.
  • Costs Dropping: A new cost analysis by the National Renewable Energy Laboratory shows credible scenarios for cost reductions below $100/MWh by 2025 in some areas of the United States. Results in recent European contract auctions are supporting this, including DONG winning a contract for 700 MW at €72.70/MWh (~$80.52/MWh) and Vattenfall winning a Danish near-shore tender at €63.8/MWh (~$71.15/MWh).
  • Abundant Resources: Today, a technical potential of 2,058 GW of offshore wind is accessible in US waters using existing technology. This is equivalent to an energy output of 7,200 TWh per year—enough to provide nearly double the total electric generation of the United States in 2015. The DOE says US national wind strategy should and could successfully develop 86 GW by 2050.
 

First Half of 2016 Shows a Wind Boom Underway

— August 1, 2016

Der Rotor wird angesetztWith the first half of 2016 drawn to a close, statistics on the U.S. wind market have been released from the American Wind Energy Association (AWEA) that show the expected major ramp up in wind project construction is now well underway. There are now 12,462 MW of wind projects under construction and a further 5,817 MW in advanced development. This includes over 3 GW of new construction announcements during the second quarter alone, the highest level seen since 2013.

In terms of installations completed during the first half of 2016, only a modest 310 MW was commissioned in the second quarter. This brings the total to 830 MW installed in the first half of the year. This doesn’t seem like much for a booming market, but this is a typical amount of wind generation added in a first half due to how construction occurs. The U.S. market always sees turbines gradually installed and commissioned throughout a given year toward a set goal of fully commissioned capacity by the end of a given year. Therefore, a given year’s fourth-quarter installation number is always far above the quarters that proceed it. Navigant’s U.S. wind market forecast estimates the year-end total to reach or exceed 8.2 GW.

Big Three Lead the Pack

The manufacturers providing turbines for the first half of 2016 are the usual big three of GE, Vestas, and Siemens. Notably, GE is typically the leading installer of wind turbines in the United States in a given year, but for projects presently under construction, Vestas leads with over 3.8 GW of capacity over GE’s 2.9 GW. Siemens and Gamesa (soon to merge) follow with under 1 GW apiece. Navigant Research’s World Wind Energy Market Update 2016 report also compiles global and country-level market shares for the previous year.

Development so far in 2016 is mostly in the country’s windiest central corridor, including the states of Texas, Kansas, Nebraska, Oklahoma, Iowa, and New Mexico. Along this line, it is worth noting that the majority of wind generation is being added in politically conservative states. AWEA noted that the 10 congressional districts with the most wind power generation are in Republican districts, and now fully 88% of self-described conservatives support wind energy, up from less than 50% just 2 years ago. Wind energy has typically been hijacked by U.S. politics as a left-leaning liberal cause, but wind is slowly becoming less of a partisan issue as today’s power producers, utilities, and other end users embrace it due to its increasingly competitive cost. The average cost for installed wind projects in the country has fallen by 66% over the past 6 years, thanks mostly to more efficient and larger wind turbines.

Policy Stability Spurs Development

Another key reason for the massive buildup underway in the U.S. market is policy stability, an item that the market has historically had to function without. The Production Tax Credit (PTC) extension passed last December is structured so that wind plants that begin construction by the end of 2016 will receive 100% PTC value, projects starting construction in 2017 will receive 80% of the PTC value, 60% in 2018, 40% in 2019, and zero in 2020. Most importantly, new guidance provided by the IRS in May changed the construction window from 2 to 4 years. Therefore, projects on the tail end of the PTC window will be finishing construction all the way until 2023.

AWEA collected and averaged industry forecasts from a variety of sources (including Navigant’s forecast), and this combination shows a wind market that will install up to 48 GW between 2016 and 2021 when tax credits wind down, representing an average yearly installation cycle of 8 GW annually. Navigant’s forecast is on the more conservative side with expectations of 38.2 GW installed by 2021, but this may be revised upward as market activity is analyzed going forward.

 

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