The U.S. wind market, in the third quarter of 2014, showed clear signs of recovery, with 1,254 MW installed, eclipsing the total of 1,084 MW installed all of last year. The American Wind Energy Association (AWEA) reports an additional 13,600 MW under construction across 105 projects. In our March 2014 World Market Update, Navigant Research forecast that by year’s end the 2014 total could reach 6,300 MW. The last 3 months of the year typically see more capacity installed than in the previous 9 months combined because of the construction cycle peaking at the end of the year.
Some wind projects may to slide into 2015, though, given that there’s not a policy-driven deadline to commission projects by year’s end. A number of factors have contributed to a slower construction cycle, despite over 12 GW of wind projects with announced construction for next March. The supply chain in the U.S. wind market exhibits some unavoidable inefficiencies due to the stop-start nature of U.S. wind power policy. Wind turbine manufacturers, along with their component suppliers for blades, towers, drivetrains, and other equipment, were forced to throttle back manufacturing capacity in 2013 due to the down market. Re-hiring and training workers and ramping up capacity is not an overnight process in an industry that produces aerospace-grade products at industrial levels.
There are also signs of transportation bottlenecks for some of the largest components. The majority of wind projects under construction use rotors around 100 meters in diameter and towers that are 90 meters or higher. Transport companies that move this equipment have been reluctant to invest in new trailers designed for larger wind turbines, given that the equipment could sit idle if the U.S. market falls into another slump. Railways have also been bottlenecked, partly due to the huge volume of crude oil being shipped around North America.
The turbines installed in 2014 so far have come largely from the Big Three vendors: GE, Vestas, and Siemens. Most of these installations use GE’s 1.6/1.7 MW turbine. More than 4,500 MW of the capacity under construction uses GE turbines, followed by 2,775 MW for Vestas, 1,792 for Siemens, and around 3,500 MW not yet reporting a turbine. Notably, however, turbine vendors that have limited manufacturing presence in the United States continue to secure business, with over 800 MW under construction using turbines from Acciona, Gamesa, and Nordex combined.
Also notable is the return of the merchant, or hedged, wind plant. Most wind projects under construction either have signed a long-term power purchase agreement (PPA) or are utility owned. But a substantial amount of wind capacity is proceeding on a merchant basis, which is operating without a contract. Most of this is occurring in Texas.
A few years ago, following the financial crisis, it was nearly impossible to secure outside project financing for a wind plant that did not have a PPA. That rigidity has softened as wind developers seeking higher potential returns are finding ways to move forward and secure project financing without a fixed PPA contract. In many cases, hedge agreements that went out of style during the recession of 2008-2009 are back in use. These financial tools allow a wind plant to take advantage of fluctuating electricity spot market prices. Spot prices in Texas generally range from $45 per MWh to just over $60 per MWh. Special merchant contracts provide a type of insurance that enables wind plants to be paid the fluctuating spot price while also being protected by a price floor and ceiling – thus reducing risk while not limiting wind power providers to a low fixed price, as is typically the case with a PPA.
Moving forward, all eyes will be looking to the end-of-year project commissioning to see how much the U.S. wind market has recovered from its 2013 doldrums.