Navigant Research Blog

Tailwinds Pick Up for U.S. Wind Market

— November 2, 2014

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.

Delivery Delays

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.

Flexible Finance

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.

 

Wind Energy Innovation: Hybrid Concrete and Steel Towers

— October 8, 2014

As the number of sites with high wind speeds for turbines becomes exhausted, there is a growing need to ensure that sites developed in the future make optimal use of the wind resources available.  Also, as wind turbines are deployed in remote, forested areas of Northern European countries, such as Sweden, Finland, and Germany, the larger wind shear and turbulence created by forested terrain favors larger towers that elevate the rotor.

This trend places greater emphasis on using towers with heights often in excess of 100 meters and capable of supporting the heavier top head mass of large, multi-megawatt turbines.  This is the motivation behind the new breed of hybrid steel and concrete towers, where the bulkiest concrete base section can be produced at a factory and shipped in more manageable sections or produced at the wind plant site.  Some specialized towers, available only recently, can reach as high as 150 meters.

By Land or Sea

A primary reason for the increasing demand for these hybrid towers is transport logistics.  With steel towers, erected tower height directly dictates the maximum diameter of the tower’s lowest base section because all wind towers gradually taper as they rise.  The typical tall tower height today for onshore turbines is 100 meters, and the base dimensions for these towers are typically not more than 4.3 meters in diameter.  Widths any larger are not only difficult and expensive to manufacture (because of the challenges of bending thick steel plate), but they also push the boundaries of the cranes and specialized transport vehicles needed to move them.  Likewise, these oversize loads are more limited as to the roads, intersections, bridges, underpasses, and wind plant sites they can travel through.

Hybrid and concrete towers can also offer a more cost-effective solution when the nearest steel tower facility is far from a given wind plant site, which would require prohibitively costly transport for steel sections.  Some wind turbine vendors that have experience working with steel, concrete, and hybrid towers will select their tower type based on these relative materials economics.  If a steel tower facility is in reasonable proximity to a planned wind plant, steel will be chosen.  But as the distance and transportation costs from a steel tower facility increases, shifting to a hybrid or all-concrete offering can be more cost-effective, since concrete facilities are more widespread.

New Form Factors

A number of European companies, including Max Bögl, Advanced Tower Systems, Ventur Droessler, Inneo Torres, and Consolis Hormifuste, are now offering hybrid and concrete towers.  Max Bögl appears to be the current market leader in Europe, with units installed with turbines from Senvion, Vestas, Nordex, Alstom, and Gamesa.  Wind turbine vendors Acciona and Enercon also produce concrete and/or concrete and steel hybrid towers for self-supply.

In more expansive markets, such as North America and China, greater land availability reduces the premium on maximum tower height.  But at least three companies offer concrete or hybrid towers: Postensa in Mexico and Fabcon and Tindall in the United States.  Tindall offers 40-meter concrete base sections that can be used in conjunction with another manufacturer’s steel towers. And the European vendors with a proven track record could expand to the United States and elsewhere globally.

Other approaches to tall towers, such as General Electric’s space frame lattice tower and Siemens’ bolted steel shell tower, offer different approaches to building tall towers and alleviating transport headaches.  These and hybrid concrete towers are likely to begin to be installed in the United States in the next few years as the market continues to mature.

 

On the High Plains, Wind Industry Comes into View

— September 25, 2014

Most of us who study the utility industry know that utility-scale wind generation has been rapidly growing in many parts of the country, but I think we have chronically underestimated the impact and potential of this resource as an electric power generation resource and a totally clean and green contributor to many states’ renewable portfolio standard (RPS) targets.

Driving cross-country from San Francisco to our cabin in Northern Wisconsin this summer on I-80, I was amazed by the number of large-scale wind farms we saw in every state.  Through Nebraska and Iowa, I kept seeing flatbed semi-trucks with 100-plus-foot wind generator blades heading west.  Other trucks had tower tubes and generator unit housings as well.  It was clear to me that something was really happening here.  As we crossed the state line into Iowa, we passed a rest area with a huge 148’ turbine blade mounted vertically to honor the wind industry.  As tall as a 15-story building, the blade was donated by Siemens.

I was also struck on the drive by the ubiquity of high-voltage transmission power lines, large-scale substations, and huge coal-fired generation plants on the horizon.  The utility-scale wind farms were a welcome diversion and a signal that the power generation and transmission system industry is moving on.

More on the Horizon

Later in July we headed back to the Bay Area, taking the northern route, following I-90 across western Minnesota and South Dakota.  Again, the prevalence of utility-scale wind farms was striking.  However, the landscape, crisscrossed with new high-voltage transmission lines, was also remarkable and signaled to me that utilities and investment firms (through companies like Berkshire Hathaway Energy) are doubling down on their $15 billion investment in wind generation and the transmission infrastructure needed to support our country’s electric capacity requirements as coal and nuclear generation resources are retired in the next few years.  Berkshire Hathaway Energy also has another $15 billion in reserve.

The following graphic produced by the National Renewable Energy Laboratory (NREL) shows the wind energy potential across the nation.

Wind Energy Intensity, United States

(Source: National Renewable Energy Laboratory)

You can see why utility-scale wind power is happening primarily between the Texas Panhandle and the borders of North Dakota.  In fact, Southwest Power Pool says that its major congestion problem is now in the Omaha to Kansas City to Texas Panhandle region, which explains why there are now double the high-voltage transmission lines going north and south as well as east and west at the Minnesota/South Dakota border at Sioux City.  Based on what I saw through our car window, I expect more investment in both utility-scale wind generation in the region and the high-voltage transmission systems necessary to deliver that energy to diverse population centers.

 

In Asia, Wind Industry Picks Up Again

— August 6, 2014

The wind power market in Asia is normally quiet during summer, but this year is different.  Recent policies and new developments in China and India have delivered a very strong signal that Asia`s two largest wind power markets are ready to pick up the pace again.

China’s wind industry has been constrained the past few years by power transmission bottlenecks and high wind-power curtailment rates.  Figures released by China’s National Energy Administration (NEA) in July, however, show that the situation is improving, especially since the ultra-high-voltage Hami-Zhengzhou transmission line was connected.  In the first half of 2014, 6.32 gigawatts (GW) of wind power capacity has come online, up 31% from the same time in 2013, and the wind curtailment rate fell to 8.5%, 5.14% lower than the first 6 months of 2013.  It won`t be a surprise if this year China surpasses the record of 18.9 GW of new capacity that it achieved in 2010.

Survival of the FITtest

Another positive sign for the Chinese wind industry is that the NEA released its long-awaited feed-in tariff (FIT) for offshore wind in June.  Although the FIT is valid only for projects commissioned before 2017, and is not applicable for the four offshore projects included in the first offshore concession program, it provides certainty for near term investment.

According to Navigant Research’s annual wind power market report, World Market Update 2013, China will add 96 GW of new wind capacity over the next 5 years.

At the Offshore Wind China 2014 conference in Shanghai, many developers and turbine venders complained that the temporary FIT is too low and is not flexible to reflect differences in geographic location and wind resources.  While those are valid claims, I personally believe that NEA has learned from the “blind” investment that Chinese onshore wind experienced in the past and is working deliberately to introduce a low FIT so that only developers who have strong technical, engineering, and financial background and a sound project pipeline can take the necessary risks.  That’s the right way to minimize upfront risks and to secure a strong and stable offshore wind market in the long run.  Currently, there are six offshore wind projects totalling 784 megawatts (MW) under construction in China and another six projects totalling 1,350 MW that have been approved and are ready to be built.  It is likely that around 2,500 MW offshore wind capacity could be in operation by the end of 2016.

Restoration in India

In India, Asia`s second largest wind market, its Finance Minister has just announced the plan for the restoration of accelerated depreciation, an incentive was originally introduced back in 1990 but stopped in March 2012.  This tax savings supported private-owned projects that account for the majority of wind project installations in India.  At the historical rate of installation in India, AD is expected to create around 1,000 MW of wind power installations per year.  If the depreciation holds up, Navigant Research`s forecast for India in 2014, of 2,500 MW, is certainly achievable.

In short, it’s expected that India and China combined will account for at least 40% of global wind power installation in the next 5 years – a great contribution to reducing carbon emissions worldwide.  For a more detailed examination of the global wind power market, please join us for our webinar, “The State of the Global Wind Energy Industry,” on August 12 at 2 p.m. EDT.  Click here to register.

 

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