Tuesday, September 18, 2012

Energy Report: U.S. Wind Energy Production and Manufacturing Surges, Supporting Jobs and Diversifying U.S. Energy Economy

The Energy Department released a new report on August 14, 2012 highlighting strong growth in the U.S. wind energy market in 2011, increasing the U.S. share of clean energy and supporting tens of thousands of jobs, and underscoring the importance of continued policy support and clean energy tax credits to ensure that the manufacturing and jobs associated with this booming global industry remain in America  According to the 2011 Wind Technologies Market Report, the United States remained one of the world’s largest and fastest growing wind markets in 2011, with wind power representing a remarkable 32 percent of all new electric capacity additions in the United States last year and accounting for $14 billion in new investment.  According the report, the percentage of wind equipment made in America also increased dramatically.  Nearly seventy percent of the equipment installed at U.S. wind farms last year – including wind turbines and components like towers, blades, gears, and generators - is now from domestic manufacturers, doubling from 35 percent in 2005.  President Obama has made clear that clean, renewable wind energy is a critical part of an all-of-the-above energy strategy that aims to develop more secure, domestic energy sources, while strengthening American manufacturing. 

“This report shows that America can lead the world in the global race to manufacture and deploy clean energy technologies,” said Energy Secretary Steven Chu.  “The wind industry employs tens of thousands of American workers and has played a key role in helping to more than double wind power over the last four years. To ensure that this industry continues to stay competitive, President Obama has called on Congress to extend the successful clean energy tax credits, which are benefitting businesses and manufacturers nationwide.”

The report finds that in 2011, roughly 6,800 megawatts (MW) of new wind power capacity was added to the U.S. grid, a 31 percent increase from 2010 installations.  The United States’ wind power capacity reached 47,000 MW by the end of 2011 and has since grown to 50,000 MW, enough electricity to power 13 million homes annually or as many as in Nevada, Colorado, Wisconsin, Virginia, Alabama, and Connecticut combined. The country’s cumulative installed wind energy capacity grew 16 percent from 2010, and has increased more than18-fold since 2000.  The report also finds that six states now meet more than 10 percent of their total electricity needs with wind power.

The growth in the industry has also led directly to more American jobs throughout a number of sectors and at factories across the country.  According to industry estimates, the wind sector employs 75,000 American workers, including workers at manufacturing facilities up and down the supply chain, as well as engineers and construction workers who build and operate the wind farms.

Technical innovation allowing for larger wind turbines with longer, lighter blades has steadily improved wind turbine performance and increased the efficiency of power generation from wind energy.  At the same time, wind project capital and maintenance costs continue to decline, driving U.S. manufacturing competitiveness on the global market. For new wind projects deployed last year, the price of wind under long-term power purchase contracts with utilities averaged 40 percent lower than in 2010 and about 50 percent lower than in 2009, making wind competitive with a range of wholesale power prices seen in 2011.

Despite these recent technical and infrastructure improvements and continued growth in 2012, the report finds that 2013 may see a dramatic slowing of domestic wind energy deployment due in part to the possible expiration of federal renewable energy tax incentives. The Production Tax Credit (PTC), which provides an important tax credit to wind producers in the United States and has helped drive the industry’s growth, is set to expire at the end of this year. The wind industry projects that 37,000 jobs could be lost if the PTC expires. Working in tandem with the PTC, the Advanced Energy Manufacturing Tax Credit provides a 30 percent investment credit to manufacturers who invest in capital equipment to make components for clean energy projects in the United States. President Obama has called for an extension of these successful tax credits to ensure America leads the world in manufacturing the clean energy technologies of the future.

View an interactive map of U.S. wind manufacturing facilities HERE.

See the full annual report and download underlying data produced by the Energy Department’s Lawrence Berkeley National Laboratory HERE.
  • A Growing Percentage of the Equipment Used in U.S. Wind Power Projects Has Been Sourced Domestically in Recent Years. U.S. trade data show that the United States remained a large importer of wind power equipment in 2011, but that growth in installed wind power capacity has outpaced the growth in imports in recent years. As a result, a growing percentage of the equipment used in wind power projects is being sourced domestically. When presented as a fraction of total equipment-related wind turbine costs, domestic content is estimated to have increased significantly from 35% in 2005-2006 to 67% in 2011. Exports of wind-powered generating sets from the United States have also increased, rising from $15 million in 2007 to $149 million in 2011.
  • With Increased Competition among Manufacturers, Wind Turbine Prices Continued to Decline in 2011. After hitting a low of roughly $700/kW from 2000 to 2002, average wind turbine prices increased by approximately $800/kW (>100%) through 2008, rising to an average of more than $1,500/kW. Wind turbine prices have since dropped substantially, despite continued technological advancements that have yielded increases in hub heights and especially rotor diameters. A number of turbine transactions announced in 2011 had pricing in the $1,150-$1,350/kW range and price quotes for recent transactions are reportedly in the range of $900-$1,270/kW, depending on the technology. These price reductions, coupled with improved turbine technology and more-favorable terms for turbine purchasers, should, over time, exert downward pressure on total project costs and wind power prices. 
  • Though Slow to Reflect Declining Wind Turbine Prices, Reported Installed Project Costs Finally Turned the Corner in 2011. Among a large sample of wind power projects installed in 2011, the capacity-weighted average installed project cost stood at nearly $2,100/kW, down almost $100/kW from the reported average cost in both 2009 and 2010. Moreover, a preliminary estimate of the average installed cost among a relatively small sample of projects that either have been or will be built in 2012 suggests that average installed costs may decline further in 2012, continuing to follow lower turbine prices.
  • Installed Costs Differ By Project Size, Turbine Size, and Region. Installed project costs are found to exhibit some weak economies of scale, at least at the lower end of the project and turbine size range. Texas is found to be the lowest-cost region, while California and New England were the highest-cost regions.
  • Newer Projects Appear to Show Improvements in Operations and Maintenance Costs. Despite limited data availability, it appears that projects installed more recently have, on average, incurred lower O&M costs than older projects in their first several years of operation, and that O&M costs increase as projects age. 
  • Unlike Turbine Prices and Installed Project Costs, Cumulative, Sample-Wide Wind Power Prices Continued to Move Higher in 2011. After having declined through 2005, sample-wide average wind power prices have risen steadily, such that in 2011, the cumulative sample of 271 projects totaling 20,189 MW built from 1998 through 2011 had an average power sales price of $54/MWh. This general temporal trend of falling and then rising prices is consistent with – but lags, due to the cumulative nature of the sample – the turbine price and installed project cost trends (at least through 2008 and 2010, respectively) described earlier.
  • Binning Wind Power Sales Prices by Project Vintage Also Fails to Show a Price Reversal. The capacity-weighted average 2011 sales price, based on projects in the sample built in 2011, was roughly $74/MWh – essentially unchanged from the average among projects built in 2010 (the spread of individual project prices is also similar among projects built in 2010 and 2011), and more than twice the average of $32/MWh among projects built during the low point in 2002 and 2003. Although the similarity in pricing among 2010 and 2011 projects may actually portend a peak (with lower prices likely among 2012 projects), the fact that neither calendar year prices (among a cumulative sample) nor 2011 prices (binned by project vintage) show any sort of price reversal is nevertheless surprising, particularly given the degree to which turbine prices have dropped since 2008, along with growing evidence of aggressive pricing in wind PPAs.
  • Binning Wind Power Sales Prices by PPA Execution Date Shows Steeply Falling Prices. An abnormally long lag between when PPAs were signed and when projects were built appears to be largely responsible for the stubborn lack of a price reversal in 2011 when viewed by calendar year or project vintage. Only two projects within the sample that were built in 2011 actually signed PPAs in 2011. All other 2011 projects in the sample signed PPAs in 2010, 2009, or even back as far as 2008 – i.e., at the height of the market for turbines – thereby locking in prices that ended up being above market in 2011. Binning by PPA signing date reveals that the average price peaked in 2009 and then progressively fell in both 2010 and 2011. Among a sample of “full term” wind project PPAs signed in 2011, the capacity-weighted average levelized PPA price is $35/MWh, down from $59/MWh for PPAs signed in 2010 and $72/MWh for PPAs signed in 2009.
  • Wind Power PPA Prices Vary Widely By Region. Texas, the Heartland, and the Mountain regions appear to be among the lowest-price regions, on average, while California is, by far, the highest price region. California also accounts for nearly one quarter of the 2011 project sample, thereby disproportionately inflating the capacity-weighted average price in 2011 (as it also did in 2010, when it made up almost 20% of the sample).
  • Low Wholesale Electricity Prices Continued to Challenge the Relative Economics of Wind Power. Average wind power prices compared favorably to wholesale electricity prices from 2003 through 2008. Starting in 2009, however, increasing wind power prices, combined with a sharp drop in wholesale electricity prices (driven by lower natural gas prices), pushed wind energy to the top of (and in 2011 above) the wholesale power price range. Although low wholesale electricity prices are, in part, attributable to the recession-induced drop in energy demand, the ongoing development of significant shale gas deposits has also resulted in reduced expectations for gas price increases going forward. While comparing wind and wholesale electricity prices in this manner is not appropriate if one’s goal is to fully account for the costs and benefits of wind energy relative to its competition, these developments may nonetheless put the near-term comparative economic position of wind energy at some risk absent further reductions in the price of wind power and absent supportive policies for wind energy. That said, levelized PPA prices in the $30-$40/MWh range (currently achievable, with the PTC, in many parts of the interior U.S.) are fully competitive with the range of wholesale power prices seen in 2011.
  • Uncertainty Reigns in Federal Incentives for Wind Energy Beyond 2012.
  • ...
  • Integrating Wind Energy into Power Systems Is Manageable, but Not Free of Costs, and System Operators Are Implementing Methods to Accommodate Increased Penetration. Recent studies show that wind energy integration costs are below $12/MWh – and often below $5/MWh – for wind power capacity penetrations of up to or even exceeding 40% of the peak load of the system in which the wind power is delivered. The increase in balancing reserves with increased wind power penetration is projected, in most cases, to be below 15% of the nameplate capacity of wind power, and typically considerably less than this figure, particularly in studies that use intra-hour scheduling. Moreover, a number of strategies that can help to ease the integration of increasing amounts of wind energy – including the use of larger balancing areas, the use of wind forecasts, and intra-hour scheduling – are being implemented by grid operators across the United States.... 

U.S. Department of Energy www.DOE.gov
Press Release dated August 14, 2012

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