US: High-growth projections don’t match market


March 20, 2015

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The US wind market is at a crossroads.

Last week, the nation’s Department of Energy published its long-awaited 350-page ‘Wind Vision’ report, which sets a long-term strategy to support US clean energy policy. This shows that wind accounted for 4.5% of end-use energy in the US in the last year and this could go one of two ways in the next 20 years.

The first way is a high-growth scenario, and this is the one that has received most publicity thus far. This suggests that the proportion of wind in the energy mix could grow to 10% by 2020, 20% by 2030, and 35% by 2050. This would rely on aggressive reductions in wind farm costs, rising fossil fuel costs, federal or state policy support, and increased energy demand.

Those are all realistic, but we can’t be certain that all will happen.

The second scenario in the ‘Wind Vision’ report is a more cautious one, in which wind’s net power contribution settles at 7% of total electricity demand in 2016 and then increases by just three percentage points over the next 15 years, to hit 10% by 2030. Sure, it’s progress, but not as impressive as the first scenario.

So will the US see fast growth or something more cautious? At present, we think the latter. The stars aren’t aligning for fast growth.

First, there is the Production Tax Credit, where tortuous battles continue in the US government between those trying to get it reinstated and those who insist that wind must be able to stand without subsidies — even when conventional fossil fuel operations don’t! If this isn’t renewed it removes a key plank from the strong federal support needed under the high-growth scenario.

Second, there is the point about aggressive competition. We have seen major competition between developers, which has driven down the levellised cost of energy on high performing wind farms to $45/MWh. Competition will of course continue, but US developers do not see the US as the only game in town.

The likes of Pattern Energy and NRG have been freeing up finance by selling stakes in operational projects, but they aren’t reinvesting all of this in the US. They are looking to emerging markets that offer better margins, including in South America, and that removes some of the competition that would lead to the aggressive reductions in wind farm costs that the DOE was talking about.

The other two points in the high-growth scenario are perfectly fine.

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