But if development of this world-class wind belt’s incredible six-terawatt (TW) resource is not sped up, it could undermine the US wind industry’s future success.
“Wind is going to have to be more competitive than it is today or watch a large part of its market share disappear,” says Andy Bowman, chairman of developer Pioneer Green Energy in Austin, Texas. “Those states are going to be the industry’s primary focus over the next ten years.”
This vast region — comprising North and South Dakota, Nebraska, Kansas, Oklahoma and Texas — is already the hottest wind play in the Americas, with billions of dollars flowing in. As of 1 January this year, about 70% of the 9.4GW US capacity under construction was located there, on top of 41% of the 74.5GW of the country’s installed wind capacity.
The recent five-year and final extension of the production tax credit (PTC) has ignited a nationwide construction boom that could exceed 40GW by the end of 2021, with these six states getting perhaps 60% of that forecast build-out.
The challenge for wind is to gain grid parity with fossil fuels or come close before the PTC, the primary federal subsidy, expires at the end of 2019. It has a way to go. The levelised cost of electricity (LCoE) of wind averaged $80/MWh during the second half of 2015 in the US versus $65/MWh for coal and natural gas, according to Bloomberg New Energy Finance.
The PTC — $23/MWh for power sent to the grid over a project’s first decade of operation — has helped the industry compensate by allowing it to sell electricity for less than it normally would be able to, and still generate sufficient income for expansion.
“The PTC is a substantial value driver for most of these wind farms. If you lose that, it has to be made up some place, be it wind resource, power prices, technology or wind farm design,” says Dan Shreve, partner at MAKE Consulting in Boston.
State incentives and renewable-energy mandates that drive several gigawatts of newbuild a year will help. But not every state has them and those that do are divided over their future. It is notoriously difficult to predict how policy will evolve. For instance, Congress let the PTC expire several times since it was introduced in 1992, before renewing it for short periods.
Even with a five-year PTC extension, industry officials recognise that wind faces a difficult fiscal landscape.
Fossil fuels look set to continue to benefit from a US tax code that provides broad deductions and exceptions, and in some cases, the ability to defer companies’ federal taxes. Solar, which is looming as a serious low-cost rival in states such as Texas, will retain the 30% investment tax credit (ITC) at full value until the end of 2019. It will decline to 10% in 2022 but then become permanent for commercial projects.
In contrast, the PTC phases down from full value this year to $18.40/MWh (80%) in 2017, $13.80 (60%) in 2018 and $9.20 (40%) in 2019. It then expires, although projects could be built through to 2021 if they qualified for the incentive two years earlier.
If wind can attain grid parity, the industry would be able to significantly expand its present 4.7% slice of the nation’s electricity mix and provide substantial long-term economic development, environmental and health benefits, as well as savings for consumers.
Failure to do so would place those potential gains at risk along with billions of dollars invested in the existing wind manufacturing supply chain and thousands of jobs. The US would then find it harder to meet its commitment under the Paris Agreement to reduce greenhouse gas emissions to 26-28% below 2005 levels by 2025.
The case for the wind belt
The Plains states and Texas bring multiple advantages to help wind compete.
Texas, Kansas, Nebraska, North and South Dakota rank first, second, fourth, fifth and sixth in wind-energy potential among the 50 states, with Oklahoma ninth. Texas alone has a staggering 1.9TW at a height of 80 metres, with Kansas and Nebraska combining for a similar amount. The other three are not far behind.
This potential capacity is what could be installed in each state on lands that the National Renewable Energy Laboratory (NREL) defines as those that, if developed, would operate turbines at more than a 30% capacity factor.
By comparison, long-time industry heavyweights California, Oregon and Washington — the third, eighth and ninth installation states — have combined wind energy potential of only 80GW onshore, according to an NREL and AWS Truepower study.
The reason for this staggering difference lies in how much wind-rich land is available for development. Texas, the largest state in the continental US, has 55.5% ready for turbines. Oklahoma has 57.1%, North Dakota 84.2%, South Dakota 88.3%, Kansas 89.3% and Nebraska 91.6%, the most of any state.
In contrast, California has a puny 1.7% free for use and Oregon and Washington are not much better, with 2.1% each. Their windier sites are either national parks, bodies of water, urban and wilderness areas or districts that are mainly off limits due to environmental and zoning laws.
Having the most resource available and space to develop it is hugely favourable for the industry to realise economies of scale. Developers will be able to build much larger projects and optimise wind farm configuration, which can reduceO&M expense.
But technology advances such as growing rotor diameters, nameplate capacities and hub heights that improve turbines’ performance and output, resulting in more energy at lower prices, will be fundamental.
“We absolutely expect there will be further technology improvements. New, larger turbines introduced in the US market that are going to continue the evolution that lowers LCoE and make a viable economic argument for wind,” says Shreve.
These six states have other advantages working in their favour. Project development costs are lower and in some cases far below the national average. It is cheaper to employ workers, insure property, pay taxes, procure and transport supplies, and rent equipment.
It is also easier and quicker to obtain approvals for grid interconnection, siting proposals and mitigation strategies for environmentally sensitive areas than in Northeastern and Western states. While not every project gets a green light or grid access, the industry has generally found communities, elected officials, farmers, ranchers and regulatory agencies to be strongly supportive.
“Kansas is a state where landowners will continue to seek out developers in order to get facilities on their ground. The outlook for wind here is very bullish,” says Kimberly Svaty, representative for The Wind Coalition advocacy group in the state capital, Topeka.
The ability to get projects up and running cheaper, faster and safely is also highly attractive for lenders, which want to see developers finding buyers for the power and generating revenue as soon as possible. All this bodes well for future expansion.
The wind industry has also shown it can thrive in six politically conservative states that will remain dominated by a climate-sceptic Republican Party with close ties to fossil-fuel producers, a major funding source for its election campaigns. Indeed, all these states have joined in lawsuits against the Clean Power Plan (CPP), President Barack Obama’s signature environmental initiative to reduce power plant CO2 emissions.
Yet their governors support wind. They see it helping keep power prices low, lifting rural economies and reducing dependence on imported coal. Wind power also alleviates growing shortages of water (which is used to cool traditional power plants) and nicely complements plentiful local natural gas, which can ramp up quickly to compensate for wind variability.
This situation contrasts with Wyoming, where the Republican Party led efforts to slap the nation’s only tax on wind energy production, and Ohio, where Republicans want to indefinitely freeze the state renewable portfolio standard.
“We’re doing this for the right reasons and you get great results,” says Michael Teague, energy and environment secretary in Oklahoma, where wind provides 18% of the state’s electricity.
The industry will continue to benefit from the collaborative approach and progressive leadership shown by local grid operators Electric Reliability Council of Texas (Ercot) and Southwest Power Pool (SPP) in facilitating integration of wind into the regional electricity markets. This covers everything from devising market structures and operating practices to planning for new transmission and large-scale storage.
SPP, which set a record 43.9% wind-energy penetration level on 19 February, is planning ahead. It will complete a study this spring that looks at how it could handle a potential 60% in the future. This forward-looking approach, similar to what Ercot is doing, encourages investment by generators and large commercial and industrial consumers that want reassurance that the networks can absorb and deliver more renewable energy.
Corporations and utilities, meanwhile, have signalled that they want to play a big part in the industry’s future in the region as the economics, environmental returns and long-term price hedge make sense.
“We’ve been able to negotiate good pricing for wind. Our customers are expressing interest in having more renewables in the energy mix,” says Gina Penzig, media relations manager at Westar Energy, the largest electricity supplier in Kansas.
Wes Reeves, spokesman for Southwestern Public Service, whose service territory includes the northern Texas Panhandle, adds: “If we find a deal that would make sense for our customers, we’re open to it.”
Massive amounts of new, cost-effective wind power would not only help keep local electricity affordable, but also enable exports to states east of the Mississippi River that are heavily dependent on fossil-fuel generation, and perhaps later to Western ones. That will require new long-distance direct-current transmission lines and other changes in policies and practices.
For all they have going for them, the Plains states and Texas nonetheless face several challenges. Depressed natural-gas prices, if they persist, would make it tougher for wind to compete as the PTC phases down. In early March, the benchmark Henry Hub national gas spot price hit a 17-year low of $1.49/MMBTU (millions of British thermal units).
Given its abundance, natural gas strongly influences wholesale electricity prices, which have consequently also declined. While this benefits consumers, it forces developers to reduce their own prices and profit margins, making it tougher for wind producers to reach grid parity.
Another potential problem is that energy demand is relatively flat. The US continues to transition from a manufacturing to a service-based economy; consumers are becoming more energy efficient; and population growth is slowing.
These factors and others have slowed the average annual rate of growth in US electricity use to 0.5% over the past decade — a level expected to creep up to only 0.8%, according to a Department of Energy (DOE) forecast.
Energy demand is slightly higher on the Ercot grid, which serves about 90% of Texas’s electricity load, with annual growth of about 1.7% expected.
But the demand for wind power across the central wind belt may grow significantly if the CPP is approved by theSupreme Court.
If fully implemented, the CPP, which would require states to meet specific emissions limits, would result in at least 60GW of coal-fired power disappearing by the end of 2020, according to DOE forecasts.
With the wind belt states and their neighbours — particular those east of the Mississippi — heavily reliant on coal, the potential for a CPP-driven wind boost remains enormous. With low wind speeds in the South, and little solar development, states may be keener to import clean energy from Texas, Oklahoma and Kansas, rather than trying to build their own facilities — which is acceptable under the CPP, but requires new high-voltage transmission lines.