How to think about the falling price of U.S. wind power

25 August 2014 by Peter Kelley Peter Kelley

Wind energy has never been more affordable, the Department of Energy’s Berkeley National Laboratory announced recently in releasing its new 2013 Wind Energy Technologies Market Report and a companion slide presentation.

Wind means lower electric bills for millions of Americans across the wind-rich states. That value to consumers is why it’s essential to keep the tax incentives that encourage private investment in building new wind farms — so that more people can benefit from low-priced wind power.

The energy trades are taking notice of the new DOE report: “New Study Finds Price of Wind Energy in U.S. at an All-time Low,” said Civil and Structural Engineer.

With Wind Energy Prices at All-Time Lows, DOE is Cautiously Optimistic,” former New York Times reporter Jack Cushman wrote in Inside Climate News. And from North American Windpower: “Despite 2013 Challenges, U.S. Wind Power Reaches All-Time Low Price.”

Through innovation and economies of scale, the wind industry has indeed been able to shave over half of its costs in just the past five years.

What do the resulting record low wholesale prices mean for U.S. electric utilities, and we the rate-paying public? For development companies and U.S. turbine factories? For the campaign to extend critical tax policies it will take to build more wind farms?

More and more utilities now say they buy wind energy to save their customers money. In some places, wind is now the cheapest way to add electrical generating capacity today. Everywhere, it provides a great long-term hedge against rising prices for natural gas, the other leading contender.

That’s good news for consumers because, despite many peoples’ outdated assumptions, wind power is no luxury product, but is now something Walmart shoppers can get behind.

Of course, it’s not just about the money. Wind power causes no pollution or water use in operation. It cuts carbon on a large scale at an affordable cost. It keeps family farmers and ranchers on their land.

As wind approaches 5 percent of the U.S. grid, we can still spread these savings and benefits much, much farther so long as we keep up the policy signal to build more wind farms.

Wind power can double in the U.S. by 2020, and double again by 2030. That’s according to the draft of a new vision for U.S. wind power, now in peer review. It is slated for release this fall by another arm of the Energy Department. This new Wind Vision will include a roadmap of how we’ll get there.

Getting the private investment will be critical – hundreds of millions of private dollars must be raised to build a modern utility-scale wind farm. The total has recently averaged  $15 billion a year. Electrons from wind may be cheap once the turbines are up, but to invest in building more of those turbines, private investors still need to see a return comparable to other forms of energy. And those competitors have had 100 years of incentives.

Creating the incentive for that much investment takes the Production Tax Credit or the alternative Investment Tax Credit. They provide initial tax relief that each project will more than repay over its lifetime, in federal, state, and local taxes. The tax credits’ extension in the EXPIRE Act is now urgent, to avoid another bust in U.S. wind farm construction. And that would mean the disappearance of more of America’s hard-won wind energy manufacturing base.

The PTC and ITC have expired five times, creating boom/bust cycles that have caused anywhere from a 76% to 92% drop in installations the following year. Last year, new wind installations fell to a virtual halt. Private investment dropped from $25 billion in 2012 to about $2 billion. Nearly 30,000 jobs were lost, including thousands in manufacturing and construction. This is likely to happen all over again if these tax policies aren’t promptly extended.

As DOE reported, “Trends are enabling very aggressive wind power pricing and solid economics in many regions despite low natural gas prices.” But, “Growth after 2015 remains uncertain, dictated in part by future natural gas prices, fossil plant retirements, and policy decisions.”

So yes, it’s good news for consumers that the wind industry has been able to cut its costs so low. And yes – pending tax reform in which all energy incentives would be on the table – we still need to keep up these critical investment incentives, so that more of us will get to share in that good news.