Turning up the heat
The wind industry has enjoyed years of federal tax subsidies, but now it has to compete with solar power.
good news for the wind industry is that critics can no longer complain about the federal tax subsidies that have made its projects attractive.
The bad news is that the wind industry will have to compete with solar power, which still has years of tax credits left.
Federal production tax credits generate about $23 for every megawatt of electricity produced in a project’s first decade of operation. In a competitive wholesale energy market such as Texas, that means a wind generator can bid negative prices and still make money from the tax credits.
Those subsidies, though, have done their job and kick-started a burgeoning technology. Wind energy generators have cut costs 69 percent in the last decade. In 2016, Congress voted to phase out the production tax credit for new projects by 2024.
The end of the PTC, as it’s best known, triggered a wind rush to get as many new projects in the ground as possible. But it’s also created anxiety and envy because solar developers got to keep their investment tax credit or ITC.
Taxpayers will still get a credit for 30 percent of the cost of a new solar power installation, which makes electricity from expensive solar panels competitive with wind and other sources of electricity. The ITC has helped boost the solar industry by 5,000 percent since 2006.
Congress is also phasing out the ITC but at a much slower rate. This imbalance is shifting buyer behavior in the renewable energy market.
The biggest customers these days are commercial and industrial buyers of electricity. Major corporations want to brag about 100 percent of their power coming from renewable sources, so they contract for wind and solar energy. Tax credits made these public relations campaigns relatively painless.
How to cope with corporate buyers passing over wind projects to pursue solar’s tax credits was the topic dominating the American Wind Energy Associa
tion’s annual conference in Houston last week. Unless wind developers can get prices down, the industry will see a 50 percent drop in new installations over the next five years, according to forecasts by energy data firm IHS Markit.
Wind energy executives believe they need to bring prices down another 60 percent to compete, and they have some ideas. Companies are buying larger turbines with longer blades on higher towers to generate more electricity per unit. Developers are also choosing more strategic locations.
A leg up for wind companies comes from coal and nuclear generators having it much worse.
A quarter of nuclear power capacity has been losing money since 2012, and 50 percent of coal plants are losing money, according to Bloomberg New Energy Finance. The cost of new construction for either coal or nuclear is far higher than new wind or solar facilities, even without tax credits, according to the U.S. Energy Information Administration.
“Half of the U.S. coal capacity is waiting for someone else to close so they can make their money,” said David Hastert, an analyst with Bloomberg. “There is a significant portion of capacity that is going to retire … and will create an opportunity as it needs to be replaced.”
Losing fossil fuel facilities, though, will not necessarily bring higher electricity prices, said Ryan Wiser, a senior scientist at the Department of Energy’s Lawrence Berkeley National Laboratory.
If renewable sources of electricity increase from 20 percent of current generation to 40 percent by 2030, wholesale prices will go down because they require no fuel, only equipment costs.
A major wild card, though, is customer demand. Commercial and industrial customers are buying all the clean power they can find, said Tara Fowler, who purchases renewable energy for Xcel, a nationwide utility.
Like several other national utilities, Xcel plans to be carbonneutral by 2050 and last week promised to close all its coalpowered plants by 2030.
“We’ll need to replace that with renewable energy,” she said. “It’s what our shareholders want, it’s what our customers want, and it’s what our local communities want.”
The last variable in the game of predicting the future of electricity generation is the price for natural gas. U.S. gas cannot get any cheaper; it has negative pricing in West Texas. If the price goes up, though, that will boost wind and solar energy revenues and spur growth.
Wind power subsidies are going away, and losing the PTC will deal a blow to the industry. The phase-out of the ITC will also trigger a massive wave of solar projects. But renewable energy has established a beachhead and is undoubtedly the future of electricity generation.