Recent Developments in U.S. Wind Power

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S. Patricia Batres-Marquez
Decision Innovation Solutions (09/27/2016)
11107 Aurora Avenue
Urbandale, IA 50322
http://www.decision-innovation.com/

Wind power, a clean, renewable form of energy, is one of the fastest growing sources of new electricity generation and the main source of new renewable power supply added since 2000 (DEO, 2015), generating 4.7% of the total U.S. electricity supply in 2015 (EIA, 2016).

According to the American Wind Energy Association (AWEA, 2016), since 2008, the U.S. wind industry has generated more than $100 billion in private investment and has brought revenue to rural communities by providing lease payments to landowners. Moreover, wind technology produces electricity with virtually no greenhouse gas emissions or other common pollutants and uses virtually no water (AWEA, 2016).

Some challenges to wind technology include land use, wildlife concerns, and radar interference issues, all of which, according to the Department of Energy (DOE, 2015), can be successfully managed with proper planning, technology, and communication among stakeholders.

Wind Power Capacity

Data from the DOE indicates that total U.S. wind capacity increased in 2015, adding 8.595 gigawatts (GW) of new capacity. This new capacity was valued at $14.5 billion (DOE, 2016a). In 2015, the cumulative wind power capacity increased 13%, to 74.472 GW compared with 65.877 GW in 2014. The states with the largest cumulative wind energy capacity by the end of 2015 were Texas (17.713 GW), Iowa (6.212 GW), California (6.108 GW), Oklahoma (5.184 GW), Illinois (3.842 GW), and Kansas (3.766 GW). These six states comprised 57.5% of the total cumulative wind energy capacity in 2015 (see Figure 1).

U.S. Cumulative End of the year Wind Power Capacity

Figure 1. U.S. Cumulative End-of-the-Year Wind Power Capacity

According to the DOE’s 2015 Wind Technologies Market Report (2015 WTM report) (DOE, 2016a), capacity growth in 2015 was encouraged by federal and state policies, as well as recent improvements in cost and performance of wind power technology.

Policies

Renewable Electricity Production Tax Credit
The main federal incentive policy, the renewable electricity production tax credit (PTC), is an inflation-adjusted per-kilowatt-hour (kWh) tax credit for electricity generated using qualified energy resources. The PTC for wind was first enacted in 1992 and was set to expire in 1999. Since 1999, PTC has been extended several times, the last time being December 2015. The PTC is scheduled to expire on December 31, 2019. The PTC will be progressively reduced in the value of the credit for projects beginning construction after 2016. The inflation-adjusted factor for the 2016 calendar year for wind power is $0.023 per kWh (DOE, 2016b). During the phase-down period, for wind facilities starting construction in 2017, the PTC amount will be reduced by 20%; for those starting construction in 2018, the PTC amount will be reduced by 40%; and finally, for those facilities commencing construction in 2019, the PTC will be reduced by 60%. As indicated by the DOE (2016b), the amount of the production tax credit for the 2017 to 2019 years will depend on the inflation-adjustment factor used by the IRS in the corresponding tax year. Since 2009, the PTC policy includes the option to make an irrevocable election to claim a 30% investment tax credit (ITC) instead of the PTC for wind energy. For wind facilities electing the ITC, the credit will be reduced by the same phased-down schedule previously described for facilities starting construction in the 2017 to 2019 period (i.e., 2017 = 24%, 2018 = 18%, and 2019 = 12%) (DOE, 2016a).

As Figure 2 shows, the PTC has been instrumental to the expansion and development of renewable electricity resources, particularly wind. The figure also indicates that the lack of stability in credits awarded has created irregular capacity growth in the wind industry. During periods of PTC lapses (e.g., 2000, 2002, 2004, 2013), there were declines in wind capacity additions, whereas capacity expansion activity has been seen in years when PTC was scheduled to expire (e.g., 2001, 2003, 2005, 2007) (DOE, 2016a). Capacity growth also occurred after PTC extensions.

Annual Wind Capacity Additions and PTC

Figure 2. Annual Wind Capacity Additions

Accelerated tax depreciation is another type of federal tax support for wind projects. This type of policy has allowed wind project owners to depreciate a large proportion of their investments within a five- to six-year period for tax purposes (DOE, 2016a).

State Renewable Portfolio Standards

The state renewable portfolio standards (RPS) are policies that mandate electricity suppliers to incorporate in their resource portfolio an amount of electricity from renewable energy resources such as wind, solar, geothermal, hydro, and biomass energy. RPS policies have played an important role in the development of the U.S. wind energy industry. As indicated by the DOE in the 2015 WTM report, as of July 2016, 29 states and Washington, D.C., had RPS policies (see Figure 3). The report also indicates that about 51% of all U.S. wind capacity built during the 2000 to 2015 period is delivered to utility and electric companies with RPS obligations. The proportion declined to 24% on a national basis for wind projects built in 2015, but outside of the wind-abundant interior region of the country, 88% of wind capacity additions in 2015 are serving RPS demand. Overall, RPS have contributed to U.S. wind power capacity expansion.

The first state in the U.S. to establish an RPS was Iowa. In 1983, Iowa began to require a specific amount of renewable energy capacity from investor-own utilities (IOUs) equal to 105 MW (NCSL, 2016). Another state requiring a specific amount is Texas (see Figure 3); however, many states’ RPS are measured by percentages of kilowatt hours of retail electricity sales. According to the National Conference of State Legislatures (NCSL, 2016), states such as South Dakota, Kansas, and Oklahoma have a voluntary renewable energy standard or target.

When combined with the PTC, RPS achieves more success influencing renewable energy projects (National Renewable Energy Laboratory [NREL], 2016). Available transmission capacity (or plans to build it) for the electricity generation from renewable resources is crucial for the success of a state RPS (NREL, 2016).

STate Renewable Portfolio Standards Map

Source: U.S. Department of Energy (DOE)-Berkeley Laboratory

Figure 3. State Renewable Portfolio Standards (as of July 2016)

Wind Power Generation

In 2015, utility-scale wind power plants generated 4.7% of total U.S. electricity (including non-renewable resources) compared with 3.5% in 2012 (see Figure 4). Wind utility-scale power plants generated 34.7% of the total energy generated from all renewable sources in 2015 compared with 28.8% in 2012. In contrast, utility-scale solar plants generated 4.8% of the total energy generated from all renewable sources in 2015 compared with less than 1% in 2012. Wind power is the fastest growing renewable source of electricity generation in the U.S. and is an important resource in the U.S. electricity portfolio.

Electriicity Generation from Renewables Sources

Figure 4. Electricity Generation from Renewable Sources (Utility-Scale Plants), Percent Wind of Total Electricity from all Renewable Sources, and Percent Wind Electricity of Total Electricity Generation.

In 2015, the U.S. produced 190.926 million megawatt-hours of electricity from wind power. The five leading states in wind energy generation in 2015 were Texas, Iowa, California, Oklahoma, and Kansas (see Figure 5). Texas, Iowa, and Oklahoma generated 23.5%, 9.4%, and 7.3% of the total wind power generated last year, respectively. California and Kansas contributed 6.4% and 5.7% to the total wind power generated in 2015, respectively. Data from January to June 2016 indicate that the U.S. generated 116.2 million MWh of electricity from wind, representing 6.0% of the total electricity from all sources generated during that period.

2015 Top Five States that Generated the Most Electricity from Wind

Figure 5. 2015 Top Five States that Generated the Most Electricity from Wind (Million Megawatt-Hours)

Of the total in-state electricity generated in 2015 in Iowa and South Dakota, 31.3% and 25.5%, respectively, were supplied by wind power capacity installed in each of these two states. Wind power capacity in Kansas, Oklahoma, and Idaho generated 23.9%, 18.4%, and 16.2% of the total in-state electricity in 2015. Eleven states supplied 10% or more of their electricity from wind power in 2015. Moreover, during the first six months of 2016, the proportion of electricity from wind power in Iowa and South Dakota represented 40.0% and 30.6% of total in-state electricity generated, respectively (see Figure 6). From January to June 2016, wind energy in 15 states supplied 10% or more of total energy generated in each of those states. 

Top Five States with the Largest Share of their Total Electricity Generated from Wind

Figure 6. Top Five States with the Largest Share of Their Total Electricity Generated from Wind

Costs

According to the 2015 WTM report, even though hub heights and rotor diameters have increased in size, wind turbine prices have declined, with prices ranging between $850 to $1,250/kW in recent transactions. The combination of turbine technology advancement and price declines have contributed to lower project costs and wind power prices. 

The report also indicates that both project size and turbine size, as well as location, influence installation costs, with the windy interior region of the country having the lowest cost at an average of $1,637/kW in 2015 and the Northeast having the most expensive average cost at $2,601/kW. The DOE estimated the average cost for the interior region based on a sample of 34 projects, whereas for the Northeast region the estimated cost was based on a sample of four projects only.

Offshore Turbines

The first U.S. offshore wind farm is located off the coast of Block Island in Rhode Island. Construction, which started in 2015 and was finished during the summer of 2016, is planned to go online by the end of the year. The project has five turbines that are expected to produce 30 MW of wind energy, which, according to the DOE will be enough to power 17,000 homes in New England. In total, by 2050, 86 GW of offshore wind energy are expected to be developed (DOE, 2016c) in the U.S.

As indicated by the DOE in the 2015 WTM report (2016a), some challenges for the development of the offshore wind industry are high costs and a complex regulatory environment, among others.

Prospect of Wind Power

The five-year phase-down extension of the renewable electricity production tax credit (PTC) offers opportunities for U.S. wind power capacity growth in the near future. Capacity growth in the near term can also be boosted by an expected cost decline and improved wind energy technology with the outcome being low sales prices for electricity generated by wind power. Once the PTC expires, because of expected low natural gas prices and limited increases in electricity demand, the DOE indicates that the growth of wind energy capacity is uncertain. In the long run, however, with continued technological advancements and cost reductions, the U.S. wind industry can continue to thrive. Also, longer-term state RPS requirements can foster growth in the U.S. wind sector.

Sources

American Wind Energy Association (AWEA), 2016. (accessed 09/23/2016).

National Conference of State Legislatures (NCSL), 2016.(accessed 09/23/2016).

National Renewable Energy Laboratory (NREL), 2016. Renewable Portfolio Standards.(accessed 09/23/2016).

U.S. Energy Department (DOE), 2015. Wind Vision: A New Era for Wind Power in the United States.

———, 2016a. 2015 Wind Technologies Market Report. August.

———, 2016b. “Renewable Electricity Production Tax Credit (PTC).”

———, 2016c. “Offshore Wind Arrives in America.” (accessed 09/26/2016).

U.S. Energy Information Administration (EIA), 2016. Short-Term Energy Outlook (Table 7.d). September 7.