Wind power prospects may hinge on gas price, government
Fresh government support and growing interest from the utility industry is building expectations that wind power will thrive in the U.S. in coming years.
Among the latest such assessments is a new report from Fitch Ratings, which sees the industry steadily expanding its share of the nation’s electricity market.
“We see this environment remaining very positive for wind power for the next three to four years,” said Maude Tremblay, director of corporate finance at Fitch, an author of the report.
Without a doubt, a decision by Congress in December to continue production tax credits for wind energy until 2019, though phase them down, is one of the principal reasons for the rosy outlook.
Initiated in 1992, the government program provides a 10-year, inflation-adjusted tax credit for each kilowatt-hour of energy produced from wind.
With the tax credit, wind power is more and more cost-competitive with natural gas and other fuels in electric-power generation, especially in regions where wind resources are abundant, such as Texas and other Great Plains states.
“Fitch expects wind power will continue its rapid expansion now that the greatest risk, the expiry of the PTCs, has been averted,” says the report titled Smooth Sailing Ahead for Wind Power.
Tremblay and her colleagues at Fitch cite forecasts from the research and consulting group Wood Mackenzie showing wind power adding 5.5 gigawatts of capacity in 2016 and 7.5 GW in 2017, eventually reaching a total of 150 GW by 2035.
In 2015, new turbines increased wind-power capacity by 8.1 GW.
“In a marginal demand growth environment, this translates into wind power meeting about 6% of the nationwide retail electricity needs in 2017, compared with 4.5% in 2015,” the Fitch report says.
That may not sound like much compared to gas and coal, which combined account for about two-thirds of the U.S. generation mix.
But when it comes to adding new generating capacity, wind is right up there with solar and gas.
The U.S. Energy Information Administration, whose forecast for wind is more bullish than Wood Mackenzie’s, sees turbines accounting for 6.8 GW of 26 GW in new utility-scale capacity in 2016, just behind solar at 9.5 GW and gas at 8 GW.
Moreover, wind power will benefit from expanding environmental regulation from Washington and a combination of mandatory requirements and non-binding goals for renewables in 37 states, Fitch says.
Those state targets call for renewable energy to meet 9.3% of the U.S. electricity demand by 2030.
“With a secular shift toward carbon-light generation, integrated utility companies are increasingly acquiring wind projects to diversify their generation fleet and grow their rate base,” Fitch says.
Until recently, the report adds, those utility companies were slow to integrate wind power into their generation mix for lack of expertise in the technology, not to mention tax rules and state regulatory practices that sometimes discouraged such investments.
Among the leaders in wind power among utilities is MidAmerican Energy, a subsidiary of Warren Buffett’s Berkshire Hathaway, which owns the largest regulated fleet of turbines in the U.S., with 3.5 GW of capacity in Iowa.