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Wind Power Price Trends in the US
Figure 4: Reported US Wind Turbine Transaction Prices Over Time
of 200–300 basis points more – for their capital. Similarly, banks have
retrenched on debt financing.
2,000
Sample includes 58 US turbine orders totalling >21.1GW
1,800
As a result, whereas project finance helped to alleviate upward wind
1,600
power price pressures earlier in the decade, it is now contributing to
1,400
1,200
such pressures.
1,000
800
Conclusions
600
It is possible to evaluate the relative impact of each of the three
400
200
primary drivers discussed above on wind power prices by running the
T
urbine transaction price (2008 US$/kW)
0
empirically observed changes in each driver through a standard pro
Jan 98 Jan 99 Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09
Announcement date
forma financial model while holding all other variables constant.
Orders <100MW Orders from 100–300MW Orders >300MW Polynomial trend line
Doing so yields the following results: all else being equal,
the US$700/kW increase in installed project costs adds almost
US$35/MWh to wind power prices; a 3% improvement in capacity
Figure 5: Installed Wind Project Costs Over Time
factor reduces wind power prices by about US$7/MWh (all else being
equal); and a 300 basis-point reduction in tax equity returns (prior to
3,000
Sample includes 226 online projects totalling 17.2GW
the financial crisis) reduces wind power prices by about
and 47 projects in development totalling 6GW
2,500
US$13/MWh, all else being equal. On net, these three drivers equal
2,000
an increase of more than US$15/MWh in wind power prices since
earlier in the decade – an amount that is roughly consistent with the
1,500
empirically observed prices shown earlier in Figure 3.
1,000
500 Looking ahead, the outlook is mixed. If sustained, the mid-2008
Installed project cost (2008 US$/kW)
0
reversal in commodity costs and exchange rates should continue to
Vintage: 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010(e)
Projects: 6 27 13 26 11 28 23 31 61 28 19
lower US turbine prices. However, lower turbine prices may take
MW: 49 1,653 401 1,533 227 1,795 1,820 3,597 6,125 3,682 2,358
some time to show up in average installed project costs as
Capacity-weighted average project cost Individual project cost Polynomial trend line
developers continue to work through a backlog of surplus turbines
ordered at peak prices. Therefore, in the short term average installed
project costs will likely remain relatively high, and perhaps rise
Figure 6: 2008 Project Capacity Factors by Project Vintage
even higher (as suggested earlier in Figure 5). Coupled with
less favourable financing terms (i.e. higher required tax equity
60
Sample includes 183 projects totalling >14.1GW
returns), these sustained high project costs will likely raise the price
50
of power for new US wind projects higher in 2009. However, in the
40
longer term lower turbine prices and a return to normally
30 functioning credit markets should eventually help wind power regain
20
the downward price path that it has generally followed – with the
2008 capacity factor
(by project vintage) (%)
exception of much of this decade – since the 1980s. ■
10
0
Vintage: Pre-1998 1998–1999 2000–2001 2002–2003 2004–2005 2006 2007
Acknowledgement
Projects: 9 21 29 32 32 23 37
MW: 648 768 1,537 1,864 2,691 2,084 4,526
This work was funded by the Office of Energy Efficiency and Renewable
Capacity-weighted average 2008 capacity factor (by project vintage)
Energy, Wind and Hydropower Technologies Programme of the US
Individual project 2008 capacity factor (by project vintage)
Polynomial trend line Department of Energy under Contract No. DE-AC02-05CH11231.
1. Utility-owned projects are excluded because there is no projects built in 1998 and 1999 (shown in Figure 3 to be 5. Potential reasons why 2008 capacity factors seem to have
observable wholesale price associated with utility-owned about US$34/MWh) for three reasons: the sample size is levelled off (on average) for 2006 and 2007 vintage
wind power; rather, the power is most often delivered to the larger in Figure 3, due to the fact that 2008 prices are projects include the following: for projects completed in
utility’s retail customers as part of the utility’s power supply presented, rather than 1999 prices as in Figure 2 (i.e. we late 2007, the initial break-in period during which
mix. Merchant plants and other projects that sell RECs were unable to obtain early-year pricing for some of the operational kinks are worked out may have extended into
separately from the underlying power are excluded because projects built between 1998 and 1999); two of the larger 2008; curtailment of wind project output due to
the wind power sales price represents only a portion of the projects built in 1998 and 1999 (for which both 1999 and transmission inadequacy and low wholesale market prices
total market revenue received by such projects. 2008 prices are available, meaning that these projects are is reportedly a growing problem, primarily in Texas, but
2. Prior to 2006, Figures 3 and 6 combine data into two-year represented within both figures) have nominal PPA prices also in other markets; wind project developers may be
periods in order to avoid distortions related to small sample that actually decline, rather than remaining flat or reacting to increasing transmission constraints, or even just
size in the PTC lapse years of 2000, 2002 and 2004. escalating, over time; and inflating all prices to constant regionally differentiated wholesale power prices, by
Though not a PTC lapse year, 1998 is grouped with 1999 2008 dollar terms affects older (i.e. 1999) prices more than focusing on those projects in their development pipeline
due to the small sample of 1998 projects. it does more recent (i.e. 2008) prices. that may not have the highest capacity factor, but that do
3. Although it may seem counterintuitive, the weighted- 4. The price that the market will bear – i.e. the level of have ready access to unconstrained transmission or high-
average price in 1999 for projects built in 1998 and 1999 wholesale power prices in the region where the project is priced markets; and some wind turbine manufacturers
(shown in Figure 2 to be about US$64/MWh) is significantly located – may also exert an influence on wind power prices experienced blade and gearbox problems among their fleet
higher than the weighted-average price in 2008 for in some cases. of turbines installed in 2007 (and 2008).
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MODERN ENERGY REVIEW VOLUME 1