The report, which has been issued annually since 2007, analyzes a range of developments in the wind market, including trends in wind project installations, turbine size, turbine prices, wind project costs, project performance, and wind power prices. The report also details trends in project financing, a key concern for the wind industry in the current economic climate, as well as trends in project ownership, public policy, and the integration of wind power into the electrical grid. DOE’s report provides the wind industry, state and local policy makers, and the general public with valuable information on the state of wind power in the United States.
WIND POWER CAPACITY
International rankings of wind power total capacity, end of 2008, in megawatts:
U.S. – 25,369 MW
Germany – 23,933
Spain – 16,453
China – 12,121
India – 9,655
Italy – 3,731
France – 3,671
U.K. – 3,263
Denmark – 3,159
Portugal – 2,829
Rest of world – 18,106
TOTAL – 122,290
The U.S. wind industry experienced a banner year in 2008, once again surpassing even optimistic growth projections from years past. At the same time, the past year has been one of upheaval, with the global financial crisis impacting near-term growth prospects for the wind industry, and with significant federal policy changes enacted to push the industry towards continued aggressive expansion. Key findings from this year’s “Wind Technologies Market Report” include:
• U.S. Wind Power Additions Shattered Old Records in 2008, with 8,558 MW of New Capacity and $16.4 Billion Invested. The pace of utility-scale wind development in 2008 was more than 60% higher than the previous U.S. record of 5,249 MW, set in 2007. To date, all wind power installations in the U.S. have been onshore, though there are now 11 “advanced-stage” offshore wind project proposals totaling more than 2,000 MW in various phases of development in U.S. waters.
• Wind Power Contributed 42% of All New U.S. Electric Generating Capacity in 2008. This contribution is up from 35% in 2007, 18% in 2006, 12% in 2005, and less than 4% from 2000 through 2004. For the fourth consecutive year, wind power was the second-largest new resource added to the U.S. electrical grid in terms of nameplate capacity, behind natural gas plants, but ahead of new coal.
• The U.S. Continued to Lead the World in Annual Capacity Growth, and Overtook Germany to Take the Lead in Cumulative Wind Capacity. For the fourth straight year, the United States led the world in wind capacity additions, capturing roughly 30% of the worldwide market. At the end of 2008, cumulative wind power capacity in the U.S. stood at 25,369 MW, ahead of Germany’s 23,933 MW. Several countries are beginning to achieve relatively high levels of wind power penetration in their electricity grids: end-of-2008 installed wind is projected to supply roughly 20% of Denmark’s electricity demand, 13% of Spain’s, 12% of Portugal’s, 9% of Ireland’s, and 8% of Germany’s. In the United States, on the other hand, the cumulative wind capacity installed at the end of 2008 would, in an average year, be able to supply roughly 1.9% of the nation’s electricity consumption.
• Texas Easily Exceeded Other States in Annual Capacity Growth. With 2,671 MW installed in 2008 alone, Texas dominated the 26 other states in which new large-scale wind turbines were installed in 2008 (the next highest being Iowa with 1,600 MW and Minnesota with 456 MW). In terms of wind penetration, however, Texas is less-notable, with end-of-2008 wind capacity supplying an estimated 5.3% of in-state generation, well below front-runners Iowa (13.3%) and Minnesota (10.4%). Some individual utilities are seeing even higher penetrations, with six utilities having in excess of 10% wind on their systems.
• Data from Interconnection Queues Demonstrate that an Enormous Amount of Wind Capacity Is Under Development. At the end of 2008, even after reforms to reduce the number of speculative projects in their queues, there were nearly 300 GW of wind power capacity within the twelve transmission interconnection queues reviewed for this report – more than 11 times the installed wind capacity in the U.S. at the end of 2008. This wind capacity represented more than half of all generating capacity within these queues at that time, and was more than twice as much capacity as the next-largest resource in these queues (natural gas). Though clearly not all of this capacity will ultimately be built as planned, it nevertheless demonstrates the high level of developer interest in wind power.
• GE Wind Remained the Top Turbine Manufacturer in the U.S. Market, but a Growing Number of Other Manufacturers Are Capturing Market Share. GE captured 43% of U.S. market share (by capacity) in 2008, followed by Vestas (13%), Siemens (9%), Suzlon (9%), Gamesa (7%), Clipper (7%), and Mitsubishi (6%). A number of international turbine manufacturers entered the U.S. market for the first time with installations in 2008, including Acciona (5%), Repower (1%), and Fuhrlander, CTC/DeWind, and AWE (<1% combined).
• Soaring Demand for Wind Spurred Expansion of U.S. Wind Turbine Manufacturing. The number of utility-scale wind turbine manufacturers assembling nacelles in the U.S. increased from just one in 2004 (GE) to five in 2008 (GE, Gamesa, Clipper, Acciona, CTC/DeWind), with five additional manufacturers publicly announcing the location of future assembly plants. In addition, a considerable number of new component manufacturing facilities in the U.S. were either opened or announced in 2008. As a result of this continued expansion, AWEA estimates that the share of domestically manufactured wind turbine components has grown from less than 30% in 2005 to roughly 50% in 2008. This scale-up is also creating a number of new jobs; AWEA estimates that roughly 8,400 new domestic manufacturing jobs were added in the wind sector in 2008.
• Despite a Slight Increase in Average Turbine Size, the Average Size of Wind Projects Decreased in 2008. The average size of wind turbines installed in the United States in 2008 was roughly 1.67 MW, up slightly from 1.65 MW in 2007 and 1.60 MW in 2006. Wind projects installed in 2008 averaged nearly 83 MW, which is below the 120 MW average size for projects built in 2007, but is otherwise larger than in any previous period.
• Developer Consolidation Slowed in 2008. At least five significant acquisition or investment transactions involving roughly 19 GW of in-development wind projects were announced in 2008, well below the 11 transactions and 37 GW in 2007, and the 12 transactions and 34 GW in 2006. The slowdown in consolidation in 2008 may be a reflection of the financial crisis, as well as the simple fact that many of the prime targets for investment and/or acquisition had already been acquired in earlier years.
• The Global Credit Crisis Caught Up With the Wind Sector in 2008. The unfolding financial crisis caused the outright demise of several prominent tax equity investors in wind projects (e.g., Lehman Brothers and Wachovia), and led to the general exodus of many others, such that only a handful of tax equity investors remained active (and on less-favorable terms) at the end of 2008. As a result, tax equity investment in the U.S. wind market actually declined in 2008, despite the record-shattering growth in installed capacity. Other sources of finance were also hit hard in 2008 – e.g., bank lending reportedly ground to a halt in late 2008. Spurred by a number of federal policy changes as well as a general thawing of credit, conditions appear to be improving somewhat as of mid-2009.
• Though IPP Project Ownership Remained Dominant, Utility Ownership Expanded. Private independent power producers (IPPs) own 79% of all new wind capacity installed in the U.S. in 2008, and 83% of cumulative capacity. In a continuation of the trend begun several years ago, however, 19% of total wind additions in 2008 are owned by electric utilities, who now own 15% of cumulative wind capacity in the U.S.
• Though Long-Term Contracted Sales to Utilities Remained the Most Common Off-Take Arrangement, Merchant Plants Were Popular in 2008. Investor-owned utilities continued to be significant purchasers of wind power, with 33% of new 2008 capacity and 47% of cumulative capacity selling power to these utilities under long-term contract. In what has been a growing trend, the owners of 43% of the wind power capacity added in 2008 (primarily in Texas, New York, and several mid-Atlantic and Midwestern states) are accepting some merchant risk, bringing merchant/quasi-merchant ownership to 23% of total cumulative U.S. wind capacity. With wholesale power prices plummeting in late 2008 and through the first half of 2009, however, merchant activity is expected to diminish in the immediate future.
• Upward Pressure on Wind Power Prices Continued in 2008. Although many of the cost pressures facing the industry in recent years began to ease in the second half of 2008, it will take some time before these effects flow through the project development pipeline to impact wind power prices. As such, 2008 was another year of rising wind power prices. The capacity-weighted average 2008 sales price for power and renewable energy certificates from projects in the sample built in 2008 was roughly $51.5/MWh (in 2008 dollars), up from an average of $43.2/MWh for the sample of projects built in 2007, and $20.6/MWh higher than the average of $30.9/MWh among projects built at the low point in 2002 and 2003. Among projects in the sample, those in Texas and the Heartland have the lowest prices on average, while those in the East and New England have the highest prices.
• Wind Remained Competitive in Wholesale Power Markets in 2008, but 2009 Is Likely To Be More Challenging. Despite moving higher in 2008, average wind power prices remained at or below the low end of the wholesale power price range. In other words, rising wholesale power prices through 2008 have, to a degree, mitigated the impact of rising wind power prices on wind’s competitive position. With wholesale prices plummeting at the end of 2008 and into 2009, however, the economic position of wind in the near- to medium-term has become more challenging.
• Installed Project Costs Continued to Rise in 2008, After a Long Period of Decline. Among a sample of 72% of all wind capacity installed in 2008, reported installed costs had a capacity-weighted average of $1,915/kW. This average is up $190/kW (11%) from the weighted-average cost of installed projects in 2007, and is up $630/kW (49%) from the average cost of projects installed from 2001 through 2004. The average reported cost from a sample of more than 3,600 MW of projects likely to be built in 2009 is $2,120/kW, or $205/kW higher than for projects completed in 2008.
• After Increasing Dramatically in Recent Years, Turbine Prices Showed Signs of Easing in Late 2008. Since hitting a low point of roughly $700/kW in the 2000-2002 period, turbine prices have increased by approximately $700/kW (100%), on average, through 2008. Between 2007 and 2008, capacity-weighted average turbine prices increased by roughly $90/kW (7%), from $1,270/kW to $1,360/kW. Increases in turbine prices over this period have been caused by several factors, including the declining value of the U.S. dollar relative to the Euro, increased materials and energy input prices, a general move by manufacturers to improve their profitability, shortages in certain turbine components, an up-scaling of turbine size (and hub height), and improved sophistication of turbine design (e.g., improved grid interactions). With a number of these drivers having experienced sharp trend reversals since mid-2008, evidence of softening turbine prices began to emerge in late 2008.
• Wind Project Performance Has Improved Over Time, But Has Leveled Off in Recent Years. The capacity-weighted average 2008 capacity factor among a sizable sample of installed wind projects increased from 22% for those projects installed before 1998 to roughly 30%-33% for projects installed from 1998-2003, and to roughly 35%-37% for projects installed from 2004-2007. Despite this general improvement among more recently built projects, the capacity-weighted-average 2008 capacity factor for projects installed in 2007 (35.0%) was down slightly from that for projects installed in 2006 (35.2%), which in turn was somewhat lower than for projects built in 2004-2005 (36.9%).
• Operations and Maintenance Costs Are Affected by the Age and Size of the Project, Among Other Factors. Despite limited data availability, it appears that projects installed more recently have, on average, incurred lower O&M costs than older projects. Likewise, larger projects appear to experience lower O&M costs than do smaller projects, and O&M costs increase as projects age.
• The Policy Landscape Is Now More Favorable to Wind Than At Any Other Time in the Past Decade. At the federal level, The American Recovery and Reinvestment Act of 2009 (ARRA 2009) extended the Production Tax Credit (PTC) for wind through 2012. ARRA 2009 also implemented a number of other important policy changes, most notably an option to elect a 30% Investment Tax Credit (ITC) or cash grant in lieu of the PTC, and the expansion and enhancement of a federal loan guarantee program managed by the DOE. At the state level, three new states established mandatory RPS programs in 2008 (Michigan, Missouri, and Ohio), and Kansas did so in May 2009, bringing the total to 29 states and Washington D.C.
• Despite Progress on Overcoming Transmission Barriers, Constraints Remain. At the federal level, the U.S. Congress is considering transferring additional transmission siting authority from states to FERC, and FERC itself has continued to press for modifications to interconnection queuing procedures. States, grid operators, and regional entities also continue to take proactive steps to encourage transmission investment to access remote renewable resources. Most notable among these is a growing list of entities engaged in identifying “renewable energy zones” to which transmission could be built. Progress was also made in 2008 on nearly twenty large transmission projects in the central and western U.S. that are designed, in part, to support wind power.
• Integrating Wind into Power Systems Is Manageable, but Not Costless, and Market Operators Are Developing Methods to Accommodate Increased Penetration. Recent wind integration studies continue to show that wind integration costs rise with higher levels of wind penetration, but are below $10/MWh – and often below $5/MWh – for wind capacity penetrations of as much as 30% of the peak load of the system in which the wind power is delivered. Moreover, a number of strategies that can help to ease the integration of increasing amounts of wind – including the use of larger balancing areas, the use of regional wind power forecasts to inform operational decisions, and intra-hour scheduling – are being implemented by grid operators across the U.S.
In conclusion, 2008 continued a string of record-breaking years for the U.S. wind industry, which has put the U.S. ahead of schedule vis-à-vis the deployment path laid out by the U.S. Department of Energy (2008) to reach 20% wind penetration by 2030. Looking ahead, expectations are for a slower year in 2009, in large part due to the impact of the global recession. Projections among industry prognosticators range from 4,400 MW to 6,800 MW of wind likely to be installed in the U.S. in 2009 (AWEA has already reported that more than 2,800 MW came online in the first quarter of 2009). After a slower 2009, most predictions show market resurgence in 2010 and continuing for the immediate future, as the ARRA 2009 policy changes come into full swing, and as financing constraints are relieved. If realized, these near-term projections would maintain the nation’s early progress towards meeting 20% of its electricity demand with wind power by 2030.
Wind Power Contributed 42% of All New U.S. Electric Generating Capacity in 2008
Wind power now represents one of the largest new sources of electric capacity additions in the United States. For the fourth consecutive year, wind power was the second-largest new resource added to the U.S. electrical grid in terms of aggregate capacity, behind the 9,700 MW of new natural gas plants added in 2008, but ahead of the 1,400 MW of new coal. New wind plants contributed roughly 42% of the new nameplate capacity added to the U.S. electrical grid in 2008, compared to 35% in 2007, 18% in 2006, 12% in 2005, and less than 4% from 2000 through 2004.
The U.S. Continued to Lead the World in Annual Capacity Growth, and Overtook Germany to Take the Lead in Cumulative Wind Capacity
On a worldwide basis, roughly 28,000 MW of wind capacity was added in 2008, the highest volume achieved in a single year, and up from about 20,000 MW in 2007, bringing the cumulative total to approximately 122,000 MW. For the fourth straight year, the United States led the world in wind capacity additions, capturing roughly 30% of the worldwide market, up from 27% in 2007 and 16% in 2006 . China, India, Spain, and Germany rounded out the top five countries in 2008 for annual wind capacity additions.
In terms of cumulative installed wind capacity, the United States ended the year with 21% of worldwide capacity, and for the first time in many years led the world by this metric, taking the mantle from long-time stalwart, Germany. So far this decade (i.e., over the past nine years), cumulative wind power capacity has grown an average of 29% per year in the United States, slightly higher than the 27% growth rate in worldwide capacity.
Texas Easily Exceeded Other States in Annual Capacity Growth
In terms of actual 2008 deliveries, wind represented 1.3% of net electricity generation and national electricity consumption in the United States. These figures are below the 1.9% figure provided above because 1.9% is a projection based on end-of-year 2008 wind capacity. wind turbines were installed in 27 states in 2008. Texas again dominated in terms of new capacity, with 2,671 MW installed in 2008 alone, up from 1,708 MW installed in 2007.
Other leading states in terms of new capacity include Iowa, Minnesota, Kansas, New York, Wyoming, and North Dakota. Eleven states added more than 200 MW each in 2008.
On a cumulative basis, Texas continued to build on its lead in 2008, with a total of 7,118 MW of wind capacity installed by the end of the year. In fact, Texas has more installed wind capacity than all but five countries worldwide. Following Texas are Iowa, California, Minnesota, and Washington. Thirteen states had more than 500 MW of wind capacity as of the end of 2008, with seven topping 1,000 MW, and three topping 2,000 MW. Although all wind projects in the United States to date have been sited on land, offshore development activities continued in 2008.
GE Wind Remained the Top Turbine Manufacturer in the U.S. Market, but a Growing Number of Other Manufacturers Are Capturing Market Share
GE Wind remained the number one manufacturer of wind turbines supplying the U.S. market in 2008, with 43% of domestic turbine installations (down slightly from 45% in 2007 and 47% in 2006).
Following GE were Vestas (13%), Siemens (9%), Suzlon (9%), Gamesa (7%), Clipper (7%), Mitsubishi (6%), Acciona (5%), and REpower (1%).
Noteworthy developments in 2008 include the growth in market share for Clipper, Suzlon, and Acciona, while Siemens and Vestas experienced the most significant drops in market share, in percentage terms. Perhaps more significantly, however, is the growing number of turbine vendors active in the U.S. market. International turbine manufacturers entering the U.S. market for the first time in 2008 include Acciona (3 projects, 410 MW), REpower (2 projects, 102 MW), Fuhrlander (1 project, 5 MW), CTC/DeWind (2 projects, 4 MW), and AWE (2 projects, 1.8 MW).
Notwithstanding these changes in market share in percentage terms, virtually every manufacturer active in the U.S. market saw installations of their turbines grow between 2007 and 2008, in many cases dramatically.
The most significant growth was experienced by GE (1,316 MW), Clipper (548 MW), and Suzlon (541 MW); only Siemens witnessed a decline in sales, by this metric.
Soaring Demand for Wind Spurred Expansion of U.S. Wind Turbine Manufacturing
As wind power deployment has increased in the U.S., a growing number of foreign turbine and component manufacturers have either begun or continued to localize operations in the United States, and manufacturing by U.S.-based companies has also expanded.
Of the 35 new or announced facilities, nine are owned by major international wind turbine manufacturers: Vestas (nacelles, blades, and towers in Pueblo, Brighton, and Windsor, Colorado), Acciona (turbines in West Branch, Iowa), General Electric (parts in Memphis, Tennessee, and Schenectady, New York), Siemens (gear drives in Elgin, Illinois), and Nordex (nacelles and blades in Jonesboro, Arkansas). Siemens also expanded its blade plant in Fort Madison, Iowa, and plans to open a research facility in Boulder, Colorado, while Vestas announced two new research centers, in Boston and Houston.
Several smaller turbine manufacturers also either opened or announced new U.S. factories in 2008. Fuhrlander announced its decision to build a turbine assembly plant in Butte, Montana, while Nordic Windpower announced that it would open a turbine manufacturing and assembly facility in Pocatello, Idaho. CTC/DeWind began manufacturing turbines in Round Rock, Texas, and by the end of 2008 had commissioned two of its 2 MW D8.2 turbines in the United States. Emergya Wind Technologies – the owner of the Dutch Lagerwey turbine technology – is behind two new manufacturing facilities in Little Rock, Arkansas, with turbine assembly expected to start by the end of 2009. Northern Power Systems, the maker of a 100 kW direct-drive turbine, re-organized its business in 2008 and is planning a 2.2 MW direct-drive turbine.
As a result of this activity, the number of utility-scale wind turbine manufacturers assembling nacelles in the U.S. increased from just one in 2004 (GE) to five in 2008 (GE, Gamesa, Clipper, Acciona, CTC/DeWind), with five additional manufacturers publicly announcing the location of future assembly plants (Vestas, Nordex, Nordic, Fuhrlander, and Emergya).
Moreover, a number of domestic manufacturers that were not previously active in the wind sector either branched out to or transitioned into the wind industry in 2008. Seven such companies located in two states that have been hit hard by the economic downturn: Michigan and Ohio. In Watertown Township, Michigan, for example, E-T-M has shifted from making composite parts for the automotive industry to creating composites used in wind turbines. Similarly, for more than 100 years, family-run Minster Machine Company in Minster, Ohio, has been manufacturing equipment for the auto, medical, and food industries; its new division, Minster Wind, manufactures wind turbine hubs, and hopes to manufacture other turbine components.
Some of the states that have experienced the greatest growth in installed wind capacity in recent years are also seeing significant new manufacturing activity: in 2008, four manufacturing facilities were announced in Texas, six were opened or announced in Colorado, and five were opened or announced in Iowa. Even states with little installed wind capacity, however, are reaping job and economic benefits from new wind-related manufacturing facilities, particularly if those states are strategically positioned geographically. For example, 2008 saw four new manufacturing facilities either opened or announced in Arkansas, and eight facilities – either new, announced, or newly branched into wind – in Michigan.
As a result of the continued expansion of U.S.-based wind turbine and component manufacturing, AWEA estimates that the share of domestically manufactured wind turbine components grew from less than 30% in 2005 to roughly 50% in 2008. This scale-up has also created a number of new jobs; AWEA estimates that roughly 8,400 new domestic manufacturing jobs were added in the wind sector in 2008.
This represents a significant portion of the estimated 35,000 total wind-related jobs created in the U.S. in 2008, bringing total U.S.-based employment in the wind industry to an estimated 85,000 at the end of 2008. In addition to manufacturing, these jobs span project development, construction and turbine installation, operations and maintenance, legal services, and marketing.
Notwithstanding the generally positive outlook for the turbine manufacturing sector in the U.S., the industry is facing economic headwinds. Most notably, the global financial crisis and recession have slowed project development and reduced the near-term demand for turbines. As a result, some manufacturers have delayed their plans to expand into the U.S., while others – even those that had only recently begun to scale up their U.S. presence – have had to scale back their efforts and even lay off workers. With financial conditions showing signs of stabilizing as of mid-2009, however, some manufacturers have already begun the process of rehiring workers and resuming their expansion plans. As the domestic industry continues to expand, a new challenge has become more acute: workforce training and development. A variety of programs at the local and national levels are beginning to target these needs, but workforce development remains a near-term challenge for the industry’s scale-up.
Average Turbine Size Inched Higher in 2008
The average size of wind turbines installed in the United States in 2008 increased to roughly 1.67 MW, up slightly from 1.65 MW in 2007 and 1.60 MW in 2006. Since 1998-99, average turbine size has increased by 133%, but growth in average turbine size has slowed in recent years.
Upward Pressure on Wind Power Prices Continued in 2008
Although many of the cost pressures facing the industry in recent years (e.g., rising materials costs, the weak dollar, turbine and component shortages) began to ease in the second half of 2008, it will take some time before these effects flow through the project development pipeline to impact wind power prices. As such, 2008 was another year of rising wind power prices.
Berkeley Lab maintains a database of wind power sales prices, which currently contains price data for 145 wind projects installed between 1998 and the end of 2008. These projects total 9,873 MW, or 42% of the wind capacity brought on line in the U.S. over the 1998-2008 period.
The dataset excludes merchant plants and projects that sell renewable energy certificates (RECs) separately. As such, the prices in this database reflect the bundled price of electricity and RECs as sold by the project owner under a power purchase agreement. Because these prices are artificially suppressed by the receipt of available state and federal incentives (e.g., the prices reported here would be at least $20/MWh higher without the PTC), they do not represent wind energy generation costs.
Based on this database, the capacity-weighted average power sales price from the sample of post-1997 wind projects remains low by historical standards. Figure 13 shows the cumulative capacity-weighted average wind power price (along with the range of individual project prices falling between the 25th and 75th percentiles) in each calendar year from 1999 through 2008. Based on the limited sample of 7 projects built in 1998 or 1999 and totaling 450 MW, the weighted-average price of wind in 1999 was more than $64/MWh (expressed in 2008 dollars). By 2008, in contrast, the cumulative sample of projects built from 1998 through 2008 had grown to 145 projects totaling 9,873 MW, with an average price of just over $40/MWh (with 50% of individual project prices falling between $33/MWh and $51.5/MWh).
Three factors significantly restrict the size of this sample: (1) projects located within ERCOT (in Texas) fall outside of FERC’s jurisdiction, and are therefore not required to report prices (reduces sample by about 6,500 MW); (2) the increasing number of utility-owned projects are not included, since these projects do not sell their power on the wholesale market (reduces sample by about 3,900 MW); (3) the increasing number of merchant (or quasi-merchant) projects that sell power and RECs separately are not included in the sample, because the power price reported by these projects only represents a portion of total revenue received (reduces sample by about 1,200 MW).
Specifically, the capacity-weighted average 2008 sales price for projects in the sample built in 2008 was roughly $51.5/MWh, up from an average of $43.2/MWh for the sample of projects built in 2007, and $20.6/MWh higher than the average of $30.9/MWh among projects built at the low point in 2002 and 2003.
The underlying variability in prices within a year is caused in part by regional factors, which may affect not only project capacity factors (depending on the strength of the wind resource in a given region), but also development and installation costs (depending on a region’s physical geography, population density, or even regulatory processes). It is also possible that regions with higher wholesale power prices will, in general, yield higher wind contract prices due to arbitrage opportunities on the wholesale market.
The Policy Landscape Is Now More Favorable to Wind Than At Any Other Time in the Past Decade
A variety of policy drivers have been important to the expansion of the wind power market in the U.S. Most obviously, the continued availability of the federal PTC has sustained industry growth. First established by the Energy Policy Act of 1992, the PTC provides a 10-year credit at a level that equaled 2.1¢/kWh in 2008 (adjusted annually for inflation). The importance of the PTC to the U.S. wind industry is illustrated by the pronounced lulls in wind capacity additions in the three years (2000, 2002, and 2004) in which the PTC lapsed, as well as the increased development activity often seen during the year in which the PTC is otherwise scheduled to expire – one of the reasons for the enormous capacity expansion witnessed in 2008.
A number of other federal policies have also helped support the wind industry in recent years. Wind power property, for example, may be depreciated for tax purposes over an accelerated 5-year period, with bonus depreciation allowed for certain projects, in certain years. Because tax-exempt entities are unable to take direct advantage of tax incentives, the Energy Policy Act of 2005 created the Clean Renewable Energy Bond (CREB) program, effectively offering interest-free debt to eligible renewable projects (though not without certain additional transaction costs).
In February 2008, for example, the IRS announced the distribution of roughly $400 million in CREBs, based on applications received in 2007, including more than $170 million for 102 wind power projects. Finally, the USDA has provided grants and loan guarantees to certain renewable energy and energy efficiency projects; in 2008, for example, the USDA announced $44 million in grants and loan guarantees, including a number for wind projects. Under the 2008 Farm Bill, USDA funding for such projects is expected to increase in future years.
As a reflection of growing interest in renewable energy, and in recognition of the negative impacts of the financial crisis on renewable energy investments, late 2008 and early 2009 brought substantial federal policy changes to the wind power landscape, increasing dramatically the role of the federal government in spurring industry growth. Most prominently, the PTC for wind projects was initially extended for one year (through 2009) in October 2008 (through the Emergency Economic Stabilization Act of 2008, EESA 2008). Then, in February 2009 (through The American Recovery and Reinvestment Act of 2009, ARRA 2009), the PTC for wind was extended for another three years (through December 2012). As a result, the wind industry has stronger and more-durable federal tax support than at any time over the last decade.
In addition to the extension of the PTC, major federal policy changes established through ARRA 2009 (and, to a lesser extent, EESA 2008) include:
Option to Elect ITC / Cash Grant: ARRA 2009 allows renewable energy projects otherwise eligible for the PTC to forego the PTC for a 30% investment tax credit (ITC) and, for a limited time (e.g., wind projects placed in service by the end of 2010, or if construction commences by the end of 2010, placed in service by the end of 2012), allows such projects to instead receive a cash grant of equivalent value through the Treasury. Bolinger et al. (2009) find that many wind projects will likely elect the 30% grant option.
• Removal of Double Dipping Penalty: For projects that take either the ITC or the cash grant, ARRA 2009 removes the “double dipping” penalty that formerly reduced the value of the ITC for projects that otherwise received “subsidized energy financing.”
• Extension of Bonus Depreciation: ARRA 2009 extends the 50% bonus depreciation schedule, under which projects can depreciate 50% of their depreciable basis in the first year, to qualified renewable projects completed in 2009.
• Expansion of Loan Guarantee Program: ARRA 2009 expands an existing DOE loan guarantee program to cover commercial projects, and transmission, and appropriates $6 billion to implement the program.
• Increased Funding for CREBs: ARRA 2009 adds $1.6 billion in new CREB funding for projects owned by governmental or tribal entities, as well as municipal utilities and cooperatives, adding to the $800 million of new CREB funding provided in EESA 2008.
• New Transmission Encouragement: ARRA 2009 includes targeted provisions to encourage new transmission, including increased borrowing capacity for WAPA and BPA for new transmission, increased support for transmission R&D and analysis at DOE, and expansion of the loan guarantee program to include transmission investments.
• State Grants Program: ARRA 2009 directs the DOE to provide $3.1 billion to support an expansion of existing state energy efficiency and renewable energy programs, some of which will ultimately benefit wind.
• Small Wind ITC: EESA 2008 established a 30% ITC for wind turbines under 100 kW in size, but capped the dollar value of that credit. ARRA 2009 removes the dollar cap, significantly expanding the value of the ITC for distributed wind.
• Manufacturing Tax Credit: ARRA 2009 creates a new 30% ITC for manufacturers of qualified renewable energy and energy efficiency technologies, with an aggregate spending cap of $2.3 billion.
• Increased R&D Funding: ARRA 2009 provides significant new spending for renewable energy-related research and development (R&D).
State policies also continue to play a substantial role in directing the location and amount of wind development. From 1999 through 2008, for example, 67% of the wind power capacity built in the U.S. was located in states with RPS policies; in 2008, this proportion was 70%. Three new states established mandatory RPS programs in 2008 (Michigan, Missouri, and Ohio), and Kansas did so in May 2009, bringing the total to 29 states and Washington D.C.; a number of additional states strengthened previously established RPS programs in 2008.