Wind Energy: Price, Cost, and Performance Trends

Although some of the cost pressures facing the wind farm industry in recent years (e.g., rising materials costs, the weak dollar, wind turbine and component shortages) have eased somewhat, it will take time before relief flows through the wind farm project development pipeline to impact overall average wind power prices.

31Upward Pressure on Wind Power Prices Continued in 2009

Berkeley Lab maintains a database of wind power sales prices; next few slides present data from that database

Sample includes 180 projects built from 1998-2009, totaling 12,813 MW (38% of all wind capacity added in that period)

Prices reflect the bundled price of electricity and RECs as sold by the project owner under a power purchase agreement
–Dataset excludes merchant plants and projects that sell renewable energy certificates (RECs) separately
–Prices reflect receipt of state and federal incentives (e.g., the PTC or Treasury grant); as a result, prices do notreflect wind energy generation costs –prices would be higher were state/federal incentives not available

After all, wind farm projects built in 2009 may have purchased wind turbines in 2007 or 2008, and may have established contractual pricing terms at a similar point in time. As such, 2009 was another year of rising wind power prices.

Berkeley Lab collects data on wind power sales prices, resulting in a dataset that consists of price data for 180 wind energy projects installed between 1998 and the end of 2009. These projects total 12,813 MW, or 38% of the wind power capacity brought on line in the United States over the 1998-2009 timeframe.

The dataset excludes merchant plants and wind farm projects that sell renewable energy certificates (RECs) separately. The prices in the dataset therefore reflect the bundled price of electricity and RECs as sold by the project owner under a power purchase agreement.

Because these prices are 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 / ITC / Treasury Grant), they do not represent wind energy generation costs.

Based on these data, the capacity-weighted average power sales price from the sample of post-1997 wind power projects remains relatively low by historical standards, but has been steadily increasing in recent years.

Based on the limited sample of 7 projects built in 1998 or 1999 and totaling 450 MW, the weighted-average price of wind energy in 1999 was $65/MWh (expressed in 2009 dollars).

By 2009, in contrast, the cumulative sample of wind farm projects built from 1998 through 2009 had grown to 180 projects totaling 12,813 MW, with an average price of $45/MWh (with 50% of individual project prices falling between $33/MWh and $53/MWh).

Three primary 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 8,600 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 5,300 MW); and (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 roughly another 4,200 MW). In addition, certain “qualifying facilities” are not required to report their power sales to FERC.

All wind power pricing data presented in this report exclude the few wind farm projects located in Hawaii. Those wind energy projects are considered outliers in that they are significantly more expensive to build than wind farm projects in the continental United States, and receive a power sales price that is significantly higher-than-normal, in part because it has historically been linked to the price of oil.

Specifically, the capacity-weighted average 2009 sales price, based on wind farm projects in the sample built in 2009, was roughly $61/MWh, up from an average of $51/MWh for the sample of projects built in 2008, and nearly double the average of $32/MWh among projects built during the low point in 2002 and 2003.

Although it may seem counterintuitive, the weighted-average price in 1999 for projects built in 1998 and 1999 is significantly higher than the weighted-average price in 2009 for projects built in 1998 and 1999 (to be about $33/MWh) for three reasons: (1) the sample size is larger, due to the fact that 2009 prices are presented, rather than 1999 prices 19 (i.e., we were unable to obtain early-year pricing for some of the projects built in 1998-1999); (2) two of the larger wind farm projects built in 1998 and 1999 (for which both 1999 and 2009 prices are available, meaning that these projects are represented within both figures) have nominal PPA prices that actually decline, rather than remaining flat or escalating, over time; and (3) inflating all prices to constant 2009 dollar terms impacts older (i.e., 1999) prices more than it does more-recent (i.e., 2009) prices.

The underlying variability in wind power 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, labor rates, or even regulatory processes).

It is also possible that regions with higher wholesale electricity prices or with greater demand for renewable energy will, in general, yield higher wind energy contract prices due to market factors.

Although sample size is quite small and therefore problematic in numerous regions, Texas and the Heartland region appear to be among the lowest price areas on average, while New England, California, and the East are among the higher price regions.

Average prices in Texas and New England, in particular, may not be representative as those averages include just three and two projects, respectively.

Once again, sample size in Texas is severely limited (despite the enormous growth of wind power capacity in that state) because generators located within ERCOT are not required to file pricing information with FERC. As such, the pricing information for Texas provided in this report comes primarily from projects located in the Texas panhandle, which is within the Southwest Power Pool (SPP) rather than ERCOT.

Note also that projects in this area have not experienced the same level of curtailment as is common in ERCOT which, in combination with a strong wind resource in the region and relatively low capital costs (two of the three projects, totaling 75% of the aggregate capacity, were built earlier in the 2006-2009 time period), may have facilitated lower prices than in other parts of Texas.

One of the two New England projects in the sample over this period is not shown in Figure 21 because its price ($126/MWh) exceeds the scale of the y-axis; however, this project’s price is included in the capacity-weighted average for New England.

REC Markets Remain Fragmented, with a Wide Range of Pricing

The wind power sales prices presented in this report reflect only the bundled sale of both electricity and RECs; excluded are projects that sell RECs separately from electricity, thereby generating two sources of revenue. REC markets are highly fragmented in the United States, but consist of two distinct segments: compliance markets in which RECs are purchased to meet state RPS obligations, and green power markets in which RECs are purchased on a voluntary basis.

The figures below present indicative monthly data of spot-market REC prices in both compliance and voluntary markets, grouped into High-Price and Low-Price markets; data for compliance markets focus on the “Class I” or “Main Tier” of the RPS policies. Clearly, spot REC prices have varied substantially, both among states and over time within individual states.

Among compliance markets in the Northeast, prices for RECs used to serve RPS requirements in Connecticut, Massachusetts, and Rhode Island remained relatively flat in 2009, following a steep drop in 2008, while prices in the new RPS compliance markets in New Hampshire and Maine were at levels consistent with the other Northeastern states.

REC prices to serve RPS requirements in New Jersey, Illinois, and Delaware remained relatively flat during the latter half of the 2009, after declining earlier in the year. REC prices remained relatively low in several other compliance markets (Texas, Maryland, Pennsylvania, and Washington D.C.) due to a surplus of eligible renewable energy supply relative to RPS-driven demand in those markets.

Prices for RECs offered in voluntary markets in 2009 ranged from an annual average of less than $2/MWh for national voluntary wind RECs (which continue to closely track the price of Texas RECs) to approximately $7/MWh for voluntary wind RECs in the West.

General Electric (GE) remained the number one manufacturer of wind turbines supplying the U.S. market in 2009, with 40% of domestic turbine installations (down slightly from 43% in 2008, 45% in 2007, and 47% in 2006).

Following GE were Vestas (15%), Siemens (12%), Mitsubishi (8%), Suzlon (7%), Clipper (6%), Gamesa (6%), REpower (3%), Acciona (2%), and Nordex (1%). Other utility-scale (>100 kW) wind turbines installed in the United States in 2009 (and that fall into the “Other” category in Figure 9) include turbines from NedWind (6.5 MW), AAER (6 MW), DeWind (6 MW), Fuhrlander (4.5 MW), Goldwind (4.5 MW), RRB (2.4 MW), Elecon (0.6 MW), and Wind Energy Solutions (0.25 MW).

Primary authors: Ryan Wiser, Lawrence Berkeley National Laboratory, Mark Bolinger, Lawrence Berkeley National Laboratory. With contributions from Galen Barbose, Naïm Darghouth, Ben Hoen, and Andrew Mills (Berkeley Lab), Kevin Porter and Sari Fink (Exeter Associates), Suzanne Tegen (National Renewable Energy Laboratory).