Both offshore and onshore wind enjoyed landmark years in the U.S. in 2020. Offshore wind capacity in queue grew 24% over 2019, while onshore wind added a record 16,836 MW, according to a series of reports released by the U.S. Department of Energy on Monday.
Although wind turbine costs have declined steeply over the past decade, several U.S. regions have seen installed wind costs and wind power purchase agreement (PPA) prices increase over the last year or two.
Experts say the reasons for the slight price increase, the first since prices peaked in 2009-2010, remain unclear due to the limited sample size. However, Mark Bolinger, a research scientist with the Lawrence Berkeley National Lab which prepared the onshore wind report for DOE, said it is likely that supply chain challenges and federal policy have contributed to the uptick.
With both offshore and onshore U.S. wind development posting banner years in 2020, and all signs pointing to even greater growth in 2021, prices for wind turbines and wind energy have seen a slight increase recently, according to the new DOE reports. But that may not be an entirely bad thing, Bolinger said, a contributor to the onshore wind report released Monday.
In addition to the 2021 edition of the Land Based Wind Market Report, DOE also released a report on offshore wind markets in the U.S., and a third report covering distributed wind generation and markets.
Because of the small sample size — the onshore wind report included data from 65 U.S. wind projects completed in 2020 — it's difficult to say exactly what is driving the recent uptick in prices, or whether or not it's an anomaly in the data that will fade away as data on more 2020 projects become available, Bolinger said. But there are a few trends that could be contributing to increased prices, he said. As developers look toward a possible phaseout of production tax credits, he said, they could be increasing PPA prices to compensate At the same time, the rush to install projects ahead of the phaseout has strained the availability of labor and equipment, creating competition for limited resources.
"A year ago we heard all kinds of stories that there aren't enough cranes to get all this done before the end of year policy-related deadlines," Bolinger said. "Because of that, I could see someone's contractors working overtime."
Wind energy developers are also dealing with the ramifications of supply chain disruptions triggered by COVID, causing the price of steel, copper and other critical materials to rise and putting upward pressure on turbine and thus energy prices.
The effects of these trends were likely intensified by another finding detailed in Monday's onshore wind report, Bolinger said. "Fierce competition" in the industry has eroded profitability for wind turbine manufacturers over the past several years, according to the report. Thin margins, Bolinger said, would have reduced any cushion the manufacturers had against rising material costs, forcing them to pass costs on to customers.
The current situation, Bolinger continued, is similar to the trends that set up the last escalation in wind turbine prices in the late 2000s, because turbine manufacturer's profit margins were similarly thin prior to that price peak. When prices rose, they took advantage of the opportunity to rebuild a buffer against future fluctuations.
The industry could see something of a repeat situation this time around, especially because the increase in wind prices corresponds with generally rising prices for energy resources across the board, including for natural gas, Bolinger concluded.
"My guess is this might last for a year or two or possibly longer," he said, "but I don't think it's a permanent thing."
Patrick Gilman, program manager for modeling and analysis in the DOE's Wind Energy Technology Office, also noted the role of policy decisions in recent trends, describing the industry's growth and price fluctuations as "peaks and troughs associated with the policy landscape."
"What would really be needed to get the industry to a solid steady state is long-term policy certainty and stability," he said.
Currently, near-term projections suggest wind industry growth will continue through 2021 and then drop off in 2022, resulting in a significant decrease in deployment, Gilman said. To ensure the industry maintains the steady trajectory of growth required to reach the Biden administration's 2035 net zero emissions target for the power sector would require the development of new policies to support industry stability, he said.