At the end of 2015, the wind energy industry was finally given a 5 year incentive package in return for a rather meaningless gift to the oil and methane industry - the ability to export US made crude oil. Since the US still imports 9 million bbls/day from Mexico, Canada, South America and East Africa (plus a bit from the Middle East), one would think this is really dumb, but the thinking behind the oil industry is that not all oil has the same quality. Thanks to fracking, the US produces too much “lites” - too much propane, butane, pentane, hexane and octane, not enough of the “diesel cuts” - so we could export our crude to countries needing such materials while we continue to import crude rich in “middle distillates. But thanks to the Saudi Arabian induced collapse in oil prices (designed to bankrupt US fracking based oil producers as well as Canadian Tar Sand Sludge producers), this is a pyrrhic “victory” to US oil and methane producers. And with US oil and methane production now dropping because the businesses in the fracking biz are going bankrupt/no longer drilling (engaging in capital investments because their expenses exceed their income), oil exports of crude from the US just keep getting less and less likely. Oops…
Meanwhile, the Production Tax Credit (PTC) was extended for 5 years, but with a “phase-out” arrangement. The value of the PTC will start falling at the end of 2016 and go away completely by 2019 (http://programs.dsireusa.org/system/program/detail/734). Projects have to “commence construction” by the end of 2016 to get the full 2.3 c/kw-hr subsidy, and it drops in a regular manner after that:
- by 20% (to 1.84 c/kw-hr) for projects commencing construction by the end of 2017
- by 40% (to 1.38 c/kw-hr) for projects commencing construction by the end of 2018
- by 20% (to 0.92 c/kw-hr) for projects commencing construction by the end of 2019
Of course, wind turbine owners still get the full MACRS tax deduction, which almost always was worth more that the PTC, anyway, and the MACRS is much easier to utilize.
In theory, this is a disaster for the US wind turbine biz, but in actual fact, not likely to be that at all. Thanks to the development of Low Wind Speed Turbines (now THE dominant type being installed in this country, even in high wind energy resource zones), the delivered cost of electricity from wind has dropped by roughly 20% to 60%. And thanks to the end of almost ALL fracking based drilling for methane (prices are now too low to justify the $10 million per well investment, especially in the Marcellus Shale region), methane production rates are already declining. On 5-25-16, methane was selling for $1.48/MBtu at the Pa-NY border, and $1.56/MBtu in NY City. And since it costs roughly $6/MBtu for most fracking gas wells to “break even” - well, that is some bad math indeed. See http://www.eia.gov/todayinenergy/prices.cfm.
Fracking and new wind turbine farm installations both run on credit. When it is perceived (based on lots of empirical evidence) that frackers are horrid credit risks, they won;’t get as much money for loans or via bonds and what money is forthcoming comes at higher rates. Bonds used to finance fracking are now relegated to junk status or lower, and interest rates/yields of much greater than 10%/yr are now needed. And with prices in the pits, money costs now in loan shark territory, that means that is not a good business to be in right now. There are only 85 gas drilling rigs active in the entire country at the present time - less than 5% of the all time high point 8 years ago. And as can be seen in the monthly dry gas shale figure for May of 2016, ALL fracking fields are now on a downward production trend. Especially the biggest of them all, the Marcellus. But, the oil and gas biz is not a charity….
So, a fracking gas well produces roughly 90% of its methane in the initial 5 years. unless drilling rates increase dramatically, the SU fracking based methane production rate could EASILY drop for the present 43 billion cod to less than half of that. And a lot of methane also gets produced as “associated gas” - a by-product of oil production. http://www.eia.gov/naturalgas/weekly/#tabs-rigs-2. As oil fracking drilling also spirals downwards in activity, that methane production will also drop. And then methane prices will rise, a result of decreasing supply and more or less constant demand. And when methane prices rise so does the cost of making electricity from methane. All this is going to make wind turbines a very smart investment in 2018-2020. Rising methane prices will mean drastic profit potential for those with the ability to deliver electricity that does not involve methane usage. And since no new coal plants or nukes (aside from 2 in Georgia, the likely last of their kind) are in the works, well, for those pursuing money, this looks like good times ahead for those who have operating wind turbines. Especially in NY State, where Casino pricing rules and long term Power Purchase Agreements seem to be almost impossible to get. Of course, if you are a consumer, prepare for a major fleecing, but then electricity consumers are not exactly on the top of the proverbial food chain.
That 2.3 c/kw-hr tax credit (minus financing costs and legal work, which are not insignificant) is no longer going to be that important when gas prices spike due to decreasing supplies (via no new investments in drilling) and a more or less constant demand, causing electricity prices to spike. In fact, the 2.3 c/kw-hr is likely to be lost in the noise.
Anyway, the US and many other countries are now in a wind turbine “boom” era, which is likely to continue for many years. Employment in the US wind biz, according to AWEA, is now 88,000. It looks like at lest 10 GW per year of new installs is likely for the next 5 years. See http://www.awea.org/Resources/Content.aspx?ItemNumber=5059 for the trend. Average production in February of 2016 was ~ 32 GW and average capacity utilization of the 48,000 operating wind turbines was around 40% (see https://en.wikipedia.org/wiki/Wind_power_in_the_United_States). Of course, February tends to be a windy month, though thanks to El Nino weather, not so good this year. Average wind production was 21.8 GW for all of 2015, or roughly 5% of US electricity consumption. By 2020, close to 9% of US electricity consumption is likely to be wind turbine based.
As far as NY goes, we seem to have been by-passed by this wind boom. Thanks to the Marcellus Shale, NY has some of the cheapest electricity in the country, so why bother with new generation?There are still several wind farms that got their RPS subsidy from NYSERDA in 2013 (Black Oak, Cody Road) and especially 2014 that have yet to be installed, despite the 3.5 to 2.2 c/kw-hr NYSERDA subsidy that goes on top of the PTC and MACRS subsidies. Of note is the Arkwright wind farm proposed for Chautauqua County (36 x Vestas V110 turbines) and the Jericho Rise one in Franklin County (37 x G114 Gamesa). Both are slated for installation by 2017 (commencing in 2016, of course) and both use LWST units of ~ 2 MW capacity. These units are amount the best at extracting electricity from low to moderate winds. Both are being developed by EDPR (Portugal, ex-Horizon Wind), and both should be quite profitable given trends in the methane biz in the US. See https://www.nyserda.ny.gov/All-Programs/Programs/Main-Tier/Main-Tier-Solicitations and https://www.edprnorthamerica.com/farms/regulatory-permitting-information
Closer to WNY, THE happening project of note is actually not in NY but in Ontario - The Niagara Region Wind Farm is now being installed. This is a 230 MW project owned by Enercon and it will use 77 E-101 Enercon turbines installed on 125 to 135 meter tall concrete towers. The project will be located between Port Maitland and Grimsby, and it will straddle the Niagara escarpment/region of Ontario. This project was facilitated by the Green Energy Act/FIT, and it also involves actual local content. The electronic module and concrete tower sections are being made in new factories built for this project; blades will probably come from Quebec. These 3 MW turbines may be visible from Buffalo (land height plus 135 meter tower plus 50.5 meter blade radius. This means that the tips of the blades will be 608 feet above the ground at their highest point. See http://www.nrwf.ca/project/
On the image, note the placement of cell phone antennae (2 sets) on the tower. Those are situated ~ 200 feet above the ground. So here is a situation where ugly cell phone towers get replaced by a 135 meter concrete tower where they hardly get noticed at all. Will wonders ever cease? Image from http://www.windkraft-journal.de/2014/06/27/hamburger-beteiligungsgesellschaft-cee-setzt-den-ausbau-ihres-windkraft-portfolios-fort/54093