In 2012, for the first time, more new wind generation was installed than new natural gas- or coal-fired generation as developers rushed to take advantage of expiring tax credits.
Many in the wind industry don't expect as big of a year in 2013. But if utilities and policymakers heed the findings of two recent reports from grid managers and planners, the next two decades will look a lot more like 2012 -- with wind and other renewables continuing to outpace new fossil-fuel generation.
In late December, a Department of Energy-funded planning group released a landmark report indicating that building out wind generation and associated transmission is more affordable over the long haul than continuing to rely mostly on coal and gas for supplying the eastern United States with electricity between now and 2030.
Also in December, the Electric Reliability Council of Texas (ERCOT) released a report with a detailed long-term assessment of generation and transmission needs for the Texas interconnection. Using recent real-world data on wind and solar installation, prices and generation potential, they found that new wind and solar installations would outpace natural gas plants between now and 2032.
Renewable energy advocates say the results mean that wind and solar can cost-effectively provide most of our energy, and perhaps sooner than we realize. Other energy analysts, however, caution that which generation sources get built still depends very much on policy.
Renewables in the East
To sketch out a vision of future generation and transmission options for the eastern United States, in 2009 the Department of Energy offered funding for grid managers, utilities, regulators, environmentalists, and other energy-industry players to create the first long-term, region-wide report on the topic.
PJM Interconnection, which operates the grid from the mid-Atlantic region west to Ohio and parts of Indiana, Michigan and Illinois, led the project. For the first phase of the planning exercise, participants developed a detailed computer model representing generation and transmission for the entire eastern United States. They analyzed eight different scenarios with various combinations of generation sources and national and regional climate and energy policies. The Phase I report was released in late 2011.
For Phase II, the group focused on three scenarios:
• A national carbon policy would aim to reduce carbon dioxide emissions from 2005 levels by 42 percent by 2030 and by 80 percent by 2050—emission cuts that climate scientists say are needed to stave off the worst effects of climate change.
• A national renewable energy standard that would require 30 percent of the nation’s energy come from local renewable sources by 2030;
• Business as usual, with current policies.
The model found that over the next two decades, the national carbon policy scenario was the most affordable way to provide electricity to the eastern United States, but that it required a much larger build-out of new transmission. In the business-as-usual scenario, $206 billion would be needed for new transmission infrastructure. In the carbon-policy scenario, $978 billion would be needed.
Nevertheless, the lower annual operating costs of wind made it, with a large transmission build-out, more affordable long-term than natural gas and coal. Wind and transmission saved $42 billion each year in operating costs across the region compared with a renewable electricity standard, and $50 billion compared with business as usual. As a result, wind and transmission will have more than paid for itself before two decades are up.
The EIPC's wind-friendly findings came despite overestimating wind’s capital costs by 50 percent, said Michael Goggin, manager of transmission policy at the American Wind Energy Association. And the analysis did not take into account the large health and societal costs of climate change, which is caused primarily by greenhouse gas emissions from burning coal, gas and oil.
“Even under these very conservative assumptions, wind looks like a very good investment,” Goggin said.
Renewables in Texas
To make sure Texas has a grid that meets its growing needs for generation and transmission, in 2005 the state legislature mandated that every two years ERCOT issue a report to the legislature giving its best take on what the system will need over the following 20 years.
In previous reports, ERCOT had relied on wind-generation data and estimates obtained in 2006 from AWS Truepower, an engineering consultancy. For the current report, AWS Truepower used real-world data on cost and power generation obtained between 2006 and 2010. For example, they took account of the latest turbine technologies, which allow wind farms to provide energy to the grid a higher percentage of the time and to provide more energy during times of peak demand.
ERCOT analyzed a variety of scenarios involving different natural gas prices and policies. They started with a business-as-usual scenario that was developed to be consistent with a highly respected report from the Energy Information Administration called the Annual Energy Outlook (AEO). The BAU assumes current policies and regulations will remain in place without significant changes, and that prices for natural gas and coal would remain at today’s levels, adjusted for inflation.
Other ERCOT scenarios included:
• Business as usual with the expected retirements of natural gas plants;
• Business as usual plus a variety of renewable energy technologies, including wind, utility scale solar, geothermal, compressed air energy storage (CAES), underground pumped hydro, and some demand response (DR) programs;
• Business as usual with updated assumptions about wind and other renewables;
• Business as usual, except that natural gas prices would be $5 per MMBtu higher than they are now, and adjusted for inflation;
• An environmental scenario in which several EPA regulations go into effect, including the proposed Cross-State Air Pollution Rule, the Mercury and Air Toxics Standard, greenhouse gas regulation, and emissions costs for sulfur dioxide, nitrogen oxides, and carbon dioxide.
Under business as usual conditions and outdated assumptions about wind, 20 GW of natural gas would be built over the next 20 years. Utilities would add a little bit of demand response, but little to no new wind generation.
But when current realities of wind and solar were used rather than outdated predictions, 17 GW of wind and 10 GW of solar—and only about 4 GW of natural gas— would be installed over the next 20 years.
Indeed, ERCOT found that wind and solar generation would grow under most of the scenarios they examined, the report said. The agency concluded that “scenario analysis indicates that both natural gas generation and renewable resources are likely to be competitive over a broad range of potential future market outcomes.”
Under none of ERCOT’s scenarios did coal or nuclear grow.
The findings “represent a sea change,” says Colin Meehan, a clean energy analyst at the Environmental Defense Fund. “ERCOT is a highly respected, nonpolitical independent system operator, and they’re finding that over a 20-year time frame, wind and solar power are competitive with natural gas based on current technology and prices. That’s just very, very significant.”
But Gürcan Gulen, an energy economist at the Center for Energy Economics at the University of Texas, Austin, cautioned that ERCOT’s report doesn’t necessarily mean that wind and solar will automatically win going forward.
“I hate to be an economist on you, but if you really want to make a broad statement [about the economic viability of wind], it depends on certain assumptions,” Gulen said.
Notably, ERCOT assumed for all its scenarios that the wind production tax credit, which provides a significant economic incentive to wind-farm developers, would remain in effect. Although the tax credit was just renewed for 2013, it may not be realistic to assume it will remain in effect for 20 years, he noted.
On the other hand, ERCOT’s business-as-usual scenario also assumes that natural gas prices will remain at today’s low levels. However, the Energy Information Administration predicts that prices will rise to $6 or $7 per MMBtu.
“At $6 natural gas, wind might be competitive,” Gulen said. “At $4, maybe not.”
Moreover, it depends on what part of the country you’re in, Gulen notes. In some regions, wind farms generate power—and sell it to the grid—more hours out of the year, which makes them more profitable.
Nevertheless, ERCOT concluded that the agency and Texas’ public utility commission need to prepare now by studying how the system can integrate the variable generation of more renewables, the report concluded.
Wind takes the lead
Other grid managers need to prepare as well, if last year’s numbers on new wind generation are any indication, according to the just-released analysis from the American Wind Energy Association.
Wind farms accounted for 42 percent of all new generation installed in 2012—a total of 13 GW of new generating capacity to achieve more than 60 GW capacity in all. Renewables as a whole accounted for a full 55 percent of all new generation in 2012, and wind leveraged $25 billion in private investment, AWEA said.
But wind and other renewables have a long way to go. Renewables accounted for less than 5 percent of all U.S. electricity generation in 2011, according to the Energy Information Administration.
Not everyone agrees that the economics for wind are as favorable as AWEA paints them. The capital costs of installing a new wind farm are $2,000-$4,000 per kilowatt, as opposed to around $2,000 for a new coal plant and just $1,500 for a new natural gas plant, said David Dismukes, associate director of the Center of Energy Studies at Louisiana State University.
“Wind will do well relative to new coal, and relative to new nuclear by orders of magnitude,” Dismukes said. And “wind is still the cheapest bulk renewable on the market.” And if gas prices rise, “wind would be standing in a very good position,” he said.
But for now, wind’s growth has come because of subsidies such as the production tax credit, Dismukes said. And the industry has been speculating by developing more wind farms than they know for sure that the market will support at the moment, he added.
Dismukes does not favor such subsidies or policies to prop up renewables.
“I don’t like bailing out any business, no matter who they are,” he said. “If you’re cost-effective, you don’t need policies."
Nevertheless, policies to support renewables are in place nationally and in most states, and now the industry may finally be getting its sea legs.
“For us [the recent results] are a validation of what we’ve been saying,” said Goggin, of AWEA. “Clean energy and transmission is the most effective way to power society."