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2010 Wind Technologies Market Report by Staff US Department of Energy, June 2011

Executive Summary

The U.S. wind power industry experienced a trying year in 2010, with a significant reduction in new builds compared to both 2008 and 2009. The delayed impact of the global financial crisis, relatively low natural gas and wholesale electricity prices, and slumping overall demand for energy countered the ongoing availability of existing federal and state incentives for wind energy deployment. The fact that these same drivers did not impact capacity additions in 2009 can be explained, in part, by the "inertia" in capital-intensive infrastructure investments: 2009 capacity additions were largely determined by decisions made prior to the economy-wide financial crisis that was at its peak in late 2008 and early 2009, whereas decisions on 2010 capacity additions were often made at the height of the financial crisis. Cumulative wind power capacity still grew by a healthy 15% in 2010, however, and most expectations are for moderately higher wind power capacity additions in 2011 than witnessed in 2010, though those additions are also expected to remain below the 2009 high. Key findings from this year's "Wind Technologies Market Report" include:

• Wind Power Additions Slowed in 2010, with Roughly 5 GW of New Capacity Added in the United States and $11 Billion Invested.
  Wind power installations in 2010 were similar in magnitude to those recorded in 2007, but were just half those seen in 2009 and were 40% lower than in 2008. Nonetheless, cumulative wind power capacity still grew by 15% in 2010, bringing the total to more than 40,000 MW.

• Wind Power Comprised 25% of U.S. Electric Generating Capacity Additions in 2010.
  This is down from 42% in 2009, 43% in 2008, and 34% in 2007, but exceeds wind power's contributions in earlier years. In 2010, wind power was the third-largest new resource (behind natural gas and coal power plants) added to the U.S. electrical grid in terms of aggregate gross capacity, breaking a five-year streak in which wind power was second only to natural gas plants.

• The United States Was Overtaken by China in Cumulative Wind Power Capacity, Remained the Second Largest Market in Annual Additions, and Was Well Behind the Market Leaders in Wind Energy Penetration.
  After leading the world in annual wind power capacity additions from 2005 through 2008, the U.S. has now - for two years - been second to China, capturing roughly 13% of the global market in 2010, down substantially from 26% in 2009, 29% in 2008, and 27% in 2007. In terms of cumulative capacity, the United States ended the year with 20% of total global wind power capacity, dropping to the second largest market by this metric, also after China. A number of countries are beginning to achieve relatively high levels of wind energy penetration in their electricity grids: end-of­ 2010 wind power capacity is estimated to be capable of supplying the equivalent of roughly 26% of Denmark's electricity demand, 17% of Portugal's, 15% of Spain's, 14% of Ireland's, and 9% of Germany's. In the United States, the cumulative wind power capacity installed at the end of 2010 is estimated, in an average year, to equate to roughly 2.9% of the nation's electricity consumption.

• Texas Once Again Added More New Wind Power Capacity than Any Other State, While Four States Exceed 10% Wind Energy Penetration.
  With 680 MW added, Texas once-again led the 28 other states in which new large-scale wind turbines were installed in 2010, though by a much narrower margin than in years past (the next highest were Illinois with 498 MW and California with 455 MW). Texas also became the first state to surpass the 10 GW milestone in terms of cumulative wind power. South Dakota had enough wind power capacity installed by the end of 2010 to generate an estimated 23% of all in-state generation in an average year. Three other states are also estimated to exceed 10% penetration by this metric: Iowa (17%), North Dakota (14%), and Minnesota (12%).

• Offshore Wind Power Project and Policy Developments Continued in 2010.
  To date no offshore projects have been installed in the United States and the emergence of an offshore wind power market still faces many challenges. Nonetheless, interest exists in developing offshore wind energy in several parts of the country, with nine projects totaling 2,322 MW that have advanced significantly in the permitting and development process. Of these projects, three have signed power purchase agreements with terms and details that have been made public. Notably, the Cape Wind project was granted approval by the Department of Interior in 2010; several significant strides relating to offshore wind energy have been made recently in the federal arena; and a variety of other recent project and state policy announcements demonstrate continued activity in the offshore wind energy sector.

• Data from Interconnection Queues Demonstrate that an Enormous Amount of Wind Power Capacity Is Under Consideration.
  At the end of 2010, there were 258 GW of wind power capacity - more than six times current installed wind power capacity - within the transmission interconnection queues administered by independent system operators, regional transmission organizations, and utilities reviewed for this report. This wind power capacity represented more than 50% of all generating capacity within these queues at that time, and was more than twice as much capacity as the next-largest resource (natural gas). Most (91%) of this wind power capacity is planned for the Midwest, Mountain, Texas, PJM Interconnection, Northwest, and Southwest Power Pool regions. Projects currently in interconnection queues are often very early in the development process, so much of this capacity is unlikely to be built as planned. Nonetheless, these data demonstrate the high level of developer interest in wind power.

• GE Remained the Top Turbine Manufacturer in the U.S. Market.
  GE secured 50% of U.S. market share (by capacity installed) in 2010, followed by Siemens (16%), Gamesa (11%), Mitsubishi (7%), Suzlon (6%), Vestas (4%), Acciona (2%), Clipper (1%), REpower (1%), and Nordex and DeWind (both at 0.4%). There has been a notable increase in the number of wind turbine manufacturers serving the U.S. market since 2005, with the number of manufacturers installing more than 1 MW increasing from just 6 in 2005 to 16 manufacturers in 2010. Recently, however, there is evidence of gains in market share by some of the leading manufacturers. Globally, perhaps the most significant continuing story in 2010 was the growing market share of Chinese turbine manufactures: four of the top ten leading global suppliers of wind turbines now hail from China. To date, that growth has been based almost entirely on sales to the Chinese market, though both Chinese (and South Korean) manufacturers continue to take steps to enter the international wind turbine market, including limited early installations in the United States.

• Domestic Wind Turbine and Component Manufacturing Activity Has Increased, but Has Also Been Challenged by the Economic Downturn.
  Nine of the eleven wind turbine manufacturers with the largest share of the U.S. market in 2010 already have one or more manufacturing facilities in the United States. These figures compare to just one utility-scale wind turbine manufacturer (GE) assembling nacelles in the United States in 2004. In addition, a considerable number of new wind turbine and component manufacturing facilities were either announced or opened in 2010, by both foreign and domestic firms. Though domestic manufacturing capabilities have grown, the wind turbine and component manufacturing industry continues to face economic headwinds. The growth in U.S. wind turbine manufacturing capability and the drop in wind power plant installations, for example, led to an estimated over-capacity of U.S. nacelle assembly capability of roughly 2.5 GW in 2010, in comparison to 4 GW of under-capacity in 2009. The year 2010 also saw downward revisions to revenue and profit forecasts throughout the wind turbine and component manufacturing supply chain. The American Wind Energy Association, meanwhile, estimates that the entire wind energy sector directly and indirectly employed 75,000 full-time workers in the United States at the end of 2010 - about 10,000 fewer full-time-equivalent jobs than in 2009, mostly due to the decrease in new wind power plant construction.

• A Growing Percentage of the Equipment Used in U.S. Wind Power Projects Has Been Sourced Domestically in Recent Years.
  U.S. trade data show that the United States remained a large importer of wind power equipment in 2010, but that wind power capacity growth has outpaced the growth in imports in recent years. As a result, a growing percentage of the equipment used in wind power projects is being sourced domestically. Imports of wind turbines and select components in 2010 are estimated at $2.5 billion, down from $4.2 billion in 2009 and $5.5 billion in 2008, but up from $1.3 billion in 2005. When presented as a fraction of total equipment-related wind turbine costs, the overall import fraction is estimated to have declined significantly from 65% in 2005-2006 to roughly 40% in 2009­ 2010 as domestic manufacturing investments outpaced import growth. Exports of wind- powered generating sets from the United States have also increased, rising from $15 million in 2007 to $119 million in 2009, and again increasing to $142 million in 2010.

• The Average Nameplate Capacity, Hub Height, and Rotor Diameter of Installed Wind Turbines Increased.
  The average nameplate capacity of wind turbines installed in the United States in 2010 increased to 1.79 MW, up from 1.74 MW in 2009 and 1.66 MW in 2008. Since 1998-99, average turbine nameplate capacity has increased by 151%, but growth in this metric has slowed in recent years due to the dominance of GE's 1.5 MW turbine and as a result of the logistical challenges associated with transporting larger turbines to project sites. Average hub heights and rotor diameters have also scaled with time, to 79.8 and 84.3 meters, respectively, in 2010. Since 1998-99, the average turbine hub height has increased by 43%, while the average rotor diameter has increased by 76%. Industry expectations as well new turbine announcements (especially to serve lower-wind-speed sites) suggest that significant further scaling, especially in rotor diameter, is anticipated in the near term.

• Consolidation among Wind Project Developers Continued, Albeit at a Slower Pace.
  Consolidation on the development end of the wind power business has slowed since 2007. At least three significant acquisition or investment transactions involving more than 10 GW of in-development wind power projects were announced in 2010, compared to six transactions and 18 GW in 2009.

• The Project Finance Environment Improved Throughout 2010.
  After a rather dismal project-finance environment in 2009 (which contributed to the slowdown in 2010 wind power capacity additions), the environment for wind power project finance improved steadily throughout 2010. By the end of the year, there were reportedly 16 third-party tax equity providers back in the market - up from just a handful in 2009 - and the amount of tax equity committed to wind power projects was somewhere on the order of $4 billion, more than twice as much as was invested in 2009 and exceeding levels invested in 2007 and 2008. Activity in the debt market was also brisk, with as many as 30 banks and a number of institutional lenders back in the market, offering longer tenors in combination with lower spreads and up-front fees. Meanwhile, the Section 1705 U.S. Department of Energy (DOE) loan guarantee program closed on two wind project loan guarantees in 2010 and issued conditional commitments for two more in early 2011. Looking ahead to 2011, the one-year extension of the Section 1603 grant program should help the tax equity market to continue to recover.

• IPP Project Ownership Remained Dominant, while Utility and Community Ownership Held Steady.
  Independent power producers (IPPs) own 83% of all new wind power capacity installed in the United States in 2010, and also 83% of cumulative capacity. Meanwhile, 15% of all new 2010 and cumulative wind power capacity is owned by electric utilities, with investor-owned utilities claiming 12% and publicly owned utilities the other 3%. Community wind power projects account for the remaining 2% of both new 2010 and cumulative capacity.

• Long-Term Contracted Sales to Utilities Remained the Most Common Off-Take Arrangement, but Scarcity of Power Purchase Agreements Drove Continued Merchant Development.
  Electric utilities continued to be the dominant off-takers of wind power in 2010, either owning (15%) or buying (58%) power from 72% of the new capacity installed last year. Merchant/quasi-merchant projects were less-prevalent in 2010 than they have been in recent years, accounting for 23% of all new capacity. With wholesale power prices remaining low in 2010 and power purchase agreements (PPAs) in relatively short supply, it is likely that most of the merchant/quasi-merchant projects built in 2010 are merchant by necessity rather than by choice - i.e., many of these projects may have had to deploy turbines ordered prior to the financial crisis or may have been built in part to take advantage of the Treasury Grant Program (which, only later, was extended for an additional year), and are presumably actively seeking long-term PPAs to provide greater revenue stability. On a cumulative basis, utilities own (15%) or buy (49%) power from 64% of all wind power capacity in the United States, with merchant/quasi-merchant projects accounting for another 25% and power marketers another 10%.

• Wind Power Prices from Projects Installed in 2010 Were Higher, but Relief Is on the Way.
  Although some of the upward cost pressures facing the industry in recent years have eased considerably since 2008, such relief has thus far been slow to work its way through the project development pipeline to impact average historical wind power prices. As such, 2010 was another year of higher wind power prices. The capacity-weighted average 2010 sales price for bundled power and renewable energy certificates, based on projects in the sample built in 2010, was roughly $73/MWh. This value is up from an average of $62/MWh for the sample of projects built in 2009, and is more than twice the average of $32/MWh (all in 2010 dollars) among projects built during the low point in 2002 and 2003. Texas, the Heartland, and the Mountain regions appear to be among the lowest price areas, on average, while California is, by far, the highest price region. One reason for the continued increase in historical prices is that many projects built in 2010 may have entered into turbine supply agreements in 2008 (i.e., at the height of the market), and likely established the price terms of PPAs at a similar point in time. Other drivers include the relative prevalence of projects built in California (if all California projects are removed from the 2010 sample, the capacity- weighted average price drops from $73/MWh to $64/MWh) as well as a general trend towards building out lower wind speed sites. Indications from projects that came online in late 2010 and early 2011 suggest a price thaw, however, as a number of PPAs that start in the low-to-mid $40/MWh range (or even lower) have been witnessed. Though lower average prices for projects installed in 2011 are therefore anticipated, the recent decline in turbine prices may not be fully reflected in average wind power pricing until 2012 and later.

• Low Wholesale Electricity Prices Continued to Challenge the Relative Economics of Wind Power Plants Installed in Recent Years.
  A simple comparison of historical wind power prices to wholesale electricity prices throughout the United States demonstrates that while wind power had consistently been priced (on average) at the low end of the range of wholesale electricity prices going back through 2003, the drop in wholesale electricity prices in 2009 pushed wind energy to the top of that range, where it remained in 2010 across all regions of the country. Although low wholesale electricity prices are, in part, attributable to the recession-induced drop in energy demand, the discovery and early development of significant shale gas deposits has also resulted in reduced expectations for price increases going forward. Comparing wind and wholesale electricity prices in this manner is not appropriate if one's goal is to fully account for the costs and benefits of wind energy relative to its competition, but these developments may nonetheless put the near-term comparative economic position of wind energy at some risk absent reductions in the price of wind power that counteract the decline in wholesale electricity prices (and absent policy drivers that support wind energy expansion without regard to its comparative economics).

• The Average Installed Cost of Wind Power Projects Held Steady in 2010, but Is Expected to Decline in the Near Term.
  Among a large sample of wind power projects installed in 2010, the capacity-weighted average installed cost of $2,155/kW was similar to that seen in 2009. The estimated average cost among a preliminary sample of projects that either have been or will be built in 2011 suggests that average installed costs will decline in the near term, consistent with recent trends in wind turbine prices. Installed project costs are found to exhibit some economies of scale, at least at the low end of the project size range. Texas is found to be the lowest-cost region, while California and New England were the highest-cost regions.

• Wind Turbine Prices Have Declined Since 2008 and Will Yield Lower Project-Level Installed Costs and Power Sales Prices in the Years Ahead.
  Wind turbine prices have dropped substantially since their peak in late 2008, despite continued technological advancements that have yielded increases in hub heights and especially rotor diameters. After hitting a low of roughly $700/kW from 2000 to 2002, average wind turbine prices increased by approximately $800/kW (>100%) through 2008, rising to an average of roughly $1,500/kW. Wind turbine prices have since declined substantially, with price quotes for recent transactions in the range of $900-$1,400/kW, suggesting price declines of as much as 33% or more since late 2008, with an average decline closer to 20% for orders announced in 2010. These price reductions, coupled with improved turbine technology and more-favorable terms for turbine purchasers, are expected, over time, to exert downward pressure on total project costs and wind power prices.

• Wind Power Project Performance Has Generally Improved Over Time, but Has Leveled Off in Recent Years.
  Boosted primarily by higher hub heights and larger rotor diameters, cumulative sample-wide average capacity factors have, in general, gradually increased over time, from 25% in 1999 to a high of nearly 34% in 2008, before dropping to roughly 30% in 2009 and 2010. The drop in 2009 and 2010 is, in part, attributable to wind power curtailment, which has been particularly significant in Texas: nearly 8% of all 2010 Wind Technologies Market Report potential wind energy generation within the Electric Reliability Council of Texas (ERCOT) was curtailed in 2010, down from 17% curtailment in 2009. If not for the curtailment experienced in ERCOT, the Midwest, and a few other regions, the sample-wide average U.S. capacity factor would have been 1-2 percentage points higher nationwide in 2008 through 2010 (e.g., increasing from 30.5% to 31.6% in 2010). Other factors that may have slowed the rate of capacity factor increase for projects installed in more recent years include an emphasis on lower-quality wind resource sites (due to transmission and siting constraints, and perhaps also policy influence), moderation of the historical increase in average hub heights and rotor diameters at least from 2006 through 2009, and some challenges with turbine reliability.

• Operations and Maintenance (O&M) Costs Are Affected by the Age and Commercial Operation Date of the Project.
  Despite limited data availability, it appears that projects installed more recently have, on average, incurred lower O&M costs than older projects in their first several years of operation, and that O&M costs increase as projects age.

• Extension of the Treasury Grant Program and Bonus Depreciation Provides Some Measure of Federal Policy Certainty Through 2012.
  In mid-December 2010, legislation extended the deadline to qualify for the Section 1603 30% cash grant by one year (projects must now start construction by the end of 2011 and be online by the end of 2012) and also doubled first-year bonus depreciation to 100% for those projects placed in service between September 8, 2010 and the end of 2011. Two other Recovery Act programs that had generated excitement among the industry in 2009 and 2010, however, were either not extended (the Section 48C advanced energy manufacturing tax credit program) or will sunset in 2011 (the Section 1705 loan guarantee program for commercially viable projects). Even so, with the production tax credit, 30% investment tax credit , 30% cash grant, and various levels of bonus depreciation all firmly in place through 2012, the wind industry currently enjoys two years of relative (and relatively favorable) federal policy certainty in 2011 and 2012. Beyond 2012, however, federal policy towards wind energy remains uncertain.

• State Policies Play a Role in Directing the Location and Amount of Wind Power Development.
  From 1999 through 2010, 63% of the wind power capacity built in the United States was located in states with renewables portfolio standard (RPS) policies; in 2010, this proportion was 58%. As of June 2011, mandatory RPS programs existed in 29 states and Washington D.C., and a number of states strengthened their RPS programs in 2010. Existing RPS programs are projected to drive annual average renewable energy additions of 4-6 GW/year between 2011 and 2020, roughly equivalent to the amount of renewable capacity added in 2010 but well below the pace of capacity additions in 2008 and 2009 (growth in 2008 and 2009 was based in part on the market's willingness to construct merchant wind power projects). Utility resource planning requirements, voluntary customer demand for "green" power, state clean energy funds, and state and regional carbon reduction policies also play a role in supporting wind energy deployment.

• Despite Progress on Overcoming Transmission Barriers, Constraints Remain.
  Transmission development has continued to gain some traction, with 8,800 circuit miles of new transmission added in 2010, another 3,100 miles under construction, and an additional 39,000 circuit miles projected by 2020. Nonetheless, siting, planning, and cost allocation issues remain key barriers to transmission investment. In June 2010, the Federal Energy Regulatory Commission (FERC) issued a proposed transmission cost allocation rule aimed at easing planning and cost allocation barriers. States, grid operators, utilities, regional organizations, and the DOE also continue to take proactive steps to encourage transmission investment to improve access to renewable resources. Finally, construction and development progress was made in 2010 on a number of transmission projects that are designed, in part, to support wind power.

• Integrating Wind Energy into Power Systems Is Manageable, but Not Free of Costs, and System Operators Are Implementing Methods to Accommodate Increased Penetration.
  Recent studies show that wind energy integration costs are below $10/MWh - and often below $5/MWh - for wind power capacity penetrations up to about 40% of the peak load of the system in which the wind power is delivered. The increase in balancing reserves with increased wind power penetration is projected to be a maximum of 18% of the nameplate capacity of wind power, and typically considerably less than this figure, particularly in studies that use intra-hour scheduling. Moreover, a number of strategies that can help to ease the integration of increasing amounts of wind energy - including the use of larger balancing areas, the use of wind forecasts, and intra-hour scheduling - are being implemented by grid operators across the United States.