February 3, 2020 - The US is likely to build 15.2 GW of wind generation in 2020, a Wood Mackenzie consultant maintains, led by growth in the Midwest, West and in Texas, which industry observers said Friday would likely result in lower prices in heavy wind areas but increased price volatility.

The federal $23/MWh production tax credit is a major factor in 2020's boom in construction, said Dan Shreve, Wood Mackenzie's head of global wind energy research, during a webinar Thursday entitled, "A New Chapter for the North American Wind Market."

According to a May US Energy Information Administration report, "US wind project developers who want to receive the full 2016 value of the PTC must begin operations by the end of 2020."

At the end of 2019, the US had 105,583 MW of wind generation capacity installed -- 9,143 MW added in 2019, the American Wind Energy Association reported Wednesday.

If Wood Mackenzie's 15.2 GW of wind is installed in 2020, it will set a new record, topping 2012's 13.3 GW, Shreve said, but adding that "we expect some projects to roll over into 2021."

Travis Whalen, a power market analyst at S&P Global Platts Analytics, said Friday his group forecasts 12.7 GW of wind generation to come online in 2020, "but there's some upside to this as ... we only include a project if it's begun construction," adding that "some projects will successfully start construction in the year they come online."

From 2020 to 2028, Wood Mackenzie projects the nation's wind fleet to add 76.5 GW of capacity, including 19.1 GW of offshore wind. Platts Analytics' Whalen said his organization's forecast is for 46 GW, but added that "this number is likely to move upward" in its next forecast.

'Arms Race'

"At least part of this [gap] appears to be differing assumptions around the timeline of offshore wind, which we have coming online a bit more slowly through the 2020s," Whalen said.

But Joshua Rhodes, a University of Texas Energy Institute research associate, said Friday, "I think that the US wind sector is going to pivot more offshore as offshore wind mandates start to kick in."

Shreve said his organization expects "offshore to take off in the 2022-23 time frame," because "an arms race" is developing among Atlantic Coast states over which state will benefit most in economic development from such capital- and labor-intensive infrastructure projects.

However, Matthew Cordaro, a former Midcontinent Independent System Operator CEO who now resides in New York, questioned the likelihood of significant offshore wind capacity growth over the next few years as "the challenges ... are staggering."

"There are sizable cost, engineering and even regulatory hurdles," Cordaro said Friday. "And while it may appear that offshore wind will have much less 'not in my backyard' opposition compared with on-land projects, fisherman and many others are concerned about the proposed projects."

One factor favoring wind generation growth is continued retirement of coal-fired generation, Shreve said. The written presentation shows 75.6 GW likely to be retired from 2020 to 2028.

Wood Mackenzie expects wholesale power prices to rise, overall, by an average of about 46% from 2019 to 2040, but much of that increase is tied to the consultancy's expectation for carbon pricing or a carbon tax to be implemented around 2028.

Pricing Effects

Within each independent system operator's footprint, hubs with a heavy wind generation component are expected to be traded at a discount to that ISO's overall average, according to Shreve's written presentation.

For example, the Electric Reliability Council of Texas West Hub price had a discount of about 7% to the overall average in 2019, which will likely grow to about 11% by 2040, the presentation states. The difference in Southwest Power Pool is forecast to grow more dramatically, with the price in the SPP Kansas West region having just a 6% discount to SPP overall in 2019, surging to 19% by 2040.

UT's Rhodes said, "More wind will put continued pressure on wholesale market prices, but markets will likely respond over time with higher capacity or scarcity prices, depending on market structure."

Platts Analytics' Whalen said Friday that "certainly there will be some added volatility in each region," but that should be "limited" in SPP and MISO "by the quite substantial reserve margins in both regions."

"In ERCOT, any bit of added volatility runs the risk of large price spikes, but it's important to remember that ERCOT is not counting on wind to offer much during peak hours in the summer," Whalen said. "In most instances, ERCOT's main source of volatility will be unplanned outages, followed by wind, and then a growing risk from solar volatility."

Prices can also be affected by the growth of solar generation, which can decrease on-peak prices, Shreve said. Much of the 3.1 GW of wind expected by ERCOT to start up in 2020 is in the same West Texas region as the bulk of ERCOT's wind generation fleet.

"Wholesale power pricing in ERCOT will be depressed by the amount of solar generation being added," Shreve said. "There's significant congestion issues ... with overdevelopment in the Texas Panhandle."