us wind market and policy outlook · 2019-06-27 · long term policy outlook • wind...

US Wind Market andPolicy Outlook

WINDPOWER 2011

Rob GramlichSr. Vice President, Public Policy

U.S. Annual and Cumulative Wind Power Capacity Growth (Utility-Scale Wind)

• The wind industry installed 5,116 MW in the U.S. in 2010

• 15% growth in 2010

• Total U.S. wind installations stand at 40,181 MW

• Average annual growth for the past five years was 35 %

• U.S. wind installations represent over 21% of global wind capacity

Source: AWEA U.S. Wind Industry Annual Market Report Year Ending 2010

U.S. Wind Power Capacity Installations, Top States

• 14 states have more than 1,000 MW installed.

Source: AWEA U.S. Wind Industry Annual Market Report Year Ending 2010

Utility Trends with Wind Power

For five years in a row, the percentage of new wind projects brought on-line by utilities has ranged from 14%-18%.

Market-Driven (non-RPS) Growth Possible

Demand Drivers

1. State RPS: 3-4 Gigawatts/year- CA and Mid-Atlantic each 1-2 GW/yr 2011-13

2. Power Demand: 2.5 GW/year if wind supplies 25% of demand growth

3. Retirements due to environmental regs: 450 MW/year if wind supplies 25% of this market

4. Other policies…

Coal Market Share,Drop Since 2003

- 6.0 percentage pts

Renewable Market Share,Increase Since 2003+ 2.0 percentage pts

Natural Gas Market Share Increase Since 2003+ 7.0 percentage pts

Source: EIA, Net Generation All sectors*All Renewables does not include hydro

Policy Motivation: Diversity of Power Sources

13

Tax Credits: PTC/ITC

• Production tax credit (PTC) of 2.2 cents/kWh for large wind or 30% investment tax credit (ITC) available through 2012,• Or direct payment in its place through 2011

• Prospects for extension:• Direct payment option not favored• PTC/ITC extension prospects as good as

ever. Need a tax vehicle to move, could be part of tax reform.• Severe budget constraints, apply more to

spending than tax credits

Federal RES/CES

• With new Congress, proponents of clean energy have broadened Renewable Electricity Standard (RES) to include low carbon sources in a Clean Energy Standard (CES).

• Republicans not clear on what they will push yet, both parties are looking for smaller bills.

• Gasoline prices, EPA regulations, and challenges with natural gas, nuclear, and coal drive interest in acting on energy.

Long term policy outlook• Wind cost-competitiveness shows great

promise, both in unregulated markets and in the estimated cost of RPS.

• Predictable policy is now a widely supported goal in Washington…but the budget “scoring” of long term tax credits remains a barrier.

• Promoting clean energy is more popular than regulating pollution

• Water will be an increasingly important policy and market driver

• Obama’s challenger likely to have a clean energy plan

Presentation

North America Wind Energy Advisory

Independent Power Producers Retool Development Strategies To Position for Industry Recovery

23 May 2011

Tim Stephure+1 617 866 [email protected]

© 2011 EMERGING ENERGY RESEARCH, LLC. All rights reserved. Reproduction of this publication in any form without prior written permission is strictly forbidden. The information contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it.

North America Wind Energy Advisory – NAW 925-11MMDD

AWEA WindPower 2011US Wind Industry Regroups in 2011

20

30

40

50

60

70

80

90

100

110

120

130

Jan.07 Jan.08 Jan.09 Jan.10 Jan.11

PP

A/ W

ho

lesa

le P

ow

er P

rice

(U

S$

/ M

Wh

)

Contract Execution Date

2010 Realized Renewable PPA PricesBy Contract Execution Date Wind PPA Prices

PPA TrendMedian US Wholesale Power Price

Sharp decline in natural gas prices and power demand have hurt US wind developers through lower offtake demand and pressure to lower prices


All three of the largest owners of US wind cut build plans for 2011

• EDP Horizon’s disclosure that it expects to add only 200 MW in 2011 would amount to the lowest annual total for the company since 2004

• NextEra has stated that meeting the bottom end of its 700 MW to 1 GW target for 2011 will be a challenge

• After adding over 1 GW in the US in 2010, Iberdrola expects additions to fall to the 600 MW to 700 MW range

Geographic diversity key to maintain development momentum

• E.ON’s strategic focus on the Texas wind market was the driving force behind an 80% decrease in build from 2009 levels

• The top three US wind owners, NextEra, Iberdrola, and EDP Horizon, accounted for over 40% of all 2010 additions leveraging their scale to shift resources to new areas of opportunity

Analysis

The need to rapidly shift development has played to the advantage of the largest IPPs in the industry

AWEA WindPower 2011Leading IPP’s Retool Positioning To Target Demand Centers

2010

2011

EDP Horizon

Iberdrola

NextEra

Key Near Term Focus Area


AWEA WindPower 2011Market Share Shifts Among Leading US Wind Developers

Utility segment looses ground in 2010, but positioned for strong 2011

• Portland General Electric was the only utility in the top 25 that made market share gains

• Oklahoma Gas & Electric and MidAmerican Energy are poised for significant market share gains in 2011 with as much as 823 MW of combined additions

Iberdrola leads US market in both 2010 additions and market share gains

• Iberdrola boosted its overall US market share to over 10% with over 1 GW of additions in 2010

Several large US wind asset portfolio’s seeking buyers sets stage for significant market share shifts

• Exelon’s purchase of John Deere’s wind business in 2010 makes it the 13th largest owner of US wind

• Top 25 owners Shell and Infigen are both reportedly seeking to sell at least a portion of their portfolios

Analysis

Continued consolidation of the US wind industry will should lead to significant market share shifts over the near term

US Top 25 Wind Owners Market Share

-5%

0%

5%

10%

15%

20%

Ch

ang

e in

Cu

mu

lati

ve M

arke

t S

har

e,

2009

vs

. 20

10 2010 Market Share

Change in Cumulative 2010 Market Share

89%

10%

1%

4,871 MW

IPP/Developers

Utility

Other

US

International

22%


While near-term demand is likely to be soft, more mature players and technology advancement will make wind more competitive over the longer term

Oversupply relative to RPS mandates weighs on near-term growth

• State RPS compliance ratcheting up in 2015 improves growth trajectory

• Low natural gas prices are expected to limit demand for wind outside of policy mandates

Federal clean or renewable energy mandate key to boosting demand

• More demanding renewablesmandates are required to boost additions in current environment of slow power demand growth and low gas prices

• Technological improvements and intense competition are rapidly reducing wind’s costs and improving the technology’s competitiveness

Analysis

AWEA WindPower 2011Policy Support Fundamental to Ignite Demand

State RPS and Federal CES vs. Wind

-

100

200

300

400

500

600

700

800

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Gen

erat

ion

(T

Wh

)

Clean Energy *

Other Renewables

Offshore Wind

Onshore Wind

Federal CES Target Scenario*

Current State RPS Targets

Federal and State CES Scenario*

Gap primarily a result of strain on California and US Southeast

to meet federal CES

Note: Clean Energy Standard scenario includes Nuclear, CCS, and Tier 1 Renewables and would come into effect in 2015


AWEA WindPower 2011IHS EER’s 2011-2025 Base US Wind Forecasts

Wind additions in 2010 fall to half of 2009 levels

• Uncertain national energy policy outlook, low natural gas prices, and a slow recovery in electricity demand all weighed on the market in 2010

• Slow recovery in wind additions until 2015 when RPS targets ramp up in many regions

Steady growth trajectory anticipated to meet 2020 mandate

• The United States is projected to account for 16% of total installed global wind capacity in 2025, and will add 112 GW of new capacity between 2011 and 2025

• A Clean Energy Standard (CES) is assumed to pass in 2013 with a 3% mandate coming into force by 2015 and reaching 15% by 2025

• The bulk of multi-state high voltage transmission initiatives to relieve congestion are expected to be completed near the end of the decade

Growth trend strengthens over long term although annual additions will struggle to reach historical highs

• Stronger renewables mandates combined with incremental cost reductions and technological advancements fuel growth over the longer term

Analysis

Bottom in additions likely reached in 2010, however natural gas prices, transmission, and political uncertainty will weigh on the industry’s growth trajectory

US Annual Wind Additions (GW)

0

2

4

6

8

10

12

2000 2005 2010 2015 2020 2025

GW

Ad

ded


IHS Emerging Energy Research

IHS Emerging Energy Research provides analyst-directed advisory services on an annual subscription basis, providing market intelligence, competitive analysis and strategy advice in response to the specific needs of our clients. These services provide value-added support of clients’ competitive and market strategies, and are intended to be interactive, offering clients direct access to IHS EER experts.

Advisory service clients receive a stream of market and company briefs, ongoing market data and forecast support, telephone inquiry privileges, and regular analyst briefings. While much of the content is syndicated, clients also receive ongoing individual support of market assessment and strategy development needs.

For more information on IHS EER’s advisory services, please contact [email protected]

© 2011 EMERGING ENERGY RESEARCH, LLC. All rights reserved. Reproduction of this publication in any form without prior written permission is strictly forbidden. The information contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it.

Americas55 Cambridge ParkwayCambridge, MA 02142, USATelephone: +1 617 866 5000Fax: +1 617 866 5900

Europe/Middle East/AfricaPaseo de Gracia 47, Planta 2Barcelona, Spain 08007Phone: +34 932 726 777Fax: +34 93 467 6754

Asia Pacific78 Shenton Way, #12-01Singapore 079120 Phone: + 65 6576 5392Fax: + 65 6225 9695

18

AWEA WINDPOWER 2011 Conference Building Projects in a PPA Constrained Market

May 23, 2011

Tracy StoddardDirector, Business Development

19

Today’s Presentation:Building Projects in a PPA Constrained Market

Are we in a PPA constrained market?

Why are we in a PPA constrained market?

How long will the current conditions last?

Building projects in the current market

20

Gamesa in the USA

GEUSA purchases Navitas Energy

2002 2003 2004 2005 2007

First Wind Farm at Mendota Hills (63xG52)

1,000 MW installed

2,000 MW installed

20112008 2009

3,000 MW installed

Sales and Development Offices established in 7

US Cities

Fairless Hills & Ebensburg manufacturing facilities

break ground

WIND TURBINE MANUFACTURING

OPERATIONSAND MAINTENANCE

WIND FARMS

3 business units dedicated to wind power

2010 Statistics

REVENUE:

GLOBAL HEADQUARTERS

GLOBAL EMPLOYEES

$3.5 B

BILBAO, SPAIN

7,200 EMPLOYEES

GLOBAL RANKING 2010

U.S. RANKING 2010

4

3

MANUFACTURING CENTERS: SPAIN/USA/CHINA/INDIA/BRAZIL IN DEVELOPMENT

GLOBAL INSTALLED BASE 21,000MW

U.S. EMPLOYEES 900 EMPLOYEES

U.S. PRODUCTION CAPACITY 1,100MW

U.S. HEADQUARTERS LANGHORNE PA

21

Are We in a PPA Constrained Market?

In 2010 the majority of projects brought online

had a utility PPA but almost ¼ were

merchant

When drawing conclusions remember the “PPA

lag”…some of the 2010 projects signed their

PPA in 2008

2010 Project Additions: Offtake

PPA, 61%Utility Owned,

15%

Merchant, 24%

Source: 2010 AWEA U.S. Wind Industry Annual Market Report

22

Are We in a PPA Constrained Market? (cont’d)

Competition for traditional utility PPAs is intense

Minnesota Wind RFP 2010

• 250 MW solicitation

• 143 bids

• 9,000+ MW of separate and distinct proposals

2010 Bid Responses

2008 Bid Responses

Southern California EdisonWind RFP

20

400+

2010 Bid Responses

2008 Bid Responses

Southern California EdisonWind RFP

20

400+

23

Why Are We in a PPA Constrained Market?

Myth: Utility ownership of

projects is a large part of the “PPA

shortage problem”

Fact: Utility ownership has

averaged 15% of project additions for

the past 5 years

U.S. Installed Wind Capacity - Offtake

0%

10%

20%

30%

40%

50%

60%

70%

2007 2008 2009 2010

Merchant Utility-owned PPA

24

Why Are We in a PPA Constrained Market? (cont’d)

Flat demand, low gas & power prices

Source: FERC Summer 2010 Energy Market Assessment

Correlation: Gas to Power

Robust Natural Gas Supply

Demand for Electricity is Down

25

Why Are We in a PPA Constrained Market? (cont’d)

RPS targets are nearly reached in some states,

relative price of wind has suffered with low gas price

Source: U.S. Dept. of Energy EERE Wind and Water Program

26

How Long Will the PPA Constrained Market Last?

Power prices recovered slightly in

2010 but are still nearly 40% below

2008 levels

27

How Long Will the PPA Constrained Market Last? (cont’d)

Regardless of which ‘expert’ you believe, the price

forecasts for natural gas and power recover but the

recovery is slow

28

Building Projects in the Current Environment

Business models need to be flexible in today’s climate

Get a PPA

Find a Commercial Solution

The good old days

Today

29

Building Projects in the Current Environment (cont’d)

Traditional Wind Development Business Model: Wind & Land Driven

Out of Touch with Market Realities

Proprietary & Confidential

WindStudy

$

LeaseLand$$

MetTower

$$$

Permits$$$$

T&D Access$$$$$

Engineer$$$$$

Construct$$$$$

Sellor

Operate

30


Proprietary & Confidential

Market Focused Business Model:Who are the Customers and What do They Want?

Build existing pipelineCommercial

Solution

• Land • Transmission• Engineering• Construction

Develop Project

Buy projects

Partner on projects

or

Operate Asset Manage

Define Customer

Opportunity

Sell

Sell

• Financial• Physical

Build existing pipelineCommercial

SolutionCommercial

Solution

• Land • Transmission• Engineering• Construction

Develop ProjectDevelop Project

Buy projects

Partner on projects

or or

Operate Asset Manage

Define Customer

Opportunity

SellSell

SellSell

• Financial• Physical

31


Flexibility regarding project timing

•Requires patience and patience is enabled by capital

•Develop projects on planned schedule

• Put projects into inventory, slow down development

• Build project and operate merchant until more favorable market conditions…asset management is vital

MarketOperator

(ISO)

Utility

Gamesa

Finance Co.

Municipal

OWNER

OWNER

OWNER

OWNER

Field Operations Market Operations

Field Operations & Market Operations Software

Field Services Personnel & 24X7 Market Operations Center Personnel

NERC, FERC & ISO Compliant Operating Policies & Procedures

End to End Business Processes & Asset Management Services Reporting

FERC & NERC Regulatory & Compliance Oversight

Power Sales & Scheduling Settle & Reconcile Account Management & Reporting

----- Requirements Components -----

32


Flexibility regarding commercial offtake

Traditional solution of a long-term fixed-price utility PPA

may not provide enough options anymore

Pre-Pay PPA

PPA with Project Sale

Utility PPA

Pure Merchant

Blended Merchant

Synthetic PPA

33


Flexibility regarding financial partner of

purchaser for projects that are sold

Sale to a large IPP is still a viable alternative but not the

only potential solution

Investor Owned Utility

Municipal Owned Utility

Financial Investor

Large IPP

34


Commercial Solutions:Matching Market Players with a Toolkit of Options

Financial Institutions

Pension Funds

Infrastructure Funds

Insurance Companies

Private Equity

Utilities

Municipals

Communities

Power Marketers

Large Industrials

Independent Generators

“Tool-kit” MenuCo-Development InitiativesJoint VenturesDevelopment ServicesTurn-key ProjectsTransmission RightsConstruction GuaranteesInvestment Capital Construction FinancingAsset Management ServicesExtended WarrantiesO&M Services/OutsourcingEquipment LeasingGovernment backed financingTargeted Investment FundsMunicipal tax-exempt financingRenewable Energy CreditsForward sale of energySale of environmental attributesPre-paid EnergyAsset / Project FinancingTax Equity CapacityMonetization of Tax CapacityWind Derivatives/InsuranceGovernment GrantsPower Swaps/ExchangesPower Purchase Commitments

“Tool-kit” MenuCo-Development InitiativesJoint VenturesDevelopment ServicesTurn-key ProjectsTransmission RightsConstruction GuaranteesInvestment Capital Construction FinancingAsset Management ServicesExtended WarrantiesO&M Services/OutsourcingEquipment LeasingGovernment backed financingTargeted Investment FundsMunicipal tax-exempt financingRenewable Energy CreditsForward sale of energySale of environmental attributesPre-paid EnergyAsset / Project FinancingTax Equity CapacityMonetization of Tax CapacityWind Derivatives/InsuranceGovernment GrantsPower Swaps/ExchangesPower Purchase Commitments

35


Organizational flexibility to match:

offtake scenarios ownership options project attributes market attributes

Flexibility: Commercial

Solution

Financial Financial Financial Financial IOUProject 4

50MWPJM

MOU

MOU

MOU

MunicipalPre Pay

IOU MOU

IOU

IOU

IOU

PPA

Financial Large IPP

Financial Large IPP

Financial Large IPP

Financial Large IPP

PPA and Proj. Sale

Financial

Financial

Financial

Financial

Blended Merchant

MOU

Financial

Financial IOU

Financial

PureMerchant

Financial

Financial

Financial

SyntheticPPA

Project 1200MW

PJM

Project 5200MWWECC

Project 2100MWMISO

Project 3100MWERCOT

Financial Financial Financial Financial IOUProject 4

50MWPJM

MOU

MOU

MOU

MunicipalPre Pay

IOU MOU

IOU

IOU

IOU

PPA

Financial Large IPP

Financial Large IPP

Financial Large IPP

Financial Large IPP

PPA and Proj. Sale

Financial

Financial

Financial

Financial

Blended Merchant

MOU

Financial

Financial IOU

Financial

PureMerchant

Financial

Financial

Financial

SyntheticPPA

Project 1200MW

PJM

Project 5200MWWECC

Project 2100MWMISO

Project 3100MWERCOT

Tracy StoddardDirector, Business DevelopmentGamesa Energy USA, LLC1801 Market Street, 27th FloorPhiladelphia, PA [email protected]

© 2011 Akin Gump Strauss Hauer & Feld LLP

New Trends in Power Purchase AgreementsThe Use of the Hedging PPAby Purchasing Utilities

Presented by:Edward ZaelkePartner, Co-Chair of the Global Project Finance and Renewable Energy PracticeAkin Gump Strauss Hauer & Feld LLP

WINDPOWER 2011Anaheim, CaliforniaMay 22-25, 2011

The Number One Rule in Wind Energy Finance

In order to obtain financing for a wind project from a third party the sponsor must have an acceptable and certain stream of income with a creditworthy source for the sale of energy (and green attributes) from the project.

38

The Last 18 months

Low power demand

Virtually no merchant market

Drop in power prices

Very few new wind energy PPAs

This has resulted in an increasing number of offtakers offereing a derivative product in lieu of a power purchase agreement (a so-called “Hedge PPA”)

Prediction: This trend will continue as long as natural gas prices stay low and the RPS levels are not increased

39

The Traditional “Bundled” PPA

40

Energy andGreen Attributes

Utility Offtaker

WindProject Owner

Cash

The “Unbundled” PPA

41

Energy

Utility Offtaker

WindProject Owner

Cash

GreenAttributePurchaser

The “Merchant” Transaction

42

Liquid Market

forEnergy

WindProject Owner

GreenAttributePurchaser

Hedge Provider

The Utility “Hedge” PPA

43

Excess Energy Paymentsfrom Liquid Market

Hedge Payments to Levelize Price

HedgeProduct

WindProject Owner

Fee

GreenAttributes

UtilityOfftaker“PPA”

Liquid Market

Why Not Just Buy the Energy?

Shifting of Risks

• Change in Market Design

• Congestion Charges

• Delivery Locations

• Ancillary Services

• Economic Curtailment

• Subsequent Transmission Upgrade Costs

• The Great Unknown

• Payment Obligations and the Timing of Payment

• Change in Law

• Administrative Burden

44

What does this mean for wind energy project financing

Without a ceiling or a “cap” on the possible costs of additional risks, financing may not be available for Hedge PPAs

More elaborate studies to attempt to measure the risk may be required for financing

The cost of financing will likely reflect the additional risks

45

Other Issues

State Regulatory Compliance

Regulation of Derivative Products

46

The Future

There will be an increasing number of offtakers moving toward using a Hedge PPA, even though financing based upon a Hedge PPA is likely to be more costly and difficult, if available at all. Once the additional financing costs are determined, we will see a mix of direct purchase PPAs and Hedge PPAs depending upon the pricing differences and the risk appetite of the particular offtakers.

47

Contact Information

Edward ZaelkePartnerAkin Gump Strauss Hauer & Feld LLP2029 Century Park East, 24th FloorLos Angeles, California 90067(310) [email protected]

48

Questions?

49

Questions?

50

Questions?

51

Questions?

52

us wind market and policy outlook · 2019-06-27 · long term policy outlook • wind...

Documents