Price trumps policy

Research and development into harnessing the wind to generate power goes back more than 100 years, and it is nearly 40 years since the first commercial wind farm went into operation at Crotched Mountain in New Hampshire. The industry is, therefore, not new by any means, but its role in the world’s power matrix continues to shift year on year.

After spectacular growth – driven by policy, regulation, environmental targets and new technology – 2017 was a year in which the role of wind energy in a sustainable energy system of the future became much clearer.

That is the picture painted by the latest report from the Global Wind Energy Council (GWEC), published in April, which highlights the many complex characteristics of an industry that is maturing. Wind power is becoming an increasingly familiar part of the world’s energy matrix and it is competing with fossil fuels not only on the basis of sustainability, but also on the basis of price.

Familiar challenges still remain – principally the unpredictability of generation from renewable energy sources such as wind and solar – but the maturation of the industry is evident in the change in the way markets are being managed around the world. Many are switching to an auction system as the support model for the industry.

At the end of 2017, for instance, Germany switched to auctions for onshore wind power installations, replacing the previous systems of predetermined and guaranteed remuneration rates. This follows similar moves for solar and offshore wind power, and remuneration rates are determined on the basis of the lowest accepted bids.

Period of consolidation

Price is the key factor in pushing the industry forward and even in markets such as Canada, where the amount of newly installed capacity was down in 2017, falling prices tell the real story. In December’s auction in Alberta, for instance, prices came in below $0.03/kWh. Around the world, offshore wind is also hitting its stride with the first ‘zero-bid’ offers for offshore development rights for more than 1GW of capacity in Germany and, subsequently, the launch of a subsidy-free tender for 700MW in the Netherlands.

“Cratering prices means that there is not only fierce competition between OEMs, but also consolidation,” says Steve Sawyer, secretary general of GWEC. “Wind energy had a record year in 2017, though the majority of that growth was in the first quarter, and there is a switch of policy to introduce auctions, as we are seeing in European countries like the UK and Germany, and also in places like India. The price of wind energy coming down, along with the price of solar power, is the key. Now, wind and solar are dramatically cheaper than anything else, so people are starting to redesign their energy systems to reflect the fact that wind and solar will eventually dominate.

“What we are seeing now – and it is long overdue – is the planning of power systems with different optimisation parameters, which reflect not only price, but also CO2 emissions and particulates. These power systems are growing in size and flexibility, driven by the increasing electrification of everything – from heating systems to cars.

“There are electric alternatives to burning calcium carbonate to make cement; there are battery operated shorthaul aeroplanes and electric barges now. So, energy systems planning will be increasingly reliant on electricity, which will require wind, solar, geothermal and hydroelectricity to optimise the system. We are already seeing the start of that in places like Denmark and Sweden,” he adds.

The price of change

Some countries – notably Norway, Uruguay and Costa Rica – have energy systems that rely on renewable sources for almost all of their electricity generation, drawing heavily on hydropower backed up by wind and solar. This scenario may still be beyond the reach of many countries, but progress around the world continues apace, though the rate of installation for wind generation may not always grow at a steady rate.

China, which has been a major driver of growth for the past decade and is now the global leader with twice as much installed capacity as the US, is showing stable growth of around 20GW a year. Nine countries now have more than 10,000MW of capacity – including the US, Germany, India, Spain and the UK – but China will pass the 200,000MW threshold in 2018. India saw record growth in 2017, with 4,148MW of new capacity making it the second-largest market in Asia.

Europe as a whole also set new records in 2017, with new peaks reached for offshore wind capacity and new highs for Germany, the UK, France, Belgium, Ireland and Croatia. There may, however, be some decline in growth rates in markets such as Germany with the introduction of auctions and energy quotas. GWEC’s outlook for 2018 is for flat growth, with faster growth returning in 2019 and 2020 as the result of a rush to install new capacity before the 2020 deadlines for sustainability and renewable energy policies across the world.

Nevertheless, many unpredictable factors remain, notably the potential impact of economies such as Russia and Saudi Arabia, both of which have great potential, as well as Vietnam and other parts of South East Asia. It is also possible that growth in the world’s second-largest wind power market, the US, could slow as a result of policy changes.

In the most recent US federal tax reforms, there were attempts to alter the structure of the Production Tax Credit (PTC) and Investment Tax Credit phase down, which have hitherto provided a stable environment in which the wind industry could flourish, though US policy is far from predictable at the moment.

“There was an effort to kill off the bipartisan argument on solar and renewables but it failed – much to the relief of investors,” remarks Sawyer. “The situation in the US is as uncertain as it is in the UK, and for similar reasons. We are seeing ideological polarisation. However, the same is true in Australia, where solar and wind energy are booming.”

Prices for wind power in the US, which have fallen by 67% since 2009, could be the driver that maintains the industry’s momentum, though political factors in the Americas and elsewhere could hold significant sway in the year ahead.

“In the US, the mid-term elections could be a big factor in determining policy,” Sawyer notes. “The result of the Mexican election in July could also be important, as the leading candidate is not a fan of energy reform, so there is a question of whether current reforms might be undone. Or is it just rhetoric? After all, the industry does attract a lot of foreign investment and lowers power prices. The elections in India could also have an impact, and there is a real push to get things in motion before those elections take place, though the country is, on the whole, doing well in adjusting to new economic realities.

“Regulations need to keep up with new technology and with policy. In places like China, change can be made quickly because there is less need for consultation, but the same is not true in Europe and the rest of the Western world. Putting in place systems such as the one in Denmark would help because there the energy authority is entirely independent and, although it responds to government policy, it has a plan for technology development. That model works very well. There is a need for energy strategy to be insulated from the policy swings that come with the electoral cycle.”

Solar, wind and storage

Political ideology policy change will not be the only factors that will shape the future of the industry, as renewable energy remains a focus for innovation and exploration. The sophistication of the technology used in wind power generation will continue to evolve alongside other renewable energy systems, and a key factor will be that they are used together.

Wind is part of a much broader renewable energy matrix and should be considered alongside solar power and storage systems rather than being seen as an alternative when planning decisions are made. Hybrid systems – incorporating wind, solar and storage capacity – are already becoming a reality. In Australia, the 60MW Kennedy Energy Park phase I is the world’s first utility-scale, on-grid wind, solar and battery energy storage project. India’s first hybrid project was launched in April by Hero Future Energies in Kavithal. Such projects could deliver power 24/7 for most of the year. Utilities are also working towards using battery storage instead of ‘peaker’ plants.

“This is a no-brainer but at the moment you can only bid on wind or solar, not both together,” remarks Sawyer. “The regulations are changing in India and there are some hybrid plants in the US, too, but it should really start happening in Brazil as well as parts of China, Australia and more places in the US where the land is not being used for anything else, and would suit solar and wind farms. In Brazil, you have to consider the changing hydrology of the Amazon region, which could turn to a savannah by the end of the century due to climate change.

“Another interesting development is local micro-grids, which are very small but could get much bigger. These are made up of household and industrial generation and are primarily, but not exclusively, solar. Their impact may be small but imagine if London could knock 10% off the amount of electricity it needs to import. That would be highly beneficial. Predictability would still be a problem but utilities are learning how to manage that. The use of digital technology and artificial intelligence to manage power networks that need quick reaction times would help, and we will see more of that in the future.”

The wind industry needs to continue navigating the limitations of legislation while pushing the boundaries of technology, but this has always been the case. How those boundaries will shift is still unclear for the year ahead but the key will be to bring solar, wind and storage together to back up the price story with reliability and predictability to make an even stronger case for renewables than ever before.