Wind Power Growth In U.S.

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This presentation analyzes the factors contributing to the rapid growth of wind power in the United States between 1997 and 2007.

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Wind Power Growth In U.S.

  1. 1. Wind Power Growth in U.S. 1997 - 2007 Robert Safuto, Andrew Royne and Jong Kyu Chung December 2008
  2. 2. What economic factors have driven development of wind power? Between 1997 and 2007, wind generation capacity has grown at a faster rate than any other type of electric power generation Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  3. 3. Agenda 1 Wind and Electric Power 2 Economic Factors 3 Observations and Conclusions 4 Limitations and Data Sources Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  4. 4. Wind and Electric Power Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  5. 5. Supply and Demand Who demands wind power ? • End use consumers demand electricity but cannot choose the generation technology used to send power to their home or business. • Utilities demand wind power in order to satisfy a variety of desires including economic benefit and regulatory compliance. • Governments also demand wind power in order to satisfy the requirements of legislation at the state and federal level. Who supplies wind power? • Utilities responsible for delivering power to customers. • Independent generators seeking to gain economic benefits. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  6. 6. Substitution Wind power may be used by utilities and independent producers as a substitute for other forms of electric generation, such as natural gas, nuclear, coal and other renewable sources of generation. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  7. 7. Wind vs. Fossil Fuels Wind Power Fossil Fuels • Zero fuel costs • Volatile fuel costs • Zero emissions • Substantial emissions • Moderately reliable • Extremely reliable • Location sensitive • Location flexible Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  8. 8. U.S. Compared To World Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  9. 9. Economic Factors Regulatory Legislation Subsidies Prices Environment Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  10. 10. Legislation Renewable Portfolio Standard (RPS) State level policy that requires a certain amount of electricity production by utility companies from renewable energy sources. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  11. 11. Subsidies The Energy Policy Act of 1992 included a provision that allowed for a 1.5 cents per kilowatt hour production tax credit (PTC) indexed to 1993 dollars. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  12. 12. Fuel Prices Fuel prices rose sharply over the ten year period ending in 2007. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  13. 13. Electricity Prices Retail electricity prices have risen steadily along with fuel prices, but they have risen at a slower rate than fuel prices. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  14. 14. Regulatory Environment Action by the Federal Energy Regulatory Commission (FERC) in 1996 opened the door to allow outside investors to site power projects in formerly closed markets around the U.S. 1996 - New England 1998 - California 2000 - Texas 2002 - Midwest 1999 - New York 1997 - Pennsylvania-Jersey-Maryland (PJM) Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  15. 15. Regulatory Environment Wind supply in competitive vs. non-competitive markets. Capacity added since 1997. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  16. 16. Wind Capacity By State Six of the top ten wind producing states (Texas, California, Iowa, Minnesota, Oklahoma and New York) belong to competitive wholesale electricity markets. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  17. 17. Observations and Conclusions Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  18. 18. The Effect of Fuel Prices Fossil fuel prices have risen faster than retail electric rates, making generation with zero fuel costs a more attractive option for project developers. The PTC subsidy provides added incentive by enhancing these returns. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  19. 19. The Effect of Electric Rates Wind development has been most robust in the areas where electric rate increases have been the steepest. Regional U.S. Retail Electric Rates 60% Includes Texas 50% Includes California 40% 30% % Change 20% 10% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -10% New England Middle Atlantic East North Central West North Central South Atlantic East South Central West South Central Mountain Pacific U.S.Average Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  20. 20. The Effect of RPS Wind capacity development tracks upward at the same time that RPS adoption accelerates. RPS legislation has created a certain level of demand for renewable resources at the state level. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  21. 21. Markets, RPS and Wind Resources The states with the most abundant wind resources (Nebraska, Kansas, South Dakota and North Dakota) are not among the leaders in wind power capacity. Wind Resource Map RPS Map These states have not passed an RPS and they do not belong to competitive electric markets. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  22. 22. Conclusions Investors and politicians are most responsible for the rapid development of wind power in the U.S. • Politicians, likely concerned with rising fuel prices and electric rates, have created demand (via RPS), opened access to markets and provided generous financial incentives (via the PTC) for wind power. • Energy investors have seized the opportunity to realize above market returns on investment for wind power projects by building wind farms which also help utilities to meet the demands of state RPS programs. 900% 40% 800% 700% 30% Electric Rate Growth Wind / RPS Growth 600% 500% 20% 400% 300% 10% 200% 100% 0% 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Wind RPS Electricity Rates Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  23. 23. Limitations • Electric markets are regional so economics will vary based on electric rates, state level incentives and availability of wind resources. • Wholesale electric market prices and long-term contracts may effect returns on wind projects. • Improved technology likely to have an impact on increases in wind capacity. • Availability of capital will impact all types of electric power projects. • Renewable energy credit markets provide additional economic incentives to wind developers. • Public opinions with respect to environmental issues may influence investment decisions by utilities. Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.
  24. 24. Data Sources Electric Generation: http://www.eia.doe.gov/cneaf/electricity/epa/epat3p2.html Electric Prices: http://www.eia.doe.gov/cneaf/electricity/epm/table5_6_b.html, http://www.eia.doe.gov/cneaf/electricity/epa/epat7p4.html Fuel Prices: Natural Gas - http://tonto.eia.doe.gov/dnav/pet/hist/n9190us3m.htm, Oil - http://tonto.eia.doe.gov/dnav/pet/hist/wtotusaw.htm , Coal - http://www.eia.doe.gov/emeu/aer/txt/ptb0708.html Commodity Costs: http://www.eia.doe.gov/oiaf/aeo/otheranalysis/aeo_2008analysispapers/epc.html Generation Capacity: http://www.eia.doe.gov/cneaf/electricity/epa/existing_capacity_state.xls, http://www.eia.doe.gov/emeu/aer/pdf/pages/sec8_42.pdf Regulatory: http://ferc.gov/market-oversight/mkt-electric/overview.asp Renewable Portfolio Standards: http://www.pewclimate.org/what_s_being_done/in_the_states/rps.cfm, http://apps1.eere.energy.gov/states/maps/renewable_portfolio_states.cfm Subsidies: http://www.irs.gov/pub/irs-pdf/f8838.pdf Wind and RPS Maps: http://www.windpoweringamerica.gov/wind_maps.asp, http://www.dsireusa.org/documents/SummaryMap s/RPS_Map.ppt World Wind Capacity: http://www.ewea.org/fileadmin/ewea_documents/documents/Statistics/gwec/stats2007.pdf Copyright 2008, Robert Safuto, Andrew Royne and Jong Kyu Chu. All rights reserved.

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