U.S. wind power market riding a wave which is likely to crest in 2012

over time, though the increase has been mitigated in recent year by significant curtailment of wind energy output in some regions, along with a trend towards wind developers building out lower wind speed sites.

• Falling wind turbine prices have begun to push installed project costs lower. Wind turbine prices have fallen 20 to 30 percent from their highs back in 2008, but this decline has been slow to show up in installed project cost data, which only began to turn the corner (on average) in 2011.  Data from a preliminary sample of wind power projects being built in 2012 suggest further reductions in installed project costs.

• Lower wind turbine prices and installed project costs, along with improved capacity factors, are enabling aggressive wind power pricing. Grouping projects according to the year in which they signed a power purchase agreement (PPA) makes it clear that wind power pricing peaked among those projects that executed contracts in 2009 and has fallen substantially since. Among a sample of wind power projects with contracts signed in 2011, the capacity-weighted average levelized price is $35/MWh, down from $59/MWh for projects with contracts signed in 2010, and $72/MWh for projects with contracts signed back in 2009.

“Wind PPA prices — particularly in the central U.S.— are now approaching previous lows set back in 2003,” notes Berkeley Lab Research Scientist and report co-author Mark Bolinger. “But even with today’s much lower wind energy prices, wind power still struggles to compete with depressed natural gas and wholesale power prices in many parts of the country.”

• Looking ahead, projections are for continued strong growth in 2012, followed by dramatically lower but uncertain additions in 2013. With key federal incentives for wind energy (including bonus depreciation and a choice of the production tax credit, investment tax credit, or Section 1603 Treasury cash grant) currently slated to expire at the end of 2012, new capacity additions in 2012 are anticipated to substantially exceed 2011 levels — and perhaps even the record high set in 2009 — as developers rush to commission projects.

At the same time, the possible expiration of these incentives at the end of 2012, in concert with continued low natural gas prices, modest electricity demand growth, and existing state policies that are not sufficient to support continued capacity additions at the levels witnessed in recent years, threatens to dramatically slow new builds in 2013 and beyond, despite recent improvements in the cost and performance of wind power technology.

— Read more in 2011 Wind Technologies Market Report (Berkeley Lab, August 2012); the Department of Energy’s press release on this study is available here; view an interactive map of U.S. wind manufacturing facilities here