Wind energy will play an increasingly vital role in the nation's power mix as a result of the extension of key renewable power tax credits, and its coming growth is unlikely to be significantly slowed by the judicial stay placed on the EPA's Clean Power Plan, analysts told Utility Dive.

Wind industry numbers were up impressively in 2015, according to the Fourth Quarter 2015 Market Report from the American Wind Energy Association (AWEA). Last year saw 8,598 MW in installed capacity, making last year the industry’s third best year ever. The fourth quarter’s 5,001 MWs represented wind’s second biggest quarterly performance.​

The industry now has a cumulative installed capacity of nearly 74.5 GW, and has reduced wind’s installed cost 66% since 2008, AWEA reported.

U.S. wind builders also closed the year with a strong pipeline. There were over 9,400 MW in construction across 72 projects, including over 1,800-plus MW of construction started in Q4. There were also 4,900 MW in advanced stages of development, including 1,500-plus MW of advanced development added in the last quarter.

The tax credit extensions and Supreme Court stay

In December, Congress approved multi-year extensions and phase-downs of both the $0.023/kWh PTC, which had expired at the end of 2014, and solar’s 30% investment tax credit (ITC), which was scheduled to drop to 10% at the end of 2016.

Both incentive programs will now run through 2021, boosted by new "commence construction" provisions that allow projects to qualify for tax credits the year that they get at least 5% construction underway. As the tax credits wind down in the later part of the decade, the provisions will allow partially-completed projects to capture higher incentive rates.

“After years of inconsistent and retroactive policy support from Congress, the wind and solar industries can operate with a level of policy certainty last seen in the 1990s,” noted a recently-published report from Rhodium, “Renewable Tax Extenders: The Bridge to the Clean Power Plan.”

The double punch of the extensions and the Environmental Protection Agency’s Clean Power Plan (CPP) "now has the industry positioned for growth well into the next decade with annual capacity additions topping out at an unprecedented 30 GWs in 2021,” the Rhodium analysis concluded.

“The vast majority of those capacity additions will be wind,” Rhodium Director John Larsen told Utility Dive.

The Supreme Court's decision to stay the implementation of the Clean Power Plan will also play a role in how wind energy expands, Larsen said, delaying both cuts in carbon emissions and the long-term wind buildout. But, he added, those effects are likely to be rather small compared to overall capacity additions.

"Any delay would put some modest downward pressure on our numbers, but it would not radically change the outcome," Larsen said. "What we are seeing is the overlap of the payout of the PTC over ten years and a carbon price kicking in in 2022 and that overlap is going to be smaller if there is a delay."

The one thing the stay certainly does is increase uncertainty about investments in generation, Larsen said.

"As it was, there would not be certainty until the states file their plans in 2018," he said. "Now we wait until 2017 for a legal ruling and it will take two years after that before there is certainty on which to base decisions about any kind of power plant."

Even with the delay, the expansion in wind energy is likely to be significant. Before the judicial stay, BNEF concluded U.S. wind will build an estimated 44 GW from 2016 to 2021, significantly more than the 25 GW it estimated would have been built without the PTC extension.

Its numbers are more conservative than those from AWEA because they do not factor in expected impacts of the Clean Power Plan, but that also suggests that wind will continue to grow despite the stay.

Adding significant future growth from solar, BNEF puts total potential wind and solar capacity additions at 37 GW from 2016 to 2021, representing a 56% increase for those industries and $73 billion in new investment.

The PTC as a bridge to the CPP

“Our analysis is the first one we’re aware of the captures the combined impact of both the tax extenders and the CPP,” Larsen said.

BNEF projects the cumulative 2016 to 2021 utility-scale wind and solar additions, with the tax extenders, to be 72.4 GW. The Rhodium analysis, also completed before the stay, estimates 116 GW cumulative utility scale wind and solar capacity addition due to the tax extenders and the CPP.

“Our model sees the CPP requirements on the horizon," Larsen said.

If the Supreme Court decision only delays CPP implementation, it will shift the horizon back a year or two, but won't significantly change the capacity outlook, he said.

Either way, Rhodium expects wind and solar to make up the vast majority of capacity additions in coming years, as utilities take advantage of the incentives to meet mandates under the Clean Power Plan and state programs.

The 2016 to 2021 expansion that culminates in a 30 GW build will still likely “enable the power sector to meet CPP compliance solely through this near- and mid-term renewables build,” Larsen said. Even with the EIA’s conservative natural gas and renewables cost assumptions, “renewables run the table for CPP compliance.”

The economic appeal of the PTC will drive developers, especially in the next two years, Larsen expects. As utilities begin thinking about CPP compliance, he said, they will likely decide any unknown carbon price on the horizon is less of an incentive than the certain bargain of PTC-supported wind.

“If the developer builds before the end of 2018, that gets the $0.023/kWh, and that makes wind so competitive there is no point waiting to see what the price of natural gas and the price on carbon will be in the early 2020s,” Larsen said.

Even the certainty of a 40% PTC is likely more attractive than no incentive, but growth tapers as the credit steps down, Larsen said. “Annual capacity additions drop by more than 50% from 2021 to 2022 and then additions flat line at about 4 GW to 5 GW.”

At that point in the early 2020s, Rhodium expects compliance with the Clean Power Plan should take over as a main incentive for reneables growth. But by that time, the need for renweables under the plan may already have been met, Larsen calculates.

“The CPP requires only so much emissions reduction," he said. "When utilities and power producers get that, the remainder comes from ramping down coal. No new renewables will be needed through 2030.”

Demand for renewables will drop unless they become so cheap that incentives and policy drivers no long matter, Larsen said.

If the Clean Power Plan is struck down, there would be more downward pressure on the renewables numbers, especially further down the road, he said.

"The 2020-2021 build forecast is a direct result of the carbon price kicking in in 2021 and 2022 so if there is no carbon price at all in the future because there is no CPP, some of the build would happen earlier and a good chunk of the late year build in our forecast not materialize."

Potential headwinds

There are four potential headwind factors in the Rhodium analysis, Larsen said.

First, if natural gas prices stay as low as they have been recently, deployment of wind could slow. Second, states that produce natural gas could choose to turn away from renewables for CPP compliance.

Third, EIA assumptions about renewables prices could be low, and higher prices would make even tax credit-supported renewables less appealing.

Finally, Rhodium assumed "whatever transmission is needed gets built,” Larsen said. “That is a key component. Inadequate transmission would be another headwind.”

Another concern, Hostert said, is that the IRS guidelines for the commence construction provisions could be different. “A lot of projects that might have waited for the CPP have moved forward to make use of the 100% PTC, he explained. “If the IRS redefines the guidelines, it would alter the timeline of the forecast.”

The thing AWEA will watch with concern is transmission, Senior Research Analyst Hannah Hunt told Utility Dive, but on the upside there is no concern about meeting manufacturing and supply chain needs despite the big growth forecasts.

“When the PTC extension was finalized, we saw positive reactions across the industry and we see nothing but optimism from companies about their ability to meet demand,” she said.

More than anything, Hunt said, the PTC removed some uncertainty from an industry that's been plagued by it for years.

"[I]t will bring stability back to the wind sector and long term planning stability opens the opportunity to remove subsidy support,” Hostert said. “With the increased build, wind will become more cost competitive in many regions the way it is in Texas now. That bridges the demand gap from the old PTC to the post-2020 CPP.”

Non-utility customers take the lead

As the wind industry gears up to meet rising demand, one of the most important factors driving growth is emerging demand from non-utility customers.

"This extension is what is necessary to keep the momentum going and will allow companies like Google and Apple to lean on the sector to advance the technology and meet their demand,” said BNEF Wind Analyst David Hostert.

The trend toward non-utility off-takers that Hostert referenced was highlighted in the AWEA fourth quarter report. Over 1,800 MWs of power purchase agreements for wind were completed in Q4, and 75% of those contracts went to non-utility customers, including major names like Procter & Gamble, General Motors, and Google Energy. For the entire year, non-utility buyers comprised 52% of the wind PPA customers.

The increasing economic appeal of wind to the private sector, which the PTC extension is expected to accentuate, was also demonstrated by the 3,733 MW in project acquisitions during 2015. SunEdison led in these acquisitions with 1,273 MW, followed by ArcLight Capital subsidiary Leeward Renewable Energy with 1,083 MW.

“This is not just a feel good story,” said John Powers, vice president of strategic renewables of Renewable Choice Energy, a consultant to would-be corporate and other non-utility off-takers. Corporations are big energy users so they have a natural short position. A long term PPA allows them to lock in their fuel costs for 12-to 25-year terms as a hedge against fuel price volatility.

From 2008 to 2012, only a few corporate first movers were signing long term PPAs because the price wasn’t right, Powers said. “In 2013 and 2014, the price story changed. That’s when an almost exponential growth in green power purchasing began that produced over 1,600 MW of non-utility contracts in 2014 and over 3,000 MW in 2015.”

The increasing interest of the private sector that has led to 3 GW of corporate PPAs across wind and solar is “not enough to pull the industry, but is a significant step forward,” Hostert said.

That interest, which the tax credit extensions are likely to add to, could simply be considered “pure discretionary build as they are marketed by the companies to show their green credentials,” Hostert said. “But the real reason they are signing these PPAs is that they are also a good economic deal for the company to offset retail rates.”

AWEA expects the extension of the PTC to offer "a great opportunity for states and utilities to lock in low cost wind energy and to invest in wind energy to help them meet the CPP carbon reduction targets,” said AWEA's Hunt. “Analysis of the specifics is ongoing.”