Innovation in US Wind: Exploring the Financial Challenges

As the Projects and Money conference begins this week and ahead of Wind Power Finance and Investment in February, guest blogger Brooke Cary fills us in on the market forces driving innovation in the financing of US wind, based on insights from last year’s conferences.

Where innovation can drive the market forward

Since 2017, many developers have been exploring ways unlock the expansive market of small to medium size C&I buyers. “If the wind industry figures out how to offer a product through its greater ecosystem that the smaller corporate can buy, that’s really going to keep this moving forward,” said Erin Decker, Senior Director of Strategic Renewables at Renewable Choice Energy.

One of the challenges in serving this market is that wind power is not yet cost-efficient when energy is being sold on a small scale. Developers will need to be flexible and creative in their offerings, which means sustainable pricing and the aggregation of small to medium C&I buyers.

“You have the well-known folks. The Amazons, the General Motors, the Googles, the Home Depots, that are doing these PPAs. It’s really the next tier, it’s their suppliers and a whole host of other types of potential C&I customers that are small, that are not very attractive to larger wind projects - which need to be large nowadays from a cost-efficiency standpoint. So the innovation needs to come around aggregating that group,” said Thomas Carbone, Vice President of Tri-Global Energy, a Texas-based renewable energy developer.

Future deals for this market may look more like “energy blocks.” Developers will need to manage a variety of off-taker credit portfolios, load profile requirements and diverse appetites for risk. The market will likely see new entrants such as insurance companies and banks help share those risks, Carbone added.

Key factors driving demand

Currently, primary drivers of demand are corporate sustainability targets, state and local government RPSs, and the PTC. Large corporations are leading the demand by setting aggressive RE100 goals. Companies like Amazon, who recently announced that they have reached just 40% of their renewable goals, will continue to purchase clean energy and be significant market leaders. In addition, many corporations have taken note of the movement toward renewables. Several of those who did not previously have sustainability goals are just beginning to set their targets.

States and local governments have also shown commitment to mitigating the effects of climate change and have acknowledged the need for renewables through public utilities and increasing renewable portfolio standards. According to the National Conference of State Legislatures, 29 states and three U.S. territories have set RPSs and are gearing up for a low-carbon economy. Eight states and one U.S. territory have also set renewable energy goals.

“You have increasingly aggressive renewable portfolio standards, you have the whole corporate-industrial side, where we see more and more corporations that want to contract directly for renewable power, and wind is one where they take great comfort,” said David Halligan, CEO of Goldwind Americas.

The PTC has already shown itself to be a key driver for wind, as demonstrated by the estimated 41-69 GW of new safe harbored projects. Short term demand will continue be driven in part by the PTC, and pricing should remain stable at least until 2020, according to Bloomberg forecasts.

Ultimately, wind energy demand and saturation will not be completely realized until the small to medium C&I market is unlocked. We look forward to seeing how the industry adapts to these challenges in 2018 and beyond.