Why are US wind farm owners repowering their projects?

MidAmerican Energy, NextEra and Quinbrook have highlighted the potential benefits of repowering their wind farms. [Note: This is an extended and updated version of a Wind Watch article originally published in our global edition on 11th December 2017.]

Wind turbines have evolved from tiny 50kW machines to 9.5MW giants over the last four decades. This huge change opens up new opportunities for wind farm owners to repower projects – in other words, replace older turbines with bigger newer ones.

Conventional wisdom is that turbines have an average lifespan of 25 years, and the UK’s Engineering & Physical Sciences Research Council has found that mechanical degradation can lead to a 1.6% decline in output each year. As turbines continue to age, they need extra care from wind farm owners to be kept safe and profitable.

Repowering is not yet a huge part of the market. The Global Wind Energy Council estimates 81% of the world’s installed capacity of 487GW has been built in the last decade, with just 7% of projects built between 15 and 20 years ago.

Even so, this 7% represents projects totalling 34GW, and we are set to see owners of these projects taking decisions on whether to repower in the next 5-10 years.

In recent years, it looked as though companies in Germany were set to become repowering leaders given the age of the oldest German wind farms. However, it now looks like the United States could be at the front of a repowering revolution. And this, as so much in the US wind industry, is driven by the wind production tax credit.

Under current rules, wind farm owners have until the end of 2019 to repower old schemes and qualify for an additional ten years of PTC support.

This is a big reason behind NextEra Energy’s plan to invest up to $3bn to upgrade and replace aging turbines at operating wind farms in the US by 2020.

And Warren Buffett’s MidAmerican Energy is also planning a $1bn programme to repower about 706 older turbines in Iowa, totalling almost 1GW and representing around a quarter of its total wind capacity in the state. It has picked General Electric to carry out the work, and it has estimated that the repowering programme would increase the turbines’ generation capacity of up to 28%.

The growth of wind farms in California in the 1980s suggests that projects there are ripe for repowering – but we see major potential across the US. Bloomberg New Energy Finance said last year, for example, that three out of ten wind farms in the US could be repowered in the three years to 2020. That would be 10GW of turbines representing approximately 11% of the country’s total installed wind capacity.

On top of that, we also recently read the ‘2017 IHS Markit Wind O&M Benchmarking in North America’ report by research company IHS Market. This analysed 20,000 turbines, installed across 300 wind farms and totalling up to 30GW in North America.

IHS Markit forecasts that operations and maintenance costs for the wind sector are set to exceed $40bn cumulatively from 2015 to 2025. This follows its estimate that the average age of operational wind turbines in North America is set to rise from 5.5 years in 2015 to 7 years in 2020, and to 14 years in 2030, with O&M costs in the first ten years of a turbine’s lifetime averaging between $42,000 and $48,000 per MW.

The PTC may be giving firms an argument to repower now – but, even without that, the ageing fleet will give them another reason to look again at projects.

Repowering is important for small projects too. This week, Quinbrook Infrastructure Partners announced that its Low Carbon Power Fund had been awarded a new long-term lease to repower the 16.5MW Gonzaga Ridge Wind Farm in central California.

Quinbrook subsidiary Scout Clean Energy is set to increase its headline capacity to between 65MW and 80MW by replacing the existing 1980s turbines. Scout expects this to increase renewable power output from the scheme by up to sevenfold.

And it is not only older schemes that may benefit. IHS Markit said that at least a quarter of the turbines analysed need replacement during their first decade.

What does this mean for wind businesses? Well, as more project owners prepare to invest in repowering, new opportunities should open up for manufacturers and others that offer these services. Almost every turbine supply contract includes operation and maintenance agreements and, for example, turbine makers such as Vestas and Siemens Gamesa are now building their service offer in the US market. The buyout of predictive analytics firm Utopus Insights by Vestas this week is just one example.

There could be another potential effect. As this part of the sector grows, wind farm owners could expand their O&M expertise. Utilities like E.On Climate & Renewables, EDF Renewable Energy and Duke Energy have launched business units servicing turbines. Why pay someone else to do something if they can do it themselves?

Either way, repowering is rising up the agenda for wind companies in the US and the battle for dominance is underway.