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[Episode #30] – The Future of Wind

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The cost of wind power has been falling steadily again since the 2008 price spike, and newer projects have been coming in at 2 cents per kilowatt-hour, making them very competitive with natural gas fired power and ranking among the very lowest-cost ways to generate electricity. But can wind prices keep falling, or have they bottomed out?

A recent report from the Lawrence Berkeley National Lab, the National Renewable Energy Lab, and other organizations offers some clues. Based on a survey of 163 of the world’s foremost wind energy experts, it examines in detail what factors have led to wind’s cost reductions in the past, and attempts to forecast what will drive further cost reductions in the future. It also looks at some of the reasons why previous forecasts have underestimated the growth and cost reductions of wind, and suggests that many agency forecasts may be underestimating them still. In this episode, one of the report’s principal authors explains the findings and offers some cautionary words about how much confidence we can have in our forecasts.

Guest: Dr. Ryan Wiser is a Senior Scientist and Group Leader in the Electricity Markets and Policy Group at Lawrence Berkeley National Laboratory. Ryan leads and conducts research and analysis on renewable energy, including on the planning, design, and evaluation of renewable energy policies; on the costs, benefits, and market potential of renewable electricity sources; on electric grid operations and infrastructure impacts; and on public acceptance and deployment barriers. Ryan holds a B.S. in Civil Engineering from Stanford University and an M.S. and Ph.D. in Energy and Resources from the University of California, Berkeley.

On Twitter: @BerkeleyLabEMP

On the Web: Ryan Wiser page at LBNL

Recording date: October 28, 2016

Air date: November 16, 2016

Geek rating: 4

Chris Nelder: Welcome Ryan to The Energy Transition Show.

Ryan Wiser: Thank you very much. Good to be here.

Chris Nelder: This new report is primarily about the cost of wind power, which are stated in terms of levelized cost of energy, or the LCOE, which is usually expressed in dollars per megawatt hour. And so that reflects the full all-in cost of power, actually generated by a turbine in this case, including the costs that are part of the project, all the costs, financing costs, all of that stuff. And I think that's a fair basis for stating the cost of an electricity generator, especially when you're comparing fuels against one another. But we should note that LCOE tends to represent a sort of middle range of course when you're looking at a large data set while actual project cost as represented by say that the price in a power purchase agreement can actually be quite a bit lower, right?

Ryan Wiser: Yeah absolutely. And one of the big differences between the LCOE and power purchase agreement prices here in the United States is the presence of federal tax incentives, which reduces PPA prices in comparison to standard calculations of the levelized cost of energy.

Chris Nelder: Right. Ok. So with that out of the way, what are some of the top lines from this year's market report? And how cheap has wind gotten?

Ryan Wiser: Well I guess I'd highlight five key market trends leading up to power purchase agreement prices and the cost of wind energy. But before we get there the first thing to note is that annual wind power capacity additions in 2015 and anticipated over the next five years have been and are expected to continue to be very sizable. 8.6 gigawatts of new wind power capacity installed in the year 2015 wind contributes today, around 5 percent of US electricity supply, and of course much higher in some states. And most market prognosticators are projecting that we'll see roughly 8 gigawatts per year or more of additional capacity installed in each of the next five years. So wind is growing rapidly in part as a consequence and reflecting that growth. Wind in 2015 represented 41 percent of all of the new electric generation capacity added in the US. And that's no outlier. In fact if you look over the last decade wind has contributed to 31 percent of all of that capacity adds. Now driving that growth of course are a myriad of state and federal policy motivators. But significantly it's been driven in part by a decline in the cost of wind energy and power purchasing agreement prices. Those trends being a reflection of growth in the size of wind turbines, which has increased performance, which I'm sure we'll talk about a little bit later, but as well as increased performance we've also seen a decline in the upfront installed cost of wind projects. And as a consequence of all of those trends we've seen wind power purchase agreement prices hitting really rock bottom dirt cheap type levels. Prices throughout the interior portion of the country averaging really about two cents per kilowatt hour, less than the operating cost of a natural gas power plant. So some pretty positive signs coming out over the last year or so.

Chris Nelder: Yeah. The most recent paper we've got here is actually an expert elicitation, right. So you've interviewed a bunch of experts on wind and kind of tried to sum up their views on things. What is their view on how much cheaper wind projects might be in the future? And considering how a rock bottom prices are now, is there any reason to believe that we've reached any kind of actual rock bottom in wind prices?

Ryan Wiser: Yes, that's exactly what we wanted to understand better in surveying some of the world's foremost experts. And so a couple of years ago we started thinking about this question ourselves. With such significant declines in the cost of especially land based or onshore wind, what are the opportunities really for further cost reduction going forward for a technology that's now relatively mature. And so we went about trying to answer that question by surveying again some of the world's leading wind energy experts. We ended up surveying 163 of such individuals hailing from the United States, Europe and even farther afield than that. And those experts really universally told us that the wind energy is mature. There remain significant opportunities for technical advancement and therefore significant opportunities for cost reduction as well. Focusing on onshore wind or land based wind for example, our typical expert or our median expert suspects that cost might decline an additional 10 percent in the 2020 timeframe, growing to 24 percent cost reductions in 2030, and then 35 percent cost reductions in 2050. There's plenty of uncertainty around those figures, we can talk about that a little bit later, but I think one of the top lines from this expert elicitation survey was that experts do universally really believe that costs will decline in the future. The technology, we haven't wrung out every possible ounce of cost from the system quite yet.

Chris Nelder: Wow, and when you're at two cents a kilowatt hour that's pretty bloody amazing.

Ryan Wiser: Yeah absolutely.

Chris Nelder: Of course now, you know at some point maybe we want to talk about what the real all-in cost of supporting every kind of technology is, right. And so by that I mean you know critics of wind will often say oh well you didn't factor in the transmission support for that wind project or you didn't factor in the firming capacity needed somewhere else and so on, but I don't want to get into those questions just yet. I just want to say that when you're just looking at the cost of wind basically at the gate of the wind project coming in at under two cents, that's pretty amazing.

Ryan Wiser: It is amazing. But we do have to remember that we need to consider both the cost and the value. You know when we're looking to buy a car we're definitely thinking about the cost of the car but we don't always purchase the least cost vehicle that's plausible. So it is important to think not only about cost but also value.

Chris Nelder: True there is a difference after all between a Fiat and a Mercedes.

Ryan Wiser: Indeed there is.

Chris Nelder: Ok, so how does the outlook for wind power prices compared to let's say the outlook for natural gas fired power?

Ryan Wiser: Well if you look at the most recent Energy Information Administration, or EIA, forecast for natural gas prices, they anticipate that the price of natural gas at the Henry Hub will increase from today's values that are in the two to three dollars per million BTU range and that those prices will will increase over time reaching about $5 per million BTU, in effect almost a doubling of prices in the early 2020 timeframe, and then we'll bounce around at that sort of price level for a number of decades hence. And so clearly there is an anticipation of increased natural gas prices whereas our experts survey and a broad swath of other literature suggest that the cost of wind energy will continue to decline into the future.

Chris Nelder: Okay. So basically we see wind already cheaper than natural gas fired power in certainly some regions in the US and continuing to get cheaper while we expect natural gas prices to increase in the future. So we don't see wind basically losing, we see it gaining more competitive advantage against natural gas as we go forward.

Ryan Wiser: I think that's certainly as a general matter, though I would point out that again those two cent per kilowatt hour power purchase agreement prices are leveraged by the federal production tax credit, a tax credit that is slated to decline and indeed potentially phase out entirely over the next five years or so. And so we do need to recognize that there are some policy drivers for those low wind energy prices meaning that they they may not be achieved for ever.

Chris Nelder: Right. Ok, so let's reckon that up. If we take the PTC out, what does that put us at for the cost of wind now and say 20 years from now relative to natural gas?

Ryan Wiser: Well if you take out the production tax credit you're kind of 2 cents per kilowatt hour PPA might become about a 4 cent PPA. And so that's the kind of price level that we're talking about in terms of power purchase agreement prices for wind energy absent the production tax credit the operating cost of that natural gas power plant. If natural gas does indeed rise to around the $5 per million BTU level, then the operating cost of natural gas power plant will also be just around 4 cents per kilowatt hour, maybe a little bit less than that admittedly but around the same price level. So I think we're talking about two technologies that will continue to compete for some number of decades.

Chris Nelder: Okay. So and that's again we're talking about gas at $5 per million BTU in this scenario versus whatever it is I think close to $2.5 per million BTU now, right?

Ryan Wiser: Yep. The expectation from EIA is that prices will rise from that $2.5-$3 per million BTU level that we've been seeing over the last year or so up to about $5 by 2025 or so.

Chris Nelder: Right. And I haven't actually looked at the most recent price for Henry Hub in quite awhile, so I'm just guessing but I think it's about 250.

Ryan Wiser: Yeah I think so.

Chris Nelder: Okay. So what if as a natural gas or shale gas skeptic, which I you know despite all the years of its amazing success I remain one, and I've written a bunch of articles that were critical of especially some of the hyperbolic claims that were made early on in the shale gas phenomenon about how we have 100 years of gas and all this stuff, you know. There was a lot of sort of unsubstantiated claims made by the gas producers which we now know were really necessary in order to raise the amounts of debt that they needed to pursue what was fundamentally a debt fueled drilling business for shale gas. Let's say I take all of that on board and I think to myself you know what all these guys, they squeeze their contractors, they have squeezed out the cost, they've squeezed pretty much everything they can squeeze since oil and gas prices started crashing back in mid 2014, and here we are they have all high-graded, they've moved toward the sweet spots of their plays, and at some point probably in the next few years we have to expect that those plays are those sweet spots are going to start getting just totally exhausted. There won't be any point in sinking another drill bit anymore, because they would just be stealing from one well to another. So let's say we get to that point where you have communication between laterals in the sweet spots and we have to start moving toward the periphery and let's say that means that we're not at $5 gas by 2025 per this you know I would say pretty conservative forecast but maybe we're maybe we're back at eight. How would that change I think maybe the utility industry's view of the future of wind? Including the experts that you surveyed here.

Ryan Wiser: Yeah. Well you know there are even some EIA forecasts that show natural gas prices increasing to the levels you're talking about. It's within the realm of possibility. And one of the things I would observe about our ability to forecast natural gas prices is that in fact we have demonstrated over the last several decades no ability to accurately forecast natural gas prices. Seven years ago, seven years ago almost no one in the energy community could envision a world in which natural gas prices were less than $5 per million BTU.

Chris Nelder: Certainly not me, and I was there seven years ago making bad decisions.

Ryan Wiser: That's right, and today almost nobody other than maybe you could forecast natural gas prices big above $5 per million BTU. So I think we need a certain amount of humility in this discussion. But there is no doubt that if natural gas prices increase to the levels you're talking about, $8 per million BTU, this will only increase the contribution of wind and solar in our energy mix. Utilities today and indeed corporate customers and others as well already see wind and solar with tax credits admittedly as a competitive low cost option for their portfolios. $8 per million BTU natural gas obviously would make that economic case even stronger.

Chris Nelder: Yeah. Well I do want to talk actually in a little while about the accuracy of our forecasting, but let's just for now kind of take a more meta view of it. Would you in fact be equally confident about the price outlooks for power from wind and natural gas right now? Or might there be a greater risk of price volatility for gas than current forecasts would anticipate? I think, based on what you just said, the answer to the latter question is probably yes.

Ryan Wiser: Yeah no I agree with that though I do think that a certain amount of humility is required across the board. And indeed in our survey of wind energy experts those experts provided a wide range of views about the future cost trajectory for both land based and offshore wind and so there are endemic uncertainties across all of these technologies and fuels that we need to acknowledge. I'd also like to point out one other thing which is when you bring a wind project online today those projects are contractually locked in to the low PPA prices that you're currently seeing in the market and contractually locked in for 15,20,25 year terms. No natural gas power plant coming online today is going to contractually lock in its sales prices for those terms.

Chris Nelder: That's a great point.

Ryan Wiser: The power prices will vary based on the price of natural gas. And so these are really two very different commodities from that perspective.

Chris Nelder: Yeah I mean from my perspective natural gas enjoys a pricing advantage over time because it can get more expensive probably still have a certain amount of buyers, you know like if you're a gas seller versus being a wind solar. But on the other hand if you're a buyer you're going to probably prefer the certainty of wind to the uncertainty or the future volatility of gas.

Ryan Wiser: I think that's exactly why we're seeing the Walmarts, the Ikeas, the Facebooks and the Googles of the world decide to purchase a good amount of wind and solar at these low prices.

Chris Nelder: I do intend to do a future episode on that actually because it really needs to be talked about in a little more broadly. So when PPAs you know back in the early 90s, and well back in the 90s and the 00s, when PPAs were regularly coming in at around $20 to $40 a megawatt, and then they actually sharply increased to the $40 to $100 range around 2008-2010 and then fell back into again about the $20 to $40 range now. And I'm just wondering what's your view of what happened there? I mean were wind projects just exhibiting the kind of cost inflation that happened across the entire commodity complex including things like grains and oil? Or was it something else?

Ryan Wiser: Yes so I guess the first thing I'd like to mention here is that the prices of wind that we're seeing today are lower than we saw in the early 2000s. But you're absolutely right that we saw this big undulating wave of significant price increases throughout the later 2000s and then a subsequent, very significant decline since that time. And there are really some external and as well some internal factors that were at play there. The external factors were consistent across all generation technologies. We saw the price of coal generation for example over this timeframe increase as well. And it increased in the same way that wind did in part because commodity prices increased. The cost of steel and the cost of copper both increased dramatically, as did the cost of energy. To the extent that these are manufactured goods that require materials, obviously the end product whether a wind turbine or a coal boiler also increased over that timeframe. In addition on the wind side especially we do import especially a lot of the internal aspects of a wind turbine from other countries, and the exchange rates moved in a direction that made those imports more costly over that time frame. So there were certainly a variety of external factors that were consistently kind of applied and affected not only the price of wind but also the price of other generation technologies. That being said there were some internal factors as well and in particular demand for wind equipment, wind turbines and wind power outstripped global supply for those products. And so not surprisingly the cost of labor that wind manufacturers saw increased. Manufacturing profit margins increased as well because again demand exceeded supply. And then finally over that timeframe it's important to remember that the price of natural gas rose from very low levels to levels that we really haven't experienced during the history of natural gas in the US market, and natural gas is in significant measure winds competition. And so if natural gas power plants are going to be selling power for let's say nine cents per kilowatt hour, why would a wind power plant want to sell for two cents per kilowatt hour? And so there's a certain kind of competitive balance that was also at play in that period of time.

Chris Nelder: That's right. We did have just massive massive volatility in the price of gas along with everything else, but I guess I'm just going to go ahead and go with that it was primarily a result of the commodity complex price spike that we saw just sort of across the board and around the world, I mean in every commodity we had that kind of the same thing where we had you know labor costs went up, there were shortages of everything, too much demand, too little supply. And as we discussed on this show, potentially a lot of that being driven by a growth boom in China which maybe was cooling off now.

Ryan Wiser: Yep, it sure is and certainly the movement in the opposite direction of a number of the factors that I just described, materials and energy prices, exchange rates, these sorts of things have helped lower the price of wind since its peak and that 2008/2009 timeframe.

Chris Nelder: Yeah. Ok, so there continues to be a lot of variation even among US government agencies in the forecast for wind cause. The US EIA's annual energy outlook for example shows the capacity weighted wind LCOE excluding tax incentives, increasing by 13 percent between 2018 and 2022 from about $52 a megawatt hour to almost $59 before decreasing by 16 percent in 2040. The US EPA in their assessment of the Clean Power Plan seemingly predicts virtually no change in wind costs from 2016 to 2050. And then even the US DOE's wind vision studies midpoint estimate of 16 percent reductions by 2030 and 22 percent by 2050 are more conservative than the survey results. So we seem to have even in US government agency forecast this whole fan of futures. What's up with that? Like why is there so little agreement?

Ryan Wiser: You know I think part of it is just the reflection of the endemic uncertainties about future wind energy costs. But that doesn't explain all of it. I mean it certainly explain some of it. I think it's partly just different models and different modelers. To some extent perhaps a different degree of desired conservatism among these various agencies. And perhaps also a certain degree of lack of communication among the various federal agencies and the prospects for wind energy. So it's hard to pinpoint any individual factor. You've got different models, you've got different modelers, you've got different levels of of conservatism perhaps among these various agencies. And perhaps also a certain degree of lack of communications and a varying level of attention to this single input parameter and what are multi-parameter models.

Chris Nelder: Ok, so what accounts for regional variations then in US wind power costs?

Ryan Wiser: Yeah, so we do see, certainly if we look historically at wind energy costs, pretty substantial variations among regions. The interior region, the large kind of interior a central portion of the US has some of the lowest costs of wind energy but then costs increases as you move towards the coastlines. Part of it's capacity factor, in effect the performance of projects. Obviously wind projects cited in very windy areas will have lower levelized costs of energy than those installed and less windy areas. But in addition to that we see really big differences in site characteristics. As you move to the northeastern region for example you're going to be dealing with forested ridge line sites, relatively small project sizes, and difficult siting and permitting procedures. Whereas if you move towards Oklahoma, Texas, Iowa, the windy interior, you'll be dealing with vast swaths of land, relatively few challenging topographic features, high wind speeds of course, and pretty easy development and siting procedures. So definitely we see a big range of costs across the US, but a lot of that can be explained by the factors I just described.

Chris Nelder: OK. So agencies like EIA and even NREL have rather famously underestimated the growth of renewable technologies pretty consistently for the past decade or so. Is that just a result of this, as you were saying, the conservatism of agencies, you know consciously trying to err on the conservative side in their forecasts? Or do you think they have also maybe been methodological issues at work?

Ryan Wiser: Yeah that's a good question. I guess let me start by just saying it's kind of a happy result, isn't it? The growth of renewable energy has been greater than some of our federal agencies and others have expected, so I think to a certain degree we should be happy with this as a consequence or as a result of this process. I'd also say that there have been certainly plenty of folks in the renewable energy community that have criticized especially EIA for some of their forecasts and some of that criticism might well be warranted and I might have made some of that criticism myself in the past, but at least to a certain degree the criticism is at least a little bit unfair. And I guess I'd point out two features here. The first related to solar, maybe more so than wind, very few experts even anticipated the degree of cost decline that we've seen for solar photovoltaics. If you'd done an expert survey of solar PV experts 5-10-15 years ago, I very much doubt that very many of them would anticipate one dollar per watt and three cents per kilowatt hour power purchase agreement prices for solar PV. The same might be true for wind. And so to some extent the EIA, NREL, LBL and others simply didn't predict the degree of cost deflation that we've seen for renewable energy. So it's not just a matter of wanting to be conservative. These agencies and entities were not fully unique in not really foreseeing the degree of cost decline. The other methodological feature that I would point out for EIA is that as I understand it they are in effect statutorily required to define their reference case forecast as being a no new policy case. And so what that has meant over the last 20 years is that every year they've had to develop their reference case forecast. They've had to assume that whatever that then statutorily defined expiration date for federal tax incentives were would apply. And as we all know in the renewable energy sector, our tax incentives have not been extended on an enduring basis. They have instead been extended oftentimes for one to two year durations, and so the reference case forecast from EIA has typically presumed that tax incentives would expire after one or two years. Now we know from history that indeed this has never occurred, that tax credits have been extended over and over and over again. But that isn't reflected in the EIA forecast. And so a lot of this under prediction that people point out from the EIA really derives from a policy choice that they've made, maybe based on statutory requirements, that has not allowed them to try to forecast future policy change.

Chris Nelder: Yeah and I think it's not only in wind that we find EIA basically being required to drive by the rearview mirror. Many other aspects of its forecasting including the prices of other fuels or the production levels or what have you.

Ryan Wiser: Yeah I would also point out that boy I'm glad I'm not in their shoes. As I mentioned earlier forecasting anything is pretty darn tough. Forecasting out to 2040 is especially tricky, so they do have a tough job for sure.

Chris Nelder: So this new report delves into the difference in capital costs in some detail of the simple capital cost of the plant itself, which is normally expressed as dollars per megawatt of capacity, and the LCOE, which as I explained earlier is really the cost of actual generation in dollars per megawatt hour. So for example the report notes that there are five key components that impact the LCOE: there's the upfront capital cost, or CAPEX; the ongoing operating costs, op x; the cost of financing the, the WACC, the weighted average cost of capital; the performance or otherwise known as the capacity factor, which we've talked about on this show a little bit; and of course the project design life. And the report notes that those LCOE costs have actually fallen faster than the capital costs. And I wonder if this isn't another interesting methodological issue here, that the cost of these five key components of the LCOE have fallen faster than the so-called overnight capital cost, this fiction called the capital cost of the plant itself, and that in itself might have led to under forecasting winds growth, because most of that stuff was done in capacity terms. It was done in capital cost terms not LCOE terms.

Ryan Wiser: Yeah I think that's absolutely right. Certainly many, not all, but many of our past attempts and indeed even our very recent past attempts to forecast the future cost of wind energy has really focused on only one means by which the levelized cost of energy might decline in the future, and that is through capital cost reductions. And it is true that the capital cost of wind projects has declined in the past and it's also true based on our expert survey that many anticipate those costs will continue to decline in the future. But in the end capital cost improvements are only one means by which the levelized of cost of energy might decline in the future. And one of the things we've observed in the US market especially but also applying to a lesser extent in other markets on a worldwide basis is that over the last several years we've seen significant growth in blade lengths and also in tower heights enabling much better performance out of wind projects. And so we've seen the levelized cost of energy decline very substantially over the last 5-6-7 years in part by virtue of these new wind turbine designs that have enabled much better performance. It's not just about capital cost reductions. And to the extent that forecasters are focused on only one of the five means by which the level cost of energy might decline, our thesis is that they may also then understate the potential for levelized cost of energy reductions.

Chris Nelder: Right. Ok, perfect. So let's take the capacity factor, one of those five elements, and dive into that a little deeper. And just by way of explanation for our listeners, a capacity factor is just the actual production of unit as a percentage of what would produce if it were operated 100 percent of the time. And I think many people who don't follow this stuff as closely as we do might be surprised to learn that when capacity factors have actually improved substantially in recent years from an average of 26 percent for projects built between 1998 and 2003 to 41 percent for projects built in 2014. So capacity factors have improved by around 58 percent in just about a decade which is a remarkable gain. But obviously the wind didn't change that much. So to what can we credit these remarkable gains in capacity factors? Was it just the kind of thing you were mentioning, the increased blade length and the higher height or what?

Ryan Wiser: Yeah, it's mostly that the turbines have gotten larger and they've gotten larger in two dimensions. They've gotten taller. In 1998 and 1999, the average tower height for US wind projects that were installed in those two years was 55 meters. In 2015, they had grown to over 80 meters. And so a very significant growth in tower heights. And then on the rotor diameter side, or the blade length, rotor diameters in 1998 or 1999 averaged about 50 meters. Today they are over 100 meters, so basically a doubling of blade lengths and rotor diameters. And those two elements combined lead to very significant increases in the performance of wind projects as proxied by the capacity factors.

Chris Nelder: Right because the higher your wind turbine the greater the swept area, you're capturing more consistent wind, you're catching stronger wind, and the output if I'm remembering correctly increases with the cube of the windspeed?

Ryan Wiser: Yep that's right. And in fact in our expert survey we also asked about this. We were interested in understanding whether folks felt that this benefit of turbine scale, if we tapped it out or are there still opportunities to grow turbines even larger. And in the North American market our experts anticipated on average the turbines in the 2030 time frame would grow from 2 megawatts in average size today to 3.25 megawatts in average size then. Hub height would grow from about 80 meters today to 115 meters and 2030, a very significant growth indeed. And rotor diameters would increase from about 100 meters today to a 135 meters in 2030. So there's clearly an expectation of continued evolutionary growth in the size of turbines.

Chris Nelder: And we should note that the latest state of the art offshore turbines being installed in places like Denmark are even more massive than that. I mean there are like six megawatts.

Ryan Wiser: Yep the turbines that are currently being contracted for offshore are in the six to eight megawatt range, they tend to be. And we also asked our experts what their expectations are for the 2030 time frame on the offshore side and they're expecting to see typical turbine size of 11 megawatts by the 2030 time frame.

Chris Nelder: Wow

Ryan Wiser: 125 meter hub heights. 190 meter rotor diameter. The growth offshore is expected to be just enormous. You can imagine that in the offshore sector there aren't the same limitations for transportation and logistics as there are onshore. You don't have roads to deal with basically in transporting the stuff. And at the same time you have significant advantages to scale. The cost of the foundation offshore is very very significant. And so any ability to benefit from economies of scale from scaling turbines even larger, those benefits are even greater offshore than onshore.

Chris Nelder: I'm amazed that they could even think about a turbine blade that's basically two football fields in diameter. I mean I would have to think you'd be running into just you know fundamental materials problems at that point.

Ryan Wiser: You know it's sort of interesting from almost the very beginnings of the wind industry, people have talked about whether we're at the limits of scaling. Whether physical scaling laws that would otherwise tell you that that there is some limit to the size of these turbines would have been reached and folks have for many many years many decades even thought that we might be nearing that limit. But there's just no evidence that we're there yet.

Chris Nelder: So these ultra large two football field diameter blades, would these be like carbon fiber or what?

Ryan Wiser: Unclear. There definitely is a move towards investigating the use of carbon fiber in blades, that may especially be true offshore. But carbon fiber is expensive, and so there's definitely also a desire to continue to use the kind of epoxy fiberglass synthesized materials that have otherwise been the predominant blade material used historically. So we may well see continued innovation in that space and some experimentation with different material options.

Chris Nelder: Alright, well so moving beyond capacity factor then, it might be worth just taking a quick glance at those other factors again. So we already talked about the upfront capital costs, what are the expectations for operating costs, financing costs and project design lives?

Ryan Wiser: Well let's start with land based or onshore wind, and certainly for land based wind our experts do believe that increased capacity factors in reduced upfront costs are likely to be the two dominant drivers for reductions in the levelized cost of energy. That being said the experts also anticipate significant contributions, especially from increased project design lives. To this point, most folks have believed that wind projects might last about 20 years. That's their project design life. But there are moves to move that up to about 25 years over time. And there's anticipation that that certainly is a possible direction for the industry. And also reductions in operating costs. Financing improvements are certainly also possible. Our experts had sort of divergent views on that front with a lot of folks feeling that for onshore wind the finance process is pretty mature and therefore the opportunities for finance cost reductions if not being fully tapped out at least aren't as significant as some of the other factors.

Chris Nelder: I could believe that. Plus you know when you get into that you're now in the domain of the macroeconomic situation and currency valuations and all that stuff.

Ryan Wiser: Yeah. To some extent that's true, though it is important to note that for offshore the experts really have a very different perspective. There is in the offshore sector of course a very strong belief that reducing the upfront capital cost of wind projects, especially through very large turbines, is a key means to reduce the levelized cost of energy. But there's also a recognition offshore that the sector is less mature and therefore there are very substantial opportunities to reduce the cost of finance. And so certainly in the offshore sphere especially there is a belief that finance really will matter significantly.

Chris Nelder: Ok so in the past we have failed to anticipate how quickly the overnight capital cost of these projects might fall, in particular we're doing a lot of that was achieved through economies of scale and improvement fracturing methods and so on. And we tended to underestimate the growth in capacity factors. What do you think we might be underestimating now?

Ryan Wiser: So you know as I mentioned earlier there, in a lot of the forecast that have come out recently, there's been an emphasis, not an exclusive emphasis in all cases but a significant emphasis, on just the CAPEX improvement possibilities. As we've been talking a little earlier in the podcast, the improvements that we've seen especially in the US in increased capacity factors have really played an enormous role, certainly over the last 6-7-8 even longer period of time years and reducing the levelized size cost of energy. And so as we look at the LCOE projections from our expert survey and compare that to a large number of different other forecasts of the future cost of wind energy, it's important to note that our survey results show a 24 percent reduction in the LCOE of wind by 2030 and a 35 percent reduction in the year 2050. If we take the average or the median of all of the other forecasts that we were able to compile, those forecasts on average show an 11 percent LCCO reduction by 2030. Contrast that with our 24 percent, and those other estimates show a 13 percent reduction in the level as costs of energy by 2050. Contrast that 13 percent with our 35 percent. So certainly on average the other forecasts that we were able to compile are substantially less bullish than the experts survey. And it's hard to know what all of the factors are that cause that discrepancy, but I think the most significant one is in many situations an exclusive focus on only one means by which cost might decline, that is the upfront capital cost of wind projects. And by and large a lack of attention on the other four factors, the most significant of which might be, for onshore at least, the capacity factor improvements, and for offshore also the cost of finance improvements.

Chris Nelder: Okay. So I guess the takeaway there would be hey when you look around at all these official forecasts for the future of wind and the cost reductions, yeah, it might be actually twice that, or better.

Ryan Wiser: Yeah I think that's right, though I think it is also important to recognize as I mentioned earlier that there are endemic uncertainties here and so that may well be the case that a lot of other folks are not being sufficiently aggressive in their base case forecast, but I think it's also important to be reflective of the real uncertainties out there and to ensure that in our modeling and analysis that we accommodate those significant uncertainties in future outcomes.

Chris Nelder: Well, fair enough. Ok, so what are some of the near term and longer term barriers to wind growth at this point?

Ryan Wiser: Well I think some of the most significant ones at least in the near-term include of course the phase down of federal tax incentives that will occur progressively over the next 5 to 10 years really. Of course the continued low natural gas prices and potentially low wholesale electricity prices impose some barriers, certainly in some regions of the country. And also modest electricity demand growth. We just have not seen significant increase in electricity demand for some number of years. It's hard to say that's a bad thing.

Chris Nelder: Well demand has basically been flat for a decade and we've got a lot of grid planning especially in terms of CAPEX that's kind of getting hung up on that fact, like all this stuff was previously done in an era of constant growth.

Ryan Wiser: Yeah absolutely. And the fact that electricity demand isn't growing is again, that should be a good thing not a bad thing, but it does make the addition of any new generation asset a more tricky proposition for sure. You know more on the medium or longer term basis, a few other factors also come into play. Certainly transmission expansion and especially the need for transmission expansion in order to access some of the nation's best wind resource sites comes in is a very significant barrier, if not in the very near term certainly in the medium to long term. The cost or price of solar. Wind is now facing competition not only from natural gas but increasingly in additional regions of the country from solar energy. Again not a bad thing for sure but definitely a factor that is playing a role in people's expectations for the growth of wind in some regions of the country that have especially low solar energy prices.

Chris Nelder: Yeah. Well what about coal? I mean we famously are in a situation now where we're phasing out coal plants pretty quickly and we're even starting to phase out some nuclear plants because they just can't compete. Do you see any, I don't know, coordinated effort to say tell you what we're going to make sure that we replace these coal plants and these nuclear plants with new wind capacity? Or do you see any effort in modeling it that way? We're modeling that wind is deliberately displacing those coal plants that are going to be retired.

Ryan Wiser: You know there's really no doubt that as more and more coal plants and nuclear plants potentially are decommissioned that will create space. It will create space that will be filled either with renewable energy or it will be filled with natural gas. Or alternately it will be filled with increased production from the existing base of coal power plants that still remain. So those are our options. I think it is important for us to be deliberate about those options. And I think we're seeing some increased emphasis on that, especially in the nuclear sphere in various regions of the country where folks are actively debating, in California, the Northeast, in New York and Illinois and elsewhere what to do with nuclear assets that are increasingly in a financial pinch. And to the extent that those plants are ultimately retired, discussions are already actively underway about what they might be replaced with. And so I think that we will see some increased deliberate analysis and policy intervention to try to ensure that as plants are retired that we're filling in the gaps with the resources that we want to.

Chris Nelder: Right. Ok. Well I think you answered my question then because what's concerned me is that we're retiring a lot of these big nuclear plants and these coal plants you know just sort of by exercise of the market without an apparent or a deliberate plan to replace that capacity with wind or something else. And I've wondered if we aren't potentially getting ourselves in a situation where we would in fact be capacity constrained just like the utilities always warned, which would be you know just an unbelievable stupid and unnecessary unforced error by the energy transition movement. And I wonder if I would agree with you that we'll probably do that kind of planning in a deliberate way in the future but I suspect that we haven't been doing enough of it up until today.

Ryan Wiser: You know I totally agree with you. The deliberate intervention or action that has occurred so far has been very sporadic in nature. There have been opportunities to do so. I anticipate that folks will seize the opportunities to a greater extent in the future than in the past. But you are absolutely right that in the majority of cases the retirements are occurring based on market decisions, to some extent as they should based on market decision, but maybe with not as much active engagement by stakeholders and really thinking about what it means on a longer term basis.

Chris Nelder: Yeah and you know I've been also making the case that the same way that advocates for distribute energy resources in California brought forth a deliberate plan to say here's a package of distributed energy resources that we think will substitute for Diablo Canyon, and that's why you can go ahead and shut Diablo Canyon down, I think it was because they had that choice, that well-defined package of alternatives compared to Diablo Canyon to choose from that PG&E and the CPUC said yeah, ok, let's do it. And I wonder if that same kind of work isn't really necessary especially in places like New York and Illinois and Ohio where big nuclear plants and also big coal plants are increasingly being slated for closure.

Ryan Wiser: Yeah I absolutely agree.

Chris Nelder: So the US finally, hoorah, has one offshore wind farm. It's a small one off the coast of Rhode Island. It'll save the people who live on that island, off of Rhode Island, Block Island, a little money and export some power to the grid. But I wonder why, first of all, the US is so far behind Europe in getting a start on offshore wind? And I wonder what your experts think about the future of offshore wind in the US?

Ryan Wiser: So the first question is kind of why are we in the US kind of lagging Europe in offshore deployment, and I think the primary reason is that the competition is just really tough in the US. Offshore wind is competing in the United States with low natural gas prices, it's competing with extremely affordable onshore or land based wind, and increasingly it's now also competing with a very attractive solar energy contracts. And so you've got an abundance of inexpensive options in the US. That is not as true in many parts of Europe. And so that cost competition is really important in the US, and so the ability to reduce the cost of offshore wind energy of course is important across the entire globe, but I think is especially important here in the US market because we have such tough competitive pressures vis a vis at least three other resources. And at least from that perspective, our survey I think does offer a dose of cautious optimism and needs to still be cautious because the cost of onshore wind and solar remain very low in the US and are likely to continue to decline down in the years ahead. That being said our experts do expect a significant reduction in the levelized cost of energy for offshore, something on the order of 30 percent LCOE reduction in the 2030 timeframe and growing to 40 percent or more reduction in the 2050 timeframe. There's also at least some evidence that costs might decline and may indeed have already declined at a faster rate than our experts anticipated. And in particular I'd like to point out two recent power purchase agreement bid prices coming out of Europe. The first announced in July earlier this year by DONG Energy, the so-called Borssele projects in the Netherlands with a price point of roughly $80 per megawatt hour or 8 cents per kilowatt hour. And then more recently a 350 megawatt project in Denmark, pretty near shore, so not a typical offshore project for sure, but that project came in at a bid price of just $67 per megawatt hour or 6.7 cents per kilowatt hour. There's been talk for a long time about when we might break the 10 cent per kilowatt hour barrier for offshore wind. Well these two projects have broken that 10 cent per kilowatt hour barrier, if they are ultimately constructed. And so we are seeing some evidence of the cost declines we've seen onshore for many decades now beginning to be replicated in the offshore environment. So that leaves me cautiously optimistic. Optimistic because the cost of offshore wind energy does seem to be going down and going down very steeply, but somewhat cautious because the cost of offshore wind is likely to remain higher than the cost of onshore wind. And so there will remain a tough competitive business as we compare the various resource options.

Chris Nelder: So do those experts elicitation have any view on what sort of market share offshore wind might be able to get in the coming years?

Ryan Wiser: That wasn't covered in the survey. The Department of Energy's wind vision report though did analyze a particular future scenario in which wind energy as a whole in the US would reach 20 percent of our electricity supply in the 2030 time frame, growing up to 35 percent in the 2050 timeframe. And that assessment studied a scenario in which offshore wind would represent in 2050 about 20 percent of the total wind electricity supply and found that that scenario as a whole would have some significant advantages to the US market. Now whether we get to that level of penetration is of course highly uncertain. It will depend on the cost reductions, offshore especially, that we have seen it and going from there. But there are significant opportunities certainly to reduce costs as per the survey.

Chris Nelder: But for all the reasons we were just discussing, that forecast was probably based on assumptions that might be in fact too conservative based on the view of these experts. So maybe 20 percent is actually too low of a market share.

Ryan Wiser: Yeah you know I think that's really the best news from this perspective, from at least my view, is that we have a number of different low carbon clean energy resources at our disposal in the US. We have vast amounts of sunny land, we have vast amounts of windy land, and we have vast amounts of windy sea surface area. So we have plenty of options and I can't sit here and and be totally certain about which of those options will end up being the largest contributor to a clean energy future here in the US but it's certainly good to have a wide range of options at our disposal as the future unfolds.

Chris Nelder: Sure. You know one of the things I've been wondering about because I haven't heard much about it lately is this idea of actually siting a little bit of storage with each wind turbine. I know GE for example had a model that they were doing with a couple years ago, and the idea was there was not that you would have a long duration storage system such that you know the wind could stop blowing for three days and the wind farm would still be putting out power. Rather it was a kind of a small amount of onsite storage with each turbine that would allow the entire wind firm to basically act in a steadier manner to provide a steadier supply back to the grid to kind of ride out some smaller fluctuations in the wind resource and do a little bit of its own modulation. Have you heard anything about that kind of trend lately? Is this something that your experts forecast being a part of the future of these wind turbines they're looking at?

Ryan Wiser: So I'm not aware of anybody purchasing a single one of those GE turbines. Not a single one. No. I might be wrong. Maybe they sold a couple, but I have not heard about a single sale.

Chris Nelder: Is that right.

Ryan Wiser: And I think the reason for that, and this I'm going to move towards pure speculation here to some extent, I think the reason for that is that storage is really a system asset and should be thought as a system asset. Electricity grid operators have a tough job, they've got to match supply with demand. But they've got to match supply and demand as a system. They don't need to match the time varying output of a wind or solar plant with the time varying and uncertain load of an individual customer. They only have to think of the system as a whole. And if storage makes sense as a means of integrating renewable energy and matching supply and demand, it's more likely to make sense as a system resource that's being used to manage that overall supply demand balance than it is to be used as a resource to smooth the fluctuations of an individual wind turbine. And so I think the proper way of thinking about storage in most situations is as a system resource. And so while we might see some experimentation with onsite turbine level or plant level storage, I would expect to see much more significant growth in storage as a system resource than as a project specific resource.

Chris Nelder: Okay. So storage is unlikely to be one of the factors that changes the trajectory of wind here anytime soon.

Ryan Wiser: Not in the near term. It's not necessary. It's probably among the most expensive forms of managing the variability in the overall system. I'm hopeful that the cost of storage declines substantially making truly high penetration renewable energy futures more economic and easier for grid operators. But in the near term it may not happen and nor is it needed in most circumstances. Study after study has shown that we can achieve 10 percent, 20 percent, even 30 percent or more wind energy penetrations without the strict requirement for storage.

Chris Nelder: Yeah we talked about that in a couple of the first episodes of this show I think, especially the one with MacKay Miller who at that time was with NREL. So I'd like you to kind of put on your expert hat here and as someone with a lot of deep experience in this, I mean you've been researching and publishing on wind for quite a few years now. What can we learn by looking back over the body of the research in forecasting that was done as contrasted with its actual growth curve and its actual place in the electricity system today? I mean obviously we can conclude well our forecasts were too conservative. But what can we really learn from that? What can we learn about how maybe we should be approaching our forecasting differently? Or what sort of cautions we should take toward our forecasting today?

Ryan Wiser: Well I guess the first thing that I'd point out based on me working in this field for the last 20 years or so is that wind is here to stay. Twenty years ago we saw some pilot projects. We saw the beginnings of commercial deployment but now wind is here to stay. Wind represents 5 percent of electricity supply in the US, it will soon rival and exceed the contribution of hydro power in the US market. Of course internationally wind contributes even more significant penetrations in a number of countries, 40 percent in Denmark, over 20 percent in Ireland and Spain, and 15 percent in larger economies like Germany. So wind is here to stay. It's a mature technology. Costs are anticipated to continue to decline. And as a consequence wind energy will only grow from its already significant current base. And so if we're not accounting for that in our forecasts, if we're not accounting for that in the way we think about designing and operating our electricity grids then we're doing I think a gross mis justice to those who are ultimately going to be responsible for managing the variability of wind energy in the future. At the same time we need to acknowledge that whether the cost of wind energy continues to decline and at what degree it continues to decline is uncertain as are many other factors in our electricity systems. So not only do we need to be preparing I think for high penetrations of variable generation including wind and solar, but we also have to acknowledge the deep uncertainties in how the system may evolve in the future and make sure that our planning processes and our operating practices are resilient to those changes.

Chris Nelder: Yeah exactly. So I mean we've only really pretty much talked about wind today, but you actually know also a lot about solar, a lot about grid integration issues and you certainly of course you've needed to study natural gas as a part of all this and so on. So given the kind of the big broad picture of energy transition at large and the attitudes and views that that not only forecasters and you know grid watchers but also just the general public has about the future of energy transition, what do you think we're probably most likely to be getting wrong right now in our expectations?

Ryan Wiser: I think we have a certain amount of optimism in terms of our ability to forecast the future that is wildly misplaced. Which maybe is kind of a damning statement for those who are the forecasting community but we simply have shown no real evidence to forecast the future of the electricity system successfully or accurately, and maintaining flexibility as a consequence of that uncertainty is something that I think is going to be just really important in the face of our presumably continued inability to accurately forecast the energy system in the future.

Chris Nelder: That's great. And I think we should just leave it right there. Well thank you very much Ryan. It really is a pleasure and I appreciate you taking the time to come on the show and share what you know.

Ryan Wiser: Yeah absolutely. It was fun to be on with you. Thanks again.