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Repowering moves to centre stage in US wind

IN DEPTH | Clarity over PTC rules and the returns on offer to investors mean 2017 is the year wind repowering takes off in the US, writes Karl-Erik Stromsta

Driven by the fading production tax credit (PTC), the market for repowering existing US wind farms has finally taken off in 2017, opening a new multi-gigawatt annual opportunity, turbine vendors and analysts say.

Repowering deals are “very top of mind for us” right now, Kevin Walsh, head of the renewables group at GE Energy Financial Services, tells Recharge. GE EFS is a major tax-equity provider in the US wind market, typically financing projects using GE turbines.

On top of the 300-turbine repowering project GE recently completed for NextEra Energy, “we’ve got several deals we’re working on that we’re excited about”, Walsh says. “Some projects are closing, some are still earlier than that.”

“We think the [repowering] market’s got legs,” he adds. “We’ve got a huge installed base here in the US, and to leverage all the investments we’ve made in technology and apply that to a 10-year-old wind farm is satisfying.”

Chris Brown, president of Vestas Americas, says that in recent discussions with customers “you’re seeing a pretty large push on repowering”.

To date, very few wind farms have been repowered in the US, reflecting the relative youth of the 84GW American wind fleet. Vestas, the largest turbine vendor in the US last year based on installed capacity, did not chalk up its first repowering order in the US until December 2016.

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“It was a little quiet when the PTC first got extended [in late 2015] – the big news was the five-year extension,” Brown told reporters recently at the Windpower 2017 conference in California. “But the legislation also provided some strength on repowering.”

“You’re getting more people having discussions with utilities, saying, ‘Hey, I’ve got a great site, and a repowering alternative may actually be better than the new projects you’re putting up,’” Brown says.

Since the PTC extension, US tax authorities have clarified the so-called “80/20 rule”, which allows project owners to re-qualify existing wind farms for the PTC – effectively resetting the 10-year clock on the tax credit – as long as they spend 80% of a project’s current value on a repowering.

The 80% figure is calculated based on a project’s current value, not how much it originally cost to build it.

The rule allows project owners to bring in the latest turbine technology while keeping their existing towers, foundations, and other related infrastructure at a wind farm.

NextEra chief financial officer John Ketchum told analysts late last year that repowering a wind farm requires roughly half the capital expenditure as building a new project – and comes with a higher return on investment.

NextEra, North America’s largest wind owner, is at the beginning of a 1.6GW repowering programme it intends to complete over the next few years.

Smaller developers, like Texas-based Leeward Renewable Energy, have also confirmed plans to repower projects.

Analyst MAKE believes the US will see 7-8GW of repowered projects in 2017-20, coming on top of the roughly 40GW of new capacity the country is expected to add during that period.

The 10-year sweet spot

Although the oldest US wind farms in places like California’s Tehachapi Pass are now in their fourth decade of operation, most of the action in repowering today is for projects approaching 10 years old, Walsh says – in other words for those on the cusp of losing their PTCs.

The deals getting done the quickest, he says, are those for merchant wind farms, since the owners don’t need to worry about power-purchase agreements.

More complicated are deals for projects with long-term PPAs in place. In such cases, many developers are looking to “blend and extend” their off-take deals – or extend an existing PPA for a repowered project at a lower power price. “There’s a lot of negotiations going on” for such deals, Walsh says.

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Repowerings of decades-old projects are less common, because many developers would effectively need to start from scratch – with new towers, foundations and even permits.

Modern nacelles cannot sit atop decades-old towers, and grid upgrades might be needed in cases where new turbines are 10 times more powerful than the machines they’re replacing.

That said, the oldest projects “have good sites, good wind, lots of wind history, and neighbours that are accustomed to being next to a wind farm”, Walsh says.

“I think we’ll start to see more of that too – full brownfield repowering – but it takes a lot more effort from the developer.”

A global opportunity

Speaking recently to Recharge, Vestas chief executive Anders Runevad said he expects repowering to become a major global opportunity for turbine suppliers in the 2020s, broadening beyond the mature wind markets of today like Germany.

“In the not too distant future, both looking at the age profile of what we have delivered and the installed base, you will get to a repowering market somewhere between 3% and 5% of your installed base,” Runevad said.

“Those are very big numbers.”

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IN DEPTH | With GE and Vestas leading the US turbine market by some distance, what can European OEMs Siemens-Gamesa, Nordex-Acciona Windpower and Senvion do to increase their sales in the American wind sector, asks Bernd Radowitz in Berlin

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