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Better turbines alone won't offset fading PTC: Pattern CEO

US wind power will get more expensive as the production tax credit (PTC) winds down and expires for good, but better turbines will soften the blow, says Pattern Energy chief executive Michael Garland.

The wind PTC – worth $24/MWh of generation at its full value – has long been the bedrock of the US wind market, with annual wind installations gyrating wildly over the past decade as the tax credit went through a rolling cycle of expiration and revival.

But the multi-year extension secured in late-2015 represents the last hurrah for the PTC, establishing a phase-down that drops to zero for all new projects after 2019. The American Wind Energy Association has said it will not ask Congress for another PTC extension.

The single most important long-term question for the industry, then, is how competitive it will be in a post-PTC world.

Pattern, which owns 2.7GW of North American wind capacity, believes the “majority” of the revenue gap that’s left after the PTC disappears will be plugged by the use of bigger and better turbines. Across the US, developers are using higher towers and longer blades to boost capacity factors and capture more wind.

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Still, better turbines alone “will not fully offset the PTCs”, Garland acknowledges. “You can’t get from there to here – it’s just too much of a step.”

“There will be a slight uptick in PPA prices,” he said this week on a conference call with analysts.

Garland nevertheless remains “extremely bullish” about the long-term growth prospects for US renewables. Part of that optimism is based on improving wind turbine technology.

“We see substantial improvement in our output [in projects we’re modeling and bidding for] delivery in 2020 and 2021,” he says.

Like several other large wind owners, Pattern is taking on more responsibility for operating and maintaining its own wind farms, as it looks to lower its operating costs.

“Keep in mind, a lot of what we were paying for was very expensive overhead [for turbine supplier] Siemens – their headquarters’ overhead, their labour cost structure, all that sort of stuff,” Garland says.

“We’re very optimistic that we’ll see substantial savings from doing it ourselves.”

Pattern also believes it can partially offset the evaporating PTC by building hybrid renewables projects, “where we integrate wind and solar and even batteries in some cases, to give a tailored product to our customers that increases [the projects’] value”.

Yieldcos pulling back from the market

Garland flagged up several other changes in the US renewables market that are potentially positive for Pattern. First, the company is seeing less competition in buying projects, a shift Garland attributes in part to ongoing weakness across the yieldco sector.

With NRG Energy contemplating selling down the entirety of its renewables business, its yieldco no longer seems to be on the hunt for projects. “We’re not bumping into [NRG Yield],” Garland says.

Meanwhile, two other yieldcos are effectively up for sale – First Solar and SunPower’s 8point3 Energy Partners and Abengoa’s Atlantica Yield.

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“Some of our competitors, or former competitors, are no longer in the business,” Garland says. “Even some of our bigger competitors are not participating in the acquisition process like we’ve seen in the past – they’re focusing more on their own development pipeline.”

Garland also notes that Pattern is seeing “a little pickup in returns in the solar business”.

Pattern has built utility-scale solar plants in Japan and Latin America, but has largely shied away from doing so in the US, having said that the margins for solar developers are unsustainably low. That seems to have changed recently, says Garland, who speculates that it may be due to some large PV manufacturers pulling back from the development business.

Both First Solar and SunPower, for example, are placing a greater emphasis on pure module sales than they have in the past.

Pattern recently announced a major strategic partnership with Canada's Public Sector Pension Investment Board, which has become the company's largest shareholder. PSP will also invest directly in some Pattern projects, allowing the yieldco to avoid raising equity finance at unfavourable times.

Garland also confirmed that Pattern bid its massive King Pine wind project in Maine into Massachusetts' recent clean-energy tender. But he says it's "very likely" that Hydro-Quebec will win a "big chunk" of the capacity on offer because it has "such an urgent need" to sell its excess hydropower.

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