Domestic market for distributed wind turbines faces several challenges

August 27, 2015

Source: U.S. Energy Information Administration, based on U.S. Department of Energy 2014

The domestic market for distributed wind turbines has weakened since the record capacity additions in 2012. Last year’s installations of mid-size and small wind turbines were the lowest in a decade. Relatively low electricity prices, competition from other , and relatively high permitting and other nonmaterial costs have presented challenges to the distributed wind market in the United States.

Most distributed wind turbines installed in 2014 were connected directly to distribution lines to serve local loads. Distributed wind turbines can also be installed either off-grid or grid-connected at local sites to offset all or a portion of a site’s electricity consumption. Compared with electric utility wind facilities, distributed wind turbine installations are often smaller units, below 1 megawatt (MW), and thus may not appear on , which has a 1-MW threshold at the project level. Although some large-scale turbines (1 MW or greater) are used in distributed generation applications, large-scale turbines are more often used at wind farms for wholesale power generation, which is sent through transmission lines to more distant customers.

Based on information in the U.S. Department of Energy’s , most of the 2014 distributed wind capacity was installed on institutional sites, such as schools, universities, and electric cooperatives. Government installations on city, municipal, or military facilities made up more than one quarter of 2014 installed capacity. Other sectors (industrial, commercial, agricultural, and residential) were relatively small in terms of capacity, but larger in terms of number of installations, as the average turbine size on these sites is relatively small compared with institutional and government sites.

Source: U.S. Energy Information Administration, based on U.S. Department of Energy 2014

Some customers who install these turbines are eligible for federal tax credits, in particular the . To qualify, projects had to be under construction or in service by the end of 2011 and must have applied for a grant by October 1, 2012.

Even though these tax credits are still available, the expiration of the cash payment option drastically reduced the installation of small and mid-size wind turbines. Further affecting the outlook for distributed wind is the , added this year, that small wind turbines meet performance and safety standards in order to qualify for the ITC.

Other factors cited in the recent decline in distributed wind installations are the relatively low price of grid electricity and , which also receive the 30% ITC. Nonhardware costs associated with distributed wind, such as permitting, financing, installation, and supply chain costs, have not fallen as much as they have for solar photovoltaics. U.S.-based manufacturers and supply-chain vendors in the distributed wind market have been vulnerable to market downturns, preventing the market from growing at a faster rate. For these reasons, U.S.-based manufacturers may look to international opportunities, particularly in Japan and South Korea, to find more favorable markets.

Principal contributor: Owen Comstock

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