Why even arch-hater Donald Trump's return wouldn't halt US onshore wind's march

Even the possibility of arch foe Donald Trump returning to power is not dampening optimism within the US onshore wind industry that 2024 will mark a turning point toward strong, stable growth through this decade.

For sure, challenges remain, notably permitting, siting, and transmission constraints that defy easy solutions. Still, the prevailing view is that the landmark 2022 federal climate law driving supply and market demand expansion will largely endure should President Joe Biden lose his reelection bid in November.

“Renewable penetration is expected to double to 30% by 2030 and Energy Resources is ready,” said John Ketchum, CEO of parent NextEra Energy, referring to the country’s electric power generation mix. NextEra Energy Resources, the US onshore wind pacesetter with 24GW, expects to add 8GW within three years.

Other large independent power producers, many owned by Canadian and European companies and pension funds, along with utilities that are part of billionaire Warren Buffett’s Berkshire Hathaway conglomerate, the number two onshore wind owner, also see steady expansion. They already have at least 17GW of projects slated for completion into 2026.

Analyst S&P Global Commodity Insights forecasts the US will install an average 11.2GW a year through the end of this decade.

“This means that by 2030, the US will likely have a total of 230.8GW of onshore wind operating capacity,” said Andrew Berg, senior research analyst, power and renewables, North America.

After three tumultuous years, the onshore sector is emerging more resilient, albeit more concentrated with fewer medium-size and smaller asset owners and suppliers. It weathered a debilitating cocktail of federal subsidy uncertainties, four-decade high inflation, soaring financing costs, and Covid-related logistics snarls, supply chain dislocations, and worker shortages.

Not surprisingly, onshore wind installations have been on a downward spiral from a national record 16.8GW in 2020 to 13.4GW a year later, 8.5GW in 2022, and possibly 7.5GW or lower last year. This is the first time the modern US industry has had three consecutive years of reduced activity.

Analysts don’t expect a big rebound this year. Still, as 2024 progresses, the sector will increasingly benefit from an improving macroeconomic environment and final rulemaking that clarifies Inflation Reduction Act (IRA) eligibility criteria for lucrative long-term production and manufacturing tax credits.

Also helping are more fluid ports and railroads, power consumption growth as the US shifts toward electrification, stronger corporate and utility demand for renewable energy, and supply chain diversification and onshoring.

Uneven progress

All that said, industry officials caution that progress will be uneven.

For example, the 12-month inflation rate fell to 2.9% in December, almost half the 5.4% increase a year earlier, and one-third the rate in June 2022. While inflation falling faster than expected is good news, real interest rates – those adjusted for inflation – have risen as a result and remain historically high.

The Federal Reserve last week changed its interest rate outlook, providing room to lower the range of its benchmark federal funds rate later this year, a move Chair Jerome Powell hinted could begin in May. If so, then high project financing costs should begin to ease.

Getting IRA guidance fully in place has been a lumpy and time-consuming process given the law’s complexity and scope, and involvement of three large federal rulemaking bureaucracies: Department of Treasury and Internal Revenue Service, its tax code administrative and collection arm, and Department of Energy.

“There is still a lot of uncertainty and clarification needed on certain aspects of it around things like labour, wage, and local content,” said Samantha Woodworth, senior research analyst, North America wind, at Wood Mackenzie, referring to initial guidance for projects to qualify for base-level tax credits plus a potential 10% adder.

“Unfortunately, that has forced a wait-and-see period for developers due to the fact that they want to be able to catch this tax credit if they can,” she added.

Biden is keenly aware the clock is ticking on getting IRA guidance done correctly before elections. He views the law as playing a critical role in enabling the US to meet his ambitious climate goals. These include a 2030 target to cut greenhouse gas emissions 50-52% from 2005 levels.

IRA tax credits aim to turbocharge clean energy availability and demand, as well as subsidise development of domestic supply chains and promising new technologies such as green hydrogen. There is no cap on their use for onshore wind (and various other technologies).

They are scheduled to phase out either at the end of 2032 or when national power sector emissions drop below 25% of the level in 2022, whichever occurs later. Some analysts believe with current policies, the emissions threshold won’t be reached until the late 2030s – if then.

This would keep the credits in place and could raise the cost of IRA’s climate and energy provisions to at least $1 trillion versus $391bn estimated by the nonpartisan Congressional Budget Office.

IRA’s transferability feature has also created a new market-based system whereby renewable energy project owners who qualify for but are unable to use tax credits, can immediately sell them to an unrelated third-party investor.

This is enabling them to raise cash and financing and bring more non-traditional players into the fast-growing market that are looking to reduce their tax bills. Bankers believe this product will be used to scale wind power, the broader energy transition, and its associated supply chain development.

“We see really, really good demand for the credits and expect to continue to utilise transferability as an option going forward,” said Kirk Andrews, CFO of NextEra Energy.

For onshore wind, having additional domestic manufacturing capacity is also key to sustain future growth. The US is reasonably self-sufficient for nacelles and towers, although further investments will be necessary as turbine nameplate ratings continue to increase.

'Falling short on blades'

“It is really on blade manufacturing where the US is falling significantly short,” said Woodworth. “The blade side is what could stand to benefit the most from having the tax credits to incentivise new manufacturing facilities.”

Marc Reimer, partner, renewable energy, at ERM consultancy cautions that getting full local manufacturing capability up and running will be an ongoing process this decade.

He notes that building a blade facility from scratch is an expensive investment that involves property siting, permitting and construction, and workforce development.

“It will take time to stand up the domestic supply chain, but I think policy is helping speed that along,” he said. “It’s going to happen but not overnight. Developers are smart to look at start siting projects accordingly.”

Against that backdrop, IRA continuance is paramount for onshore wind given until now it lacked a policy horizon allowing for long-term planning for plant and project investment.

“The reason being it is a law. Changing it would require going back through Congress. I think that is going to be difficult to do unless there is a massive Republican takeover which I don’t think is going to happen. We’re too balanced as a country for that to happen,” she said.

Democrats and Republicans presently hold narrow majorities in the Senate and House of Representatives, respectively. Early polls suggest November voting would result in the parties swapping control of the two chambers.

“The other thing is you think about the executive branch’s role in implementing legislation. The IRA is quite prescriptive. It’s very clear what it wants done. There is less room for a new administration to push their regulations to interpret it differently. They will try to do that around the edges, but by and large the IRA holds,” argued Gross.

Abrupt changes to IRA rules could both endanger up to several hundred billion dollars of planned clean energy investments in response to the law, a majority in Republican districts, and spike political risk of doing business in the US.

"One would hope that not all of those Republicans would vote against their local interests," said Gross.

Trump claims to hate wind power, questioning its climate, economic, and energy benefits, while slamming turbines as eyesores and unreliable. Nevertheless, onshore additions averaged 10.1GW annually during his term in office, roughly the same as the initial three years under Biden.