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From Wind-Based to Market-Based Wind Operations in the USA.

Posted to Hitachi Energy in the Clean Power Professionals Group
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Gian Schelling's picture
Business Development Manager, Renewables Hitachi Energy

Having started his career with Vestas Wind Systems 13 years ago, Gian dedicated his entire career to the energy transition for Wind, Solar, BESS and Energy Efficiency in mostly global Business...

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  • May 25, 2022
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This item is part of the Special Issue - 2022-05 - Innovation In the Electric Power Industry, click here for more

Where we come from: Optimizing Wind Yields Around Wind Speeds.

For more than a decade, U.S. wind farm operators have been highly focused on increasing turbine uptime and maximizing yields by prioritizing uptime at periods of high wind speeds. As a result, availability rates have steadily increased from below 80% in the 1990s to over 98% today. The rise has also been driven by “yield-based” performance warranties that combine wind power forecasts with time-based uptime to guarantee certain megawatt-hour (MWh) outputs. Meanwhile, revenues for wind energy have essentially plateaued as incentives like production tax credits (PTCs) have subsided[i] since first being enacted three decades ago.

Today, the wind PTC stands at just 0.027 USD/kWh[ii] and is only available for the first 10 years of a typical 25+ year wind asset lifetime. This provides little incentive to increase overall production volume and makes it advantageous for wind park operators to shift their focus to maximizing the value of every kWh generated, particularly after PTCs expire following the tenth year of operations. Maximizing the value of every kWh generated needs to happen mainly for periods when market prices are best, not just when wind speeds are highest. Digital solutions help wind farms make this shift across their operations and take advantage of market dynamics to realize new areas of profitability. 

How the market has changed: From more wind to more returns.

Wind power adoption in the US, all of which is at onshore facilities, has reached an all-time high. However, with more than 122’000 MW[iii] of wind power installed in the US through 2020 (DoE), new installations are stagnating because many of the prime, easily accessible sites have already been developed. The slowdown in new onshore wind installations expected over the next several years will only partly be compensated by offshore wind projects that will emerge in that span.  

While the wind market growth rate is beginning to flatten, it is still growing – albeit at a slower pace than in the previous decade. Therefore, wind farm operators need to optimize power generation and maximize earnings by selling the energy when demand is high. With established competition continuing the fight for cost-out, levelized cost of energy (LCOE) has been reduced and capital expenditures (CAPEX) have been optimized. This has led to lower revenues from equipment, making new installations unprofitable for wind turbine generator (WTG) manufacturers. Going forward, the most attractive profit pool for onshore wind will be in maximizing value of your operating expenses (OPEX) rather than focusing on total kWh volume.

The question now is how to maximize the financial yield per kWh produced. Let’s look at how innovations around digitalization can help with this.

Three steps to mastering modern wind power market integration through digitalization.

A three-step approach, supported by big data and software, is required in modern wind power optimization. First, we need to understand how to maintain wind turbines so maximum energy yield is available when the energy is being offtaken at the best prices. Software that enables predictive operations and maintenance (O&M), working across a portfolio of various wind assets (independent of the OEM make) and offering “what-if” scenarios to see the effects of lower component wear and tear through lowering turbine output, is key. Asset management solutions like Hitachi Energy’s APM for Wind are OEM-independent and have built-in models available for a wide variety of wind turbine types from leading manufacturers. As wind turbines are most prone to failure when they’re old, such software must include older WTG models versus only the current, market-leading makes that have a limited installed base.

Second, we need to understand short- and medium-term energy market price developments. To have a meaningful impact on wind operations’ profitability, such forecasts should ideally rely on specific nodal information and forecast when limited or no returns are expected – due to predicted curtailments of specific grid connection points or complete regions, for example. Fluctuating wholesale prices can make it financially advantageous to schedule maintenance during periods of curtailment rather than during low-wind windows, which have traditionally been targeted as the prime time for service.

US market-leading energy market price forecasts like the ones from Hitachi Energy’s Energy Market Group provide nodal-specific forecasts of energy prices, curtailment risks and offer planning software tools to automate generation schedules as a function of energy market dynamics.

Once the highest achievable revenue and optimal WTG availability are determined, the third step is to maximize the profitability of the energy trading itself. For wind parks that operate under more stable power purchase agreements (PPAs) – those with corporate offtakers, for example – a relatively simple bidding and settlement software between independent power producers (IPPs) and offtakers can be a sufficient start into automating wind energy financial transactions. The value of automated trading is even higher in organically grown, complex portfolios of installed base that is exposed to trading in short-term markets due to higher dynamics in market movements. For such use-cases, mature Energy Trading and Risk Management (ETRM) solutions are the right fit, ensuring maximum automation of back-office tasks. For simpler billing-and-settlement, software like Hitachi Energy’s SettlementTracker provide a fit-for-purpose solution without unnecessary complexity. For full-blown energy trading in short-term markets, Hitachi Energy’s award-winning ETRM solution is increasingly sought after by wind owners and operators.

Digitalization can unlock the next level of wind power profitability.

Despite a decline in US onshore wind energy installations and diminished public support incentives for wind generation owner operators just for a while, markets continue to offer opportunities to optimize USD yields from wind kWh. The key will be to embrace the fact that wind speeds are not the only input to capitalizing on wind revenues – leveraging market demand is another area that can be used to generate profit. Moreover, operators need to time their O&M decisions based on energy markets predicted output of wind revenues; this can set wind owners and operators apart from their peers’ wind power generation profitability. Implementing and embracing this new reality, in a complex world of large installed base, requires an understanding of digitalization as the enabler, and the many types of software that can enable both predictive O&M and efficient, smart participation in modern energy markets.

Learn more about Hitachi Energy at www.hitachienergy.com

Hitachi Energy
Hitachi Energy is a global technology leader that is advancing a sustainable energy future for all. We serve customers in the utility, industry and infrastructure sectors with innovative solutions and services across the value chain.
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