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North American wind power capital investment to plunge with PTC phase-out

Q2: U.S. Solar and Wind Power by the Numbers

Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


North American wind power capital investment to plunge with PTC phase-out

Capital investment in the American and Canadian wind industry will fall dramatically in 2021, when the critical production tax credit expires, according to IHS Markit.

Annual operating and maintenance expenses, currently about $5 billion to $6 billion, will continue to rise, according to the research firm's latest report on costs for the region's wind power assets, increasing by nearly 40% to more than $8.3 billion by 2027.

In 2021, operating expenditures will surpass capital investment for the first time. After peaking at $18.5 billion in 2020, CapEx will fall to just under $3 billion in 2024 as the wind industry adjusts to demand being cut in half. Operating expenditures, meanwhile, will reach nearly $9 billion by 2030, the market research firm found.

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"It is definitely a serious concern, especially for those who are involved in building projects," Maxwell Cohen, associate director at IHS Markit and co-author of the report, said in an interview. "If you're a turbine manufacturer, the drop in CapEx spending means you're going to be selling fewer turbines. If you're a project developer and your business model is to flip a project to someone else … that means fewer projects for you to be building as well."

As a result, turbine makers are getting creative with services to generate revenue, such as all-inclusive warranties and production-based guarantees, Cohen said. Some developers can continue to maintain their projects, even after they sell them to another party, through digitalization, artificial intelligence and drones.

"Those three things are affecting energy across the board, especially if you think transmission and pipelines," said Rafael McDonald, who leads IHS Markit's North American renewable power unit. "If the wind industry does not get on board with these things, they will be left behind compared to competing technologies."

Steel tariffs may also play a role in increased costs for wind operation and maintenance. Since President Donald Trump announced a 25% duty on steel imports, major wind turbine makers have downplayed the impact of U.S. steel tariffs on their prices. But suppliers have voiced concerns that they may have to pass on increased costs to customers.