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Pattern Energy CEO: Wind energy costs will go down, PPAs will tick up

Pattern Energy Group Inc. CEO Mike Garland said wind power costs will go down after production tax credits are phased out, but utilities and companies will not fully recuperate from the loss of PTCs.

During Pattern Energy's second-quarter 2017 earnings call on Aug. 8, Garland said most of the reduced costs will be through technology improvements and turbine efficiency. Pattern has seen "substantial improvement" in output production for models the company is bidding for delivery in the early 2020s. While costs will go down and production will improve, purchase power agreements will go up, Garland said.

"It will not fully offset the PTCs, which we all recognize," he told analysts. "You can't get there from here. It's just too much of a step. But it's still driving down the cost to be very competitive."

In July, Garland told S&P Global Market Intelligence that he sees wind energy prices staying in the 3 cents/kWh to 4 cents/kWh range over the long term. Pattern had been able to provide wind power for less than 2 cents/kWh in high wind areas with low construction costs, such as Texas and Oklahoma, he said. Garland said he believes the next few years represent a "window of opportunity" for developers to determine how much they will want to contract when PTCs are gone.

Padding the development pipeline

Pattern nearly doubled its pipeline of projects from the first quarter, expanding it to 10,000 MW of development projects. Within the next few weeks, Pattern will close its acquisition of the Meikle Wind Energy Project with PSP Investments, Garland said. Once the deal closes, Pattern will have a 51% stake in the 179-MW Meikle facility in the Peace River Regional District of British Columbia for a total investment of about $65 million.

Pattern had also one of the biggest M&A utility deals in the second quarter when it announced that its privately held development finance vehicle Pattern Energy Group 2 LP would receive $784 million in funding, with Riverstone Holdings LLC providing $724 million in capital and Pattern Energy committing $60 million for a 20% ownership stake.

Garland said the company is focusing on acquiring assets through drop-downs from affiliate Pattern Development MSM Management. "We believe this is the best way to acquire high-quality assets at reasonable costs," he added.

Making moves in Massachusetts

Pattern Development made two bids in Massachusetts' request for proposals for clean energy resources, offering its Nine Kings Wind Farm in Maine, though Garland said they are competing with "some pretty aggressive players." He added that Pattern Development priced and sized its proposal assuming that Hydro-Québec would win a large portion for the RFP with its inexpensive hydro.

"We'll see how we do," he said. "But I think we like the RFP and doing business with Massachusetts sooner rather than waiting for the next — I think the next bid is going to be with Connecticut. So we think we have one of the best — certainly, one of the, if not the best, wind sites in the East that can supply these areas."