Tax credits are expected to continue the wind turbine market’s rapid growth for a least a few more years, according to a recent IHS Markit report.

But the coming market slowdown will result in significantly higher costs for operations and maintenance (O&M). The Sept. 10 report projects that expenses for wind power assets will cost the industry around $7.5 billion annually by 2021.

Currently, North American wind O&M costs between $5 billion and $6 billion each year, but that is expected to surpass $8.3 billion annually by 2027, or close to a 40% increase. IHS Markit analysts say the increased expense comes as additional maintenance is needed for both the newer projects as well as the aging wind power assets.

“You have to look at how you are doing your operating and maintenance because that is going to be the industry’s focus going forward,” Michael McNulty, a research associate at IHS and a co-author of the 2018 study, told Hart Energy. “You have to look at how everything is done and start looking at your data, looking at drones, usage and determine better when maintenance needs to be done and stuff like that.

“Many players in the wind industry are already good at this.”

The phasing out of the Federal Production Tax Credit at the end of 2019 is what is driving the expectation of increased expenses for older wind projects because fewer new projects will be coming online without the tax benefit. The “2018 IHS Markit Wind O&M Benchmarking in North America: Aging Turbines, Rising Costs” study forecasts that the industry will hit a critical point in 2021 because operating expenditure (opex) in the North American wind industry will eclipse capex for the first time.

Even still, IHS Markit associate director Maxwell Cohen said wind will remain competitive with traditional sources of energy as well as solar power.

“With the Production Tax Credit, certainly the cost of wind is quite competitive with wholesale power in many parts of the country and that’s what is driving this boom,” Cohen, co-author of the report along with director Rafael McDonald and McNulty, told Hart Energy. “Much of what’s being built is not actually in regions like California with their 100% clean energy mandate that was just passed.

“That’s not really where the big boom in wind is,” he said. “Where it’s being built is places that don’t really have any policy supporting it like Texas or the Great Plains or the policies that they have have basically been fulfilled. The reason people are building them is because of economics. The wind resource is so good and costs have come down so much that the price of wind-generated power is actually lower than wholesale. So it’s a win for consumers.

“Once the credits are gone the fundamentals look different but we still see costs coming down,” Cohen said. “The price of wind power will certainly rise as the production tax credit phase out but then, in the long run, there are still improvements in technology that will still bring those prices back down.”

Cohen and McNulty both say that as the building of new projects slows, maintenance and services of existing wind power assets should pick up. The average age of installed capacity will rise from seven years in 2018 to 14 years in 2030.

As projects age, they will cost more, which will add to the increased O&M.

“The question is if you are in the wind industry do you want to focus more on services and helping to maximize production and availability on projects that already exist,” Cohen said. “Maybe that’s an opportunity that is a bit intriguing and underserved at the moment.

“A lot of folks in the wind industry are very aware of this forecast of ours,” he said. “It’s generally known across the wind industry that once this tax credit is gone it’s tough going for the industry for a couple of years. So, if you are focused on building and manufacturing wind turbines or building new wind projects and then selling those projects to someone else you might not do much business in the 2020s.

“If you are a turbine manufacturer maybe you package in 10- or 20-year warranty and you are more involved in servicing the project. Or if you are a developer you say, ‘I have to sell this project to someone when it’s completed but keep me on as the service provider.’ This is going to re-orient the industry a little bit and we think people should be looking more at services as an area to invest in.”

North American Wind Capex vs. Opex Outlook 2018-2030 (Source: IHS Markit)

Today, there are more than 50,000 utility-scale wind turbines comprising nearly 100,000 megawatts of generating capacity installed in 42 states in the U.S. and in 12 provinces and territories in Canada. IHS projects that by 2028 those numbers will have jumped to 75,000 wind turbines and 150,000 megawatts with most coming on in the next few years before the tax credits run out.

The older projects will obviously cost more to maintain. There is uncertainty about the newer projects that are either on the market or still in planning stages. A key finding from the benchmarking study is that larger, newer wind projects have O&M costs averaging 25% less per megawatt-hour than those using the smaller turbines installed prior to 2010.

McNulty said the lower costs were factored into the study. He says costs from 2009 to 2013 were higher than 2013 to 2017 and dropped by as much as $2,000 per megawatt.

“Even if a newer vintage of product has efficiencies that older ones don’t,” he said, “we will be watching to see if those efficiencies we see in the first year are maintained as these projects age. Just the growth of the industry and also the aging of installed capacity that is already there. Even if they are cheaper in the first year as things age they tend to cost more whether they are older or new. For that fact, opex is going up. You are going to see opex drop but you might see $1 per megawatt installed. That might be going down as a trend.”

Terrance Harris can be reached at