Now May Be the Best Time to Give Your Wind Turbine Makeover

(Bloomberg) -- It’s a good time to overhaul your wind turbines.

Wind-farm operators can earn an 11 percent rate of return for replacing turbine nacelles, hubs or rotors this year, and that’s even after a key federal tax break was reduced from last year, according to a report Wednesday from the consulting company ICF International Inc.

But that sweet spot may be short-lived as the production tax credit shrinks again next year before disappearing altogether in 2020. Operators are upgrading and overhauling older turbines and turning to new technologies like artificial intelligence and better weather forecasting to squeeze more power out of every breeze.

“The incentive is to do it now,” said Chris Mertes, a manager at ICF and co-author of the report. “It may make better financial sense this year than it will next year or the year after.

Repowering -- the industry term for replacing or overhauling aging turbines -- added 7 megawatts of capacity in the U.S. last year, according to ICF. That could swell to 300 megawatts through 2022, according to Bloomberg New Energy Finance.

The best candidates for repowering are 1.5-megawatt machines on 80-meter (262-foot) towers installed between 2003 and 2010, according to ICF. There are about 15 gigawatts of capacity in that category. Turbines with high maintenance costs, serial failures or regular performance issues are ripe for upgrading.

Mertes calculated the potential rate of return by modeling cash flows from projects with and without retrofits. Actual returns will depend on factors including the amount of energy produced by a turbine and prices paid for that power.

Repowering took off after the Internal Revenue Service in 2016 expanded the pool of projects eligible for the tax break. Prior to that, upgrading “wouldn’t be worth the investment as often,” said Amy Grace, a New York-based analyst at Bloomberg New Energy Finance.

Projects that qualify this year can recapture 60 percent of the production tax credit for 10 years. That drops to 40 percent in 2019 before the credit ends. Wind farm operators have four years to complete their project to qualify for the tax credit.

“With the added benefit of receiving 10 additional years of the production tax credit, the economics start to look good,” Grace said.

To contact the reporter on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Will Wade, Joe Ryan

©2018 Bloomberg L.P.