U.S. wind growing again, but business still choppy

Developers are scrambling to put turbines in the ground ahead of the expiration of federal tax credits for wind in 2013. Beyond that date, the industry's fortunes are hazy.

3 min read

The U.S. wind industry is growing again after taking a big step backward last year.

Yet turbine makers and wind farm developers are finding few reasons to celebrate as the clean energy source struggles to secure long-term government support while facing stiff competition from cheap natural gas.

Once the world's top wind market, the United States ceded that mantle to China last year as a weak economy halted its growth and cut new installations to half of the 10,000 megawatts of capacity built in 2009.

Since then, business has picked up, but not for the reasons the industry would like. Energy demand is still tepid due to a gurgling economic recovery, and the low cost of natural gas is keeping power prices low.

Pricing in long-term power sales contracts signed by wind developers has fallen 30 percent in the last two years and will fall further this year, according to IHS Emerging Energy Research.

Currently, the market is being shepherded by developers who are scrambling to put turbines in the ground ahead of a 2013 expiration of lucrative federal tax credits for wind. Beyond that date, the industry's fortunes are hazy.

"You are going to see a real slowdown in '13," Vic Abate, General Electric's vice president of renewables, said in an interview Monday at the U.S. wind industry's annual trade show in Anaheim, Calif.

"Over the next 12 months you are going to see all great news. You are going to see project starts are up, units are being shipped, orders for turbines are going up. It's going to give you a signal of security, but the reality is they are all targeted to end on December 31, 2012," he said.

Abate said he expects total wind installations in the United States to be about the same this year as they were last year, with a 20 percent to 30 percent increase in 2012.

Others expect that growth to be spread out between 2011 and 2012, although all expect the market to decline in 2013 without an extension of the critical tax credits.

"With the lack of an energy policy that motivates wind, the disruptive nature of shale gas has changed the map again and there is a rush back to gas," Ned Hall, president of AES Wind Generation, told reporters at the trade show. He said countries outside the United States have renewable-energy policies that are more favorable to long-term planning.

"AES does business in 28 countries, we are a U.S.-based company...and right now most of our time and effort as wind developers is focused outside the U.S.," Hall said.

Low prices, stiffer competition
Like all forms of renewable energy, wind power is dependent on government subsidies to compete with electricity derived from cheaper fossil fuels, and that competition has become more fierce as a fumbling U.S. economy and a boom in shale drilling have sent natural gas prices downward.

That decline has also pushed prices on wind turbines down sharply, hurting manufacturers' profits. Andy Cukurs, CEO of Suzlon Wind Energy, the North American division of Indian wind turbine maker Suzlon Energy, said wind turbine prices have dropped nearly 30 percent in three years.

"As utility companies have auctions or offer power purchase agreements at lower prices, the whole value chain decreases," Cukurs said. "It puts pressure on [original equipment manufacturers], on construction companies, transportation companies, the whole nine yards."

U.S. wind turbine market leaders GE, Vestas, and Siemens also face growing competition from Asian rivals including Suzlon, Sinovel, and Goldwind.

A government support plan that must be renewed every couple of years only makes matters worse.

"The hardship on the industry is this sort of stop-start policy," said Lisa Frantzis, managing director for renewable and distributed energy at consultant Navigant. "If you look back it's always been extended, but the timing can really impact things."

The industry is hopeful that Washington will extend the tax credits beyond the 2012 deadline, but executives said that even though most politicians are supportive of the industry, they do not share its sense of urgency.

"I don't really get a sense that anybody says no. It just never seems to happen," GE's Abate said. "If it goes through the lame-duck session of next year it's way too late."