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United States

Outlook uncertain for US wind market

UNITED STATES: The state of the US wind market is hard to gauge --- it is unclear whether it has had a cold, the flu, or a more serious affliction.

The market saw 15% growth in 2010, compared with an annual average of 35% for the previous five years.

The nation faces headwinds, as federal policy remains unstable, with original equipment manufacturers (OEM) and component suppliers squeezed hard and forced to make startling price cuts.

Transmission bottlenecks still plague the industry, even as a few intelligent regulatory and policy decisions offer a ray of hope.

States have taken matters into their own hands and established renewable energy standards (RES) ahead of the federal government. These standards now have legal status in 29 states and Washington DC.

Electricity demand has slumped unlike any other time in decades, as natural gas prices hit rock-bottom and shale gas production ramps up.

For wind developers, power purchase agreements (PPAs) have become hard to clinch and contract prices have softened, despite it being a stellar time for utilities to be locking in wind.

Some major developers have actually halved their planned installations this year in the face of a continued bearish outlook for the industry.

The recession has exacerbated the volatility of the market and made it hard for companies to benefit from tax equity investments, where investors can offset credits against tax liability.

The US market in 2010 saw just 20 such wind transactions, totalling $2.7 billion — compared to $4.6 billion in 2008, yet still more than double 2009’s paltry total of $1.1 billion.

Market still active

But, despite all this, the US wind market remains active, with exciting developments.

In April, search engine giant Google and Japanese trading firms Itochu and Sumitomo announced they were joining GE and Caithness Energy as owners of the world’s largest wind farm, investing $500 million in the $2 billion 845MW Shepherds Flat project in Oregon.

The US is still the largest market in the world in terms of grid-connected capacity, although only by a whisker with China breathing down its neck.

Total US wind installations stood at just over 40GW at the start of 2011, generating 94.6 million MWh of wind power in 2010.

Manufacturers know the value of the US and scramble for a toehold on American soil.

In assessing the state of US wind, industry players usually cite the rollercoaster federal policy, saying the on-again, off-again production tax credit (PTC) and other uncertainties undermine project planning.

"It’s a hard time to make a five-year business plan," says industry veteran Jan Paulin of Cielo Wind Power.

"I can barely make a two-year business plan — we have no idea what the market will look like on January 1, 2013."

Clarity needed on incentives

Even if eligibility for the government’s Section 1603 financial recovery grant and PTC have been extended through 2011 and 2012 respectively, their looming expiry is one of the toughest challenges the industry faces.

The grant programme is unlikely to be extended further, because of fears about the federal deficit and posturing for the 2012 congressional elections.

In contrast, the PTC may well be lengthened — especially since, during a visit to Gamesa’s nacelle manufacturing plant in Pennsylvania in April, President Obama unexpectedly called for it to become permanent.

If nothing else, that suggests the issue will be debated during the election cycle next year, which is good for wind as it increasingly becomes an accepted part of the US economy.

OEM’s have faced the strongest headwinds. According to analysts Jefferies, for example, GE’s turbine prices were down by an average 17% year-on-year in 2010.

That may be a global figure but as a supplier that sells turbines largely in the US, it is a good measure of what US manufacturers face. Nor is 2011 expected to be much better.

As Vic Abate, vice-president of GE’s renewable energy business, has said, the US market is not expected to improve much until 2012 and even then growth will be sluggish.

However, he points out that he is highly bullish about the longer-term prospects and believes that wind is proving its resilience by staying the course in difficult times.

In the end, while the current issues are particularly tricky, the US wind industry will always have to overcome challenges of one sort or another.

That’s a view held by many, including Tony Dorazio, senior vice-president of wind development at Duke Energy Generation Services.

Asked about the outlook for the industry’s health, given the federal policy boom-and-bust cycle, he says: "I’m a business person. Markets change and if you don’t adapt, you die."

And despite the headwinds, wind power in America is showing that it has what it takes to stay the course.   

Ros Davidson is chief US correspondent of Windpower Monthly

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