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United States

United States

Short-term pain can give way to steady growth

UNITED STATES: The US wind industry has been mired in uncertainty as developers and manufacturers rush to beat the possible year-end expiry of the federal production tax credit (PTC).

The PTC battle has been complicated by the uncertainty of the November elections, in which energy policy is a key issue. Even so, the worst of the market doldrums, which are likely to begin in earnest in the second half of 2012, should be over within a year or two. After that, longer-term market drivers will push US wind towards recovery - even if the pace of this year's boom is unlikely to be repeated for some time. "There will be a difficult downturn followed by a slow and orderly recovery," predicts Dan Shreve, a director at Make Consulting.

By 2020, the US wind market should be bolstered by a doubling or more of natural gas prices - following a period in America of unusually depressed gas prices, which hit a ten-year low in March this year, at around $2 per million British thermal units (MMbtu). Also, over the long term, ageing coal plants will increasingly be replaced with cleaner sources such as wind and shale gas.

By the end of the first quarter of 2012, wind companies were planning for the worst, following the failure of repeated attempts to extend the PTC deadline - which has been the industry's main financial incentive since the early 1990s. With the likely timing of any extension slipping, a lapse in eligibility for the tax credit for wind projects has become a stronger possibility.

In recent years, the US industry has matured quickly and major players have entered the market, although that may not continue, according to Matt DaPrato, a wind analyst at IHS Emerging Energy Research (EER). "The US is in danger of rapidly losing maturity as the rest of the world moves forward," he notes.

Policy uncertainty

Longer-term forecasts are difficult, with a shift in national wind policy likely and with wind companies diversifying geographically and into other sectors, such as solar. Privately, several experts who spoke with Windpower Monthly agreed with an estimated annual average of 5GW to 7GW of new US wind to 2020 - with much installation pushed to 2015 and beyond. The offshore market will not take off properly until after 2015, they predicted.

Vic Abate, GE Energy's vice-president of renewables, is more specific. He says the US will see an annual average of 5GW to 7.1GW installed from 2014 to 2020 - provided there is a pro-wind policy "with teeth", such as a national renewable energy standard or PTC. Without such measures, his projection is sharply downgraded to between 1.4GW and 2.9GW a year. This uncertainty is creating problems, he warns."If wind was everything for GE, we'd struggle," he says, before adding that the same would be true if GE were only in gas or nuclear.

Wind-industry veteran Andy Cukurs, chief executive of Colorado-based manufacturer Boulder Wind Power - and a CEO of US wind companies for 14 years - bases his market forecast on the volume of ageing coal baseload likely to be replaced with power from cheaper fuels, such as wind and natural gas. Cukurs envisages average US wind growth of 5.25GW a year from 2013 to 2020, if domestic gas prices stay below $5/MMbtu. His prediction makes no particular assumption regarding policy.

Will they or won't they?

The short-term future for US wind will be rocky. According to analysts, this year's installations could range from 10GW to a record 12GW, compared with just under 7GW in 2011. If the PTC lapses, next year's installations could plummet to 1GW or less, says Amy Grace, a wind analyst at Bloomberg New Energy Finance. US nacelle manufacturing capacity could shrink from the current 13.5GW to as low as 9.5GW, she says. Even if the PTC is extended for more than a year, 2013 installations may still only reach 2-3GW and 4-5GW in 2014.

How likely is a two-year PTC extension? Grace says it is 80% likely to pass during the five months between the November 6 elections and the end of the first quarter of 2013. She lowers these odds to 50% or 60% were there to be a "lame duck" period, following defeat of the incumbent president and when the next Congress convenes in January 2013.

At the time of going to press, Abate believes there is a 50% chance of a one-year extension of the PTC any time this year. "Everybody on Capitol Hill understands the PTC. They don't want it to go away," he says. EER's DaPrato also puts the probability at 50:50, but that is for passage by the end of the first quarter of 2013.

Meanwhile, Make's Shreve proposes more favourable odds, of at least 70%, for a short-term extension by the end of 2012 or shortly afterwards, although he cautions that PTC support is not as bipartisan as wind proponents often claim. "Because of the elections, everything is hanging in the balance," he says.

Ros Davidson is Windpower Monthly's chief US correspondent

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