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Long term orders bring new stability -- Wind business matures

With wind turbines in short supply and the US market booming under its renewed production tax credit (PTC), the country's major project developers are pursuing a strategy of buying equipment now and deciding what to do with it later. Advance orders for turbines in the US reached 2450 MW last month when Vestas announced the sale of 600 MW of its 1.65 MW and 1.8 MW models to Horizon Wind Energy, which has an option to buy a further 200 MW. Delivery will start in June, with all turbines to be operational by the end of 2008. Horizon was known as Zilkha before its purchase by Goldman Sachs, a global investment bank.

The Vestas order is Horizon's second in quick succession and follows an agreement with Spain's Gamesa for 400 MW, again with an option for a further 200 MW (Windpower Monthly, December 2005). It is also the largest of five similar long-range purchases made by other companies over the past four months -- and it breaks a run of GE orders placed by PPM Energy, Enxco (owned by French utility Electricité de France) and Invenergy Wind.

PPM is buying 500 MW of GE turbines for 2006 and 2007. Further announcements are expected. "We are in the process of locking up turbines," says PPM Energy's Harm Toren. "Unless you're in front of this wave you might find yourself in a difficult situation." Enxco, while not ready to announce numbers in its dealings with GE, is also setting itself up for this year and next. "Procuring turbines today can be very difficult," says Enxco's Tristan Grimberg. "In terms of price, it's a sellers' market right now," he adds. "US supplies are under capacity as we speak."

Invenergy is buying 350 MW of GE turbines for use in projects slated for 2006 construction. "We have a number of projects in various stages of development around the US," says the company's Kevin Smith. "We haven't really tied those turbines down to all those projects yet and we have some development acquisitions in the mix as well. But the market for 2006 is sold out and 2007 is pretty close to sold out."

The trend in long term contracts was started by FPL when it secured 600 MW of Siemens turbines in late summer (Windpower Monthly, October 2005).

The lion's share of the blame for the turbine shortages, developers say, lies with the US government's on-again, off-again policy support for the wind industry. The boom-and-bust development cycles as the PTC has come and gone have not encouraged turbine makers to increase production capacity to meet demand that could disappear with the next PTC expiration -- and Smith sympathises with their dilemma.

"If you're GE, do you spend a bunch of money and hire a bunch of people for less than two years, then wait to see what the government does with the tax credit? It's hard to take a long view on the market on a hunch about the PTC," he says. "Two years at a time isn't really allowing the market to grow in the way that it could." Grimberg agrees. "I think the potential for developing wind is much larger in the US than in Europe. I just hope a more consistent tax credit policy comes along within the next few years -- then things could become very exciting."

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