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United States

A huge market now running on expectations -- New installations double in the US

Never before has the American wind market seen growth on the scale achieved in 2007. The industry shattered its own expectations and ended the year having added 5365 MW, well over double the volume installed in 2006. Nearly 4000 MW of that is in wind farms with rated capacities greater than 400 MW. The growth represents a 47% increase in US installed wind capacity in one year, bringing the cumulative total to 16,970 MW. The figure is slightly greater than the American Wind Energy Association's tally of 16,818 MW, which leaves out two projects confirmed as online by their operators. At least another 700 MW was built by the turn of the year and in commissioning. The only country now boasting more installed wind power than the US is Germany, at 22,250 MW.

The surge means that wind power is now providing more than 1% of US electricity for the first time, with the proportion up from 0.8% at the end of 2006 to about 1.2% today, states Ryan Wiser, an energy analyst at the Lawrence Berkeley National Laboratory. It is still a long way off the 20% wind power by 2020 goal being studied by the American Wind Energy Association (AWEA). That requires tripling annual installation to about 16,000 MW a year, according to Wiser.

Not long ago there were people who doubted that 3000 MW a year was possible, he says. "Well, so much for that, that was no problem. No doubt sixteen thousand megawatt per year is a challenge but now I don't think it's impossible." Europe has reached an annual growth level not too far off 16,000 MW a year, says Wiser. The United States has easily more wind potential than all of Europe combined, he points out.

The big difference is that Europe has regionally strong electric networks and the US has weak grids that are especially poor at connecting America's vast geography and its wind resources with its population centres. "It's really transmission that will be the most fundamental challenge to getting beyond 5000 MW per year to something much higher," says Wiser.

Policy woes

The more immediate problem lies in settling the fate of wind's federal production tax credit (PTC), due to expire at the end of this year. Now worth $0.02/kWh in tax rebates to wind farm owners for the first ten years of operation, the PTC is an aggressive market driver. For every dollar invested in wind farm, the taxpayer pays roughly $0.0335 for the PTC and another $0.30 to pay for the allowed depreciation over five years, according to Keith Martin of Chadbourne Parke LLC, a legal firm.

With that level of extra income available, investment in wind power will stop dead if it becomes clear that the PTC will temporarily lapse for a number of weeks or months next year, before once again returning, as has been the pattern of the past. In an election year, the PTC needs to be attached to legislation that gets passed and signed into law in the next ten weeks or so or it will likely not be available past December 31, at least for a while.

The problem with a lapse in the PTC, say experts, is that it is not a clean break. If it expired with a certain assurance never to rise again, at least some enterprising project developers would find investors to back new build, given the strong market drivers for non polluting forms of generation. The two main drivers, aside from the PTC, are the rising cost of offsetting carbon emissions and state mandates for renewables. "But that's not the world we're in," says Wiser. "We're in a world of PTC uncertainty. If it's not extended this year, it might be extended next year. In that environment there is almost no incentive to build a project because why not just wait until next year and hope the PTC is around."

Wiser points out that roughly 92% of the new build last year was in states mandating minimum standards of green power in electricity supply portfolios. Although states with good wind resources have tended to be more receptive to enacting renewables portfolio standard (RPS) laws, the RPS effect is significant, he feels. Utilities bound by RPS mandates and keen to hedge against carbon taxes may go ahead with some projects. For independents, PTC uncertainty is another story.

Industry confidence in the market is far from stable, points out AWEA's Randy Swisher. He cites construction company Mortenson and turbine manufacturer Vestas as two examples of companies holding back their investment in the American wind power economy. Mortenson, with a queue of wind industry customers seeking its services, has capped its growth and Vestas is reluctant to establish full scale manufacturing in the US. "And they built how many factories in China? That's really a risk management calculation on their part," says Swisher.

Building an industry

A notable accomplishment in 2007 was the rekindling of a US wind industry. Six component supply factories started up (table next page), creating over 775 jobs, according to AWEA's Christine Real de Azua. The list includes turbine assembly by Spanish Acciona in a new Iowa facility and assembly of DeWind turbines in Texas by Composite Technology Corporation. A further eight new manufacturing facilities were also announced, including some very large plants, says De Azua. They are expected to create over 5000 jobs. Most are for production of blades, followed by turbine towers. The broader construction and transportation industry has also been ramping up staff and honing its services for the wind power market. The economic stimulus that wind power represents was a main AWEA lobbying message through the year.

"When we are talking about wind becoming one of the leading sources of new manufacturing jobs here in the 21st century, we see state after state developing a wind specific economic development strategy in which they are recognising the opportunity and going after it with a lot of savvy. It's pretty exciting," says Swisher. He notes that most recently Michigan governor Jennifer M. Granholm has been overseeing a dialogue on transitioning the state from supplying the American auto industry to serving the growing wind industry.

A typical turbine can have as many as 8000 parts, adds Swisher, so "drilling down the supply chain" for firms, both foreign and domestic, that can provide parts is an important part of AWEA's work, along with attracting big name companies. He was speaking just before leaving for Germany to court more companies to US shores.

Transmission

As Wiser points out, lack of adequate transmission capacity has the potential to be more of a show stopper than even the lack of a PTC. But 2007 may have marked a breakthrough in finding the right strategic approach to stimulating timely investment in new wires. California and Texas, both states where wind development has been constrained for lack of wires between where the resource is located and where electricity is needed, took steps to establish proactive transmission policies.

As a result, the California Independent System Operator (CAISO) won approval from the Federal Energy Regulatory Commission (FERC) to roll the cost of transmission expansions onto customers as soon as wind projects have linked into new wires. And in Texas, the Public Utilities Commission tentatively approved the state's Competitive Renewable Energy Zone (CREZ) plan. This guarantees long term revenues to pay back capital investment in new wires from wind stations connecting into them. The plan is set to provide transmission for as much as 15 GW of new wind in Texas over the coming decade.

Other efforts include an additional plan from California's Public Utilities Commission called the "transmission back-stop" that provides cost recovery for transmission owners that finance upgrades that are deemed helpful to the state reaching its renewables goals. In the Pacific Northwest, the Bonneville Power Administration has a transmission plan expected to bolster wind, while Colorado is emulating Texas by moving towards its own CREZ plan. Meantime, the nearby Midwest System Operator has its own proactive transmission approach.

"There are six related policies and each of them took us a step forward in 2007, says AWEA's Rob Gramlich. "I think six is a pattern. It's not just a novel idea anymore or a concept like it was in 2006. These are really catching on and being implemented."

At the federal level, FERC order 890 helped set the scene for much more wind on the national network. It requires that all utilities engage in thorough regional planning, it eliminates penalties for wind's inability to deliver a fixed volume of power at a specific time, and it established a category for energy sales called "conditional firm." This allows a wind generator to put more wind on the system overall during a given year if the generator is willing to ramp down during peak output and low demand, occurring only a few hours in a given year.

Market leaders

Home grown GE Energy once again dominated the US market in 2007, installing 2308 MW, though its market share slipped to 43% from 47.5% in 2006. Danish Vestas put up 1107 MW, more than double its 463 MW in 2006, and increased its market share to just over 20% to beat Siemens into third place. Siemens' market share dropped to 16% from 23% in 2006. Spain's Gamesa saw its market share ramp up from 2% in 2006 to 9.2% in 2007. Clipper Windpower installed its first turbines in two projects.

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