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United States

Cost cutting needs some new thinking

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Now that the US production tax credit (PTC) for wind power seems dead for a little while, instead of chastising Congress, the obviously easy target, should we not be exploring why it is that wind turbine manufacturers cannot cut their costs enough to make wind energy a little more economic?

At a recent American Wind Energy Association project finance conference a person from Babcock and Brown stated that the PTC accounts for about 38% of the value of a typical US wind project.

The PTC, of course, has allowed developers to cut electricity sales prices pretty significantly, or so it seems, perhaps in an effort to attract new sales agreements, and thus it has become a large component of project value.

While it is clearly in the best interest of turbine manufacturers for this subsidy to exist, it seems that there should be someone in the wind industry with an interest in cutting costs.

The japanese

What is the potential for and likelihood of future cost reduction? In the 1960's here in the United States, cars all had big V-8s, rear wheel drive, and bias ply tires (the Volkswagen Beetle excepted). Then the Japanese came along. What is the analogy for the wind industry?

I would not be at all surprised to learn (if the truth could be known) that with a level playing field, today's wind technology would be quite competitive. In fact, I would be surprised to learn differently. Unfortunately, the playing field will never be level. It is a variant on the golden rule. When the wind industry has the gold it will get to make the rules.

I think wind can be a winner even when running uphill on a slanted playing field -- and in my opinion this is the best way to win. But to do so will require some out-of-the box thinking that does not seem to exist in today's wind turbine business any more than it did in Detroit in the 1960s.

There are several well run companies all pursuing the same technology and they have been at it for many years. If one of them had a great solution, there would be market dominance. It just doesn't seem to be there and I'm simply curious about the prospect of a significant breakthrough ever occuring when everyone is following a "me too" strategy.

For information on the cost of wind power in 2003, see our annual analysis and assessment of wind's competitive position on its major markets in this issue. The article, which starts on page 39, compares the price of electricity from wind plant with that of coal-fired, gas-fired and nuclear power stations.

It also looks at projected price trends for the same technologies over the next decade, with a graphic illustraton showing the crossover points for when wind generally becomes the cheapest of all the options for electricity generation. The curve for wind is based on learning curve theory, not on extraordinary leaps in the advancement of wind turbine technology.

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