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United States

Another year of bust after boom -- Near record for new capacity in 2003 but 2004 looking thin

The US wind industry has just completed a near-record year with almost 1700 MW of new installed wind capacity, but celebrations are subdued as it heads into 2004 without the benefit of the federal production tax credit (PTC), worth $0.017/kWh. For the third year running, Congressional Republicans and Democrats failed to agree on a national energy policy and the PTC, a tax credit that nearly all legislators favour, is again one of the victims.

Although wind turbine efficiencies have improved to the point where electricity produced by wind is nearly competitive with other resources, developers say the US wind industry needs the PTC for five to ten more years to compete head-to-head with gas and coal resources.

"I am not aware of any projects in the US that work without the PTC," says Padoma Wind Power's Jan Paulin. His prediction that the heavily divided Congress will continue to fail to extend the PTC until near the end of 2004, an election year for President George Bush, is one of the more glum in the industry.

Others are more optimistic that the PTC will in some way be extended, whether through a new energy bill or as an attachment to another Congressional bill. But Michael Skelly at Texas-based Zilkha Wind Power says the extension must occur by March if developers are to order the equipment they need -- the transformers, turbines and platforms -- to complete installation in 2004. Whenever the PTC is reinstated, 2004 activity is likely to drop far below 2003 performance.

A predictable cycle

The boom and bust cycle is becoming all too predictable. Since its adoption in 1992, Congress has twice allowed the PTC to expire before extending it. A booming construction year, such as in 2003, is inevitably followed by a hiatus in construction while US policymakers figure out how to extend the tax credit.

Nearly all of the 797.53 MW installed in 1999 -- an annual record at the time -- were in the ground before the June 30 PTC deadline. The following year was a disaster, with only 52 MW installed. The tax credit was also allowed to expire at the end of 2001, after another record-breaking year. It was reinstated in March 2002, but not before the damage was done. That year ended with a dismal 410 MW.

Congressional bickering over energy policy has also led to the expiration of the Renewable Energy Production Incentive (REPI), paid to projects owned by public entities, such as Energy Northwest in Washington, which expanded its Nine Canyon wind project this year. The agency's Gary Miller says that without the REPI it will be difficult next year to finance a public wind project anywhere in the US.

State cuts too

Changes at the state level will also have an impact on US wind in 2004. The Minnesota production incentive for small projects hit its limit in 2003, but not before it had contributed up to $0.01/kWh to 100 MW of Minnesota projects built in 2 MW lumps.

Without the incentives, the industry is coming to a standstill. Developers say they will continue to work on new projects, but will not order equipment. Nor will they be able to obtain financing until a tax credit is in place. The impact is already being felt, says the American Wind Energy Association. More than half the labour force at DMI Industries, a manufacturer of wind turbine towers in West Fargo, North Dakota, were laid off last month and Lone Star Transportation of Fort Worth, Texas, says it will lose as much as $1.5 million in revenue per month due to the PTC delay. Lone Star trucks turbine components to wind sites, an activity that accounted for 20% of its work in 2002.

"It is impossible for the US wind industry to maintain a steady growth rate in the present climate of uncertainty," says AWEA's Randy Swisher. "Failure to extend the PTC means that contracts are put on hold, workers are laid off, and the momentum that had built up this year in the US wind energy market is once again brought to a halt."

Plenty to celebrate

There is plenty of good news coming out of 2003, however. Wind generation installed during the year amounted to almost 1691 MW, with projects completed in 17 states. Leading the pack were California, with 234 MW, Minnesota with 215 MW, New Mexico with 205 MW, Texas with 200.5 MW and Oklahoma with 166 MW. The year's construction brings the country's total installed capacity to 6337 MW, elevating the US in world ranking to second behind Germany.

With 811 MW, powerhouse FPL Energy built nearly half of this year's capacity. PPM Energy completed projects in California, Iowa and Minnesota totalling 117 MW and is buying the output from three additional projects with a combined capacity of 387 MW, all built this year. Shell Wind Energy was involved in two large developments, the 162 MW Lamar Wind Project in Colorado and the 160 MW Green Mountain project in Texas, which it built with partner Padoma Wind Power.

The year was exceptional for the rise and dominance of the large wind turbine. GE Wind Energy's 1.5 MW turbine dominated the US market with the installation of 576 turbines in nine states. Vestas turbines were used at ten projects with a combined capacity of 386.4 MW. Of the 285 Vestas machines installed, 172 were 1.8 MW units marking the first time the larger turbine outsold the company's workhorse V47 660 kW machine in the US. In addition, the Danish turbine manufacturer installed a 3 MW turbine at a site near King Mountain in Texas, the first in the US.

Mitsubishi 1 MW turbines were used in two projects totalling 201 MW, while NEG Micon turbines accounted for 139.5 MW. Of the 99 NEG Micon turbines installed, most were the larger 1.5 MW and 1.65 MW models. Energy Northwest used Bonus 1.3 MW turbines in its 15.6 MW expansion of the Nine Canyon project.

Perhaps as testimony to the potential size of the US market, Suzlon of India and Gamesa of Spain installed their first turbines this year in the Midwest. Minneapolis-based Navitas Energy, 90% owned by Gamesa, used the Spanish company's 800 kW and 1.8 MW turbines in Illinois and Iowa, while Suzlon used its 980 kW turbine in Minnesota.

Uncertain 2004

While all developers agree that what gets built in 2004 will depend on what happens in Congress in the first few months of this year, a few still harbour some ambitious plans for the year. Following its build up in 2003, FPL says its plans for 2004 include 400 MW of wind generation, but it has yet to announce where those projects will go and when the turbines will go up. "Clearly the uncertainty surrounding the PTC will slow our development down," says FPL's Steve Stengel.

Greg Jaunich at Navitas Energy is planning to complete two projects next year for WeEnergies in Wisconsin, totalling 160 MW and using Gamesa 1.8 MW turbines. Any announcement about plans beyond that will have to wait until the PTC issue is settled, he says.

David Ramm of DKR, which completed 37.5 MW at its Sweetwater project in West Texas, says the company intends to expand that project by as much as 400 MW in the next two to two-and-half years.

But most developers were uncomfortable talking about 2004 plans before the PTC is extended. Paulin says Padoma Wind Power is developing projects in Kansas and West Virginia, but if it cannot settle a power purchase agreement (PPA) by March, for which it needs the PTC, then it cannot get the projects up by the end of the year.

Other parts of the industry remain optimistic. With about an 18-month development cycle, Jaunich says, many will continue to develop projects, even though they must wait for the PTC to finalise PPAs and get financing. Still, he says, it is more difficult to risk development time and money without a contract. Brian Evans at Renewable Energy Systems America agrees. While the British company will continue to put together projects, "They won't have financial closure until we have a PTC."

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