United States

United States

Adjusting to dynamics of a steady market -- Looking good in America

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With fears of a return to the boom and bust years just below the surface, the US wind industry continues its call for consistent and long term policy support from government. But if last year is any indication, the market is for once on an even keel. Yearly installations held steady from 2005 through 2006 and market growth is expected this year and beyond. The US saw 2485 MW of new plant come online last year (tables 1/2), a capacity increase of 26%. While more was installed than the just over 2400 MW in 2005, the slight increase was below industry expectations for the year, largely a reflection of demand for turbines outstripping supply and the easing of year-end deadline pressure with the extension of wind's federal production tax credit (PTC) through to the end of 2008.

Notable construction included an additional 522 MW to the expansive 735 MW Horse Hollow project in Texas; Washington's 228.6 MW Wild Horse project and the 199.5 MW Big Horn plant; a 90 MW Mitsubishi plant in New Mexico; 11 small projects in Minnesota and Texas using Suzlon turbines; and Maine's first commercial wind plant, the 46 MW Mars Hill project. Turbine supply was also spread more equally among the major players in 2006 compared to 2005, though once again GE Energy was all dominant (chart). Of the top three, it supplied 1180 MW of the 2006 total, compared with 1432 MW in 2005, with Siemens arriving back on the market with a bang, moving sharply ahead of Vestas to supply 573 MW after a zero year in 2005. Vestas came in third at 463 MW, like GE, down on its 2005 total, which was 700 MW.

A continuing dynamic market is having its effect on the US wind business. Industry consolidation and globalisation -- seen by some as a healthy sign of the times -- marked the year. But the trend towards bigger and more international companies is also seen as a symptom of a challenging market structure, rising hardware costs and continued scarcity of turbines. "The way we subsidise wind in the US means that you have to be a large company of some scale," says Josh Magee of Emerging Energy Research, a global market observer. "Small developers in the US have had a very hard time accessing the reputable global turbine vendors. The market moves toward the companies with the balance sheet to set up multi-year, stable agreements, locking in turbine supply that frees them up to go out and focus on project development."

The notable developer consolidations in 2006 that added to globalisation of the US market included BP's acquisition of East Coast developer Greenlight Energy and West Coast developer Orion Energy, and Spanish utility Iberdrola's purchase of Community Energy in the Northeast and Midwest Renewable Energy Corporation, before announcing its EUR 17.2 billion merger offer for ScottishPower, which includes PPM energy, the second largest US owner and operator of wind plant behind FPL Energy. Magee expects consolidations to peter out in 2007, however. "There are few companies left that offer robust project pipelines and are going to bring that greenfield expertise to a bigger company," he feels. Overseas investors that want to buy their way into the US market will be faced with two problems, he says. First, the old group of pure play national developers, such as Zilkha, Seawest, Horizon and Padoma have already been acquired, so what is left are mostly smaller regional developers. Second, the cost for entry has skyrocketed. He offers BP's costly acquisitions of its US developers as an example, along with reports that Goldman Sachs is already looking to sell off Horizon, which it only acquired in 2005. This can only be because it expects to reap a substantial return, Magee believes.

Another record

The American Wind Energy Association's Randy Swisher calls 2006 a record year and expects another in 2007. The movement towards larger companies is adding value to the industry, he says. "We have a growing number of global companies with enormous financial and industrial capability coming into the market and I think if we're serious about wind power being a major player in the electric industry it takes capability of all kinds, lots of capital, lots of know how and skill," he says.

From GE Energy, Vic Abate calls the big customers the "gigawatt club" and echoes Swisher's positive view of the trend. They are behind advanced framework orders for hundreds of megawatt of turbines at a time. Largely because of these deals, GE is fully committed for turbines through 2007 and 2008 with only incremental capacity available. "Part of the problem in 2006 and 2007 if you were a small guy looking in, you have nothing. The bigger more mature players were in a little early and there is risk associated with that. That paid off for them," Abate says.

Swisher believes the progression to larger players was inevitable but agrees that the shortage of turbines and higher prices accelerated the trend. "It's a mixed bag on prices. I'm pleased that turbine manufacturers are profitable -- it's important that the manufacturing sector be profitable. At the same time, the increasing cost of wind has had a notable impact in the market," says Swisher. Some projects that were feasible just a year or two ago are not feasible today. In the Midwest, utilities were buying wind because they could get it for around $0.03/kWh. "There is sticker shock. With costs higher now, you don't have as many utilities willing to sign up and take some wind. The thing that's saving our bacon is the fact that all energy is priced higher today, not just wind."

Price hikes justified

Much finger pointing on high prices in America has been at GE because of its dominant market position. Abate strongly defends the increases, pointing not only to rising prices for steel and copper but stressing that improvements have also been made to the product, a nuance he regrets is not well understood or acknowledged. "Before you look at pricing you have to look at performance," he says, including reliability. Abate says that on entering the wind industry, "My impression was a real shocker, the industry was not reliable, equipment was not reliable, if you went to a farm built in the 1990s two or three of the units were not working." That is not the case with GE turbines today, he says.

EER's Magee says prices will continue to pinch the wind business, both in the US and elsewhere, through the next two years. Notable bottlenecks in the supply chain are gearboxes, bearings and nacelle moulds. He says a bright spot is that gearbox production is ramping up and new, lower cost manufacturing is available from China. The more stable US wind market will also benefit from the arrival of more wind turbine makers on its soil, including Gamesa from Spain, Suzlon from India, home grown Clipper, and newcomer Dewind from Germany marketed by Composite Technology Corporation. Spain's Acciona also appears poised to enter. Manufacturing capacity in the US could reach 5-6 GW by 2010, says Magee, which may lead to a glut of turbines and exports of excess capacity and price settling. He acknowledges the new trend of companies leveraging lower cost Chinese manufacturing through production licensing deals, but he believes the jury is still out on whether it will prove a fruitful approach.

US policy -- particularly at federal level -- is an optimistic wild card for 2007. The market in 2006, as in previous active years, was fuelled with a one-two combination of the PTC and state-based renewables policies. By the end of the year, there were 23 states (and the District of Columbia) with some variation of a renewables mandate. The effectiveness of the various forms of legislation varies wildly from state to state, with the Texas model upheld as the gold standard. So perhaps it is no coincidence that 2006 saw bragging rights for the top wind power state shift for the first time from California to Texas. The installation disparity was more than triple, with Texas putting 768 MW in the ground for California's 212 MW. "Texas continues to be perhaps the most appealing market for the wind industry, there is a strong policy commitment in that state," says Swisher. Texas also drew attention in 2006 for moving forward on a transmission plan that attempts to crack the notorious "chicken or the egg" dilemma of which should come first -- the wires or the generation -- that plagues the build out of transmission infrastructure. Finding capacity on the wires is likely to become a major problem for US wind development, although policy solutions are being sought (Windpower Monthly, February 2007).

Swisher says that Colorado is also a state to watch. Last year it only saw 60 MW go up, Invenergy's Spring Canyon facility, but close to 300 MW is in various stages of development. As a sign of what is to come, the state's 10% renewables target is expected to be met this year by Xcel Energy, a full eight years ahead of the deadline. An effort to increase the requirement to 20% is moving steadily through the state legislature. In Minnesota, another state in which Xcel is active in wind power, a robust 25% requirement by 2025 sailed through the state house and just became law (page 21).

While these and other state policies have been a cornerstone for wind power success in the US, the shift in political power in Washington DC increases the odds for a national mandate for renewable energy. "We are in a different situation now, we are more bullish," says Swisher. "You know the innermost frustrations the industry has had with an on-again off-again PTC. We need stable policy to unlock the billions of dollars in investment that can and will be there if we get the green light."

GE's Abate also senses the atmosphere of possibility in Congress. "At GE, we have many businesses connected in Washington and if there's one thing feeling better than a year ago it's the level of confidence around continued support for a sustainable renewable energy strategy as part of our energy system, and when you look at renewable energy, there really isn't anything much better than wind in cost and ability to scale up." While Abate favours a national green power mandate -- and acknowledges stronger congressional support -- he is far from certain it will pass. The Bush Administration has repeatedly stated its lack of support for a national standard. Swisher says there is another side to the coin, however. "They've seen how well it has worked in Texas so I would not assume the administration would veto it," he says.

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