US wind power industry eyes government mandate for growth

Lost financing, low prices for natural gas and political uncertainty have stymied a potential boom in the US wind power industry this year.

Investment in new wind power capacity that exploded from €2.2 billion in 2005 to €12.7 billion last year was projected to fall to €9.7 billion this year. The fallout for the US industry, the world's largest producer of wind power at 28,000 Megawatts, could usher in a period of consolidation, analysts said.

Financial institutions no longer provide credit to wind farms based on the tax incentives and projected electricity revenues, and natural gas prices have tumbled from €9 per million BTU to under €3.

The industry is now counting on a government bailout of a different sort - legislation that would mandate that 25 per cent of the country's electricity be generated from renewable sources by 2025, up from around seven per cent now, with wind making up 1.5 per cent.

"To get to the levels of energy that we're talking about, we have to produce a wind turbine every 15 minutes for the next 20 years," Vic Abate of General Electric Co., the largest US wind turbine supplier, said.

GE had €5 billion in wind-related sales last year. The company has built and installed 12,000 wind turbines, which can cost €2.2 million each and provide power to up to 1,700 homes.

Some 20,000 attendees at the Windpower 2009 conference this week were exhorted by industry leaders and US Interior Secretary Ken Salazar to lobby for congressional passage of legislation to create a national renewable energy standard.

"A renewable energy standard I think is very important to drive growth," Mr Salazar told reporters after his address to the conference. "We have a new beginning here. The new beginning is to look at the broad energy portfolio."

Twenty-eight states have enacted standards requiring an escalating percentage of power generation come from "green" sources such as wind, solar, hydropower and biomass.

US grants to wind power projects anticipated from the recently passed stimulus bill will help some, industry members said. But the industry's problems may persist for a while, which Abate attributed to growing pains.

The biggest hurdle for the moment is the depressed price of competing natural gas, which in effect sets the price of electricity for wind power producers.

"The price of natural gas at €3 (per million BTU) is the single biggest threat the wind industry faces. The bright side is that many industry analysts don't expect gas prices to stay at €3 once the global economy begins to recover," said Joshua Magee of market research firm Emerging Energy Research in Cambridge, Massachusetts.

Mr Magee's firm predicted a rebound in wind power growth in 2010, with an estimated 9,000 megawatts of capacity added through €13.5 billion in investments. The firm predicted 15,500 megawatts of capacity would be added in 2020.

Mr Magee said the increasingly crowded field of wind turbine manufacturers, many from Europe, along with a drop in prices of steel and other raw materials, will lower the prices of wind power turbines by 10 per cent or more in the next two years. But it may also create a climate for industry consolidation.

"If you have cash there are a lot of distressed assets that are looking for buyers," Mr Magee said.

The US renewable standard, a twist on long-standing efforts in Denmark and other European nations to mandate a "greener" energy mix, may rub some free-market advocates the wrong way. Denmark gets 20 per cent of its power from wind.

"I heard those arguments in Nevada when I worked to put in the (state's) renewable portfolio standard. Now they love the fact they have it," said Jon Wellinghoff of the Federal Energy Regulatory Commission. "What it's done is provided for rural economic development and diversification."

Jose Donoso, of Spain's Gamesa, a leading wind turbine manufacturer, said the US approach still leaves uncertainty for wind farm investors.