Wind turbine makers braced for US tax-credit turmoil

Uncertainty about the extension of the production tax credit (PTC) could soon begin to hit US wind-equipment manufacturers, as deve­lopers delay ordering turbines for 2013 projects.

Don Furman, senior vice-president of external affairs at Iberdrola Renewables, says the company “may do some adjustments to our pipeline to shrink to a more appropriate size”. Developers will have to look for “niche opportunities”.

Already, Iberdrola’s corporate parent in Spain is directing less capital to the US. “A lot of the capital that was going to the US is now going to the North Sea for offshore development, because they’ve got a stable regulatory climate there and a market,” Furman tells Recharge.

Steve Trenholm, chief executive of E.ON Climate & Renewables North America, says: “We should be placing orders now for 2013, and the uncertainty makes it very difficult to know what to do.”

In an industry that has a long lead time, the first to feel the pain will be manufacturers.

“If developers aren’t placing orders, then we won’t have a whole lot to build,” says John Chase, vice-president of government affairs at Vestas Americas, which has poured more than $1bn into four factories in Colorado.

The race to meet the 31 December 2012 PTC deadline could make next year a record one for new installations in the US, with up to 10.5GW forecast by IHS Emerging Energy Research (IHS EER). Many manufacturers are sold out for 2012, says analyst Matt Kaplan.

Wind-power prices have come down considerably in the past three years, thanks to technological improvements and increased competition, but the ­potential absence of the PTC in 2013, combined with other factors slowing demand for new renewables generation, portends an “imminent crisis”, in the words of American Wind Energy Association chief executive Denise Bode.

Installations could drop below 2GW in 2013 and would stay low — 2-3GW a year until the end of 2016 — before state renewable-energy requirements increase in the latter half of the decade, according to IHS EER estimates.

Kaplan counts 14GW of domestic wind turbine assembly capa­city in the US. Even if the PTC is extended, that is more than the market will probably demand, he believes. “It’s really not a pretty picture.”

The wind industry is all too familiar with the boom-bust cycle it now faces. Expiration of the PTC in 1999, 2001 and 2003 caused installations to plummet by 73-93% in the following year, inflicting costs for demobilising and later restarting development and construction resources.

Even more is at risk this time. In the past four years, domestic content in turbines installed in the US has increased from 20% to 60%. More than 400 factories in 43 states employ thousands of workers whose jobs are at risk in the absence of the PTC.

“There’s no question that the expiration of the PTC would really threaten a serious shutdown, lay-offs and rollbacks,” Bode warns.

The lobbying effort to extend the tax credit will focus heavily on those manufacturing jobs, which are a valued political currency.

“We have over 2,000 people working in our factories in Colorado,” Chase says. “We want to keep those churning, but the uncertainty about 2013 obviously is looming out there.”