US wind supply chain faces exceptional stress in fourth quarter

The frenetic push by developers to complete dozens of projects qualified for the full production tax credit comes in a 'resource-constrained' market

Richard A. Kessler in Houston

The US wind supply chain will be under exceptional stress in the fourth quarter as developers frenetically push to complete what likely will be more than 6GW of new capacity qualified for 100% of the expiring production tax credit (PTC).

Installations could surpass 6.47GW in Q4 2016, the second-best performance after 8.38GW in 2012, with 5.94GW last year ranking third best historically for the period.

“We see a resource-constrained market. Turbines are going to be bigger than ever before with heavier nacelles. We’re going to have less equipment. There is a shortage of cranes and engineers are in short supply,” said Aaron Anderson, project manager, renewable energy, at Burns and McDonnell, a leading engineering and construction company.

“Delivery logistics for ports, roads and highways, all these things necessary to get the equipment to our sites, are going to be constrained,” he said in a presentation at the Windpower conference here.

He noted that the larger, heavier turbines US developers are adopting can equate to four or five more deliveries for each one installed per site.

“That doesn’t sound like a lot until you take a run of the mill 250MW wind farm. That is 300 to 500 more deliveries at every single site we’re going to build,” said Anderson. If the industry installs 23GW of new capacity in 2019-2020, that equates to 50 times that number of additional on-site equipment deliveries, he said.

To meet the 100% PTC “safe-harbour” eligibility requirement (spend 5% of a project’s cost), projects targeted for Q4 start must begin construction no later than this summer, he said.

Officials here representing ports, component and equipment suppliers, and construction, engineering and heavy-haul transportation companies repeatedly emphasized the need for advance planning with ample lead times by developers – or risk seeing their projects potentially delayed or even cancelled.

They warned having to qualify a project at 60% or 80% PTC value instead of the full $24/MWh over its first decade of operation can undermine the economics and price it out of the market for off-take. Later start dates will also cost owners potential revenue from sale of electric power and renewable energy credits.

The PTC 80%-60%-40% phase-down schedule will conclude this year, erasing the industry’s main fiscal incentive enacted in 1992 under Republican President George HW Bush.

In January, researcher Wood MacKenzie Power & Renewables warned that many in the wind sector, even at this late stage, do not yet realise the magnitude of approaching supply chain challenges.

It said $2.1bn of revenue is at risk, including $800m in turbine sales, through 2020, if the supply chain can’t handle all the capacity developers plan to build.

What developers can do

Anderson said to address upcoming supply chain distress, project developers can pose 10 questions on each job to help minimize potential problems . These are:

-Will my turbines be manufactured on time? “This is something we should be asking on every project. Buy early. If you have the option to buy equipment from your turbine supplier early, get it on the books. Book your production slots,” he said. Go to the factory and make sure they are doing the quality testing and shipments are occurring by a certain date.

-Do I have safe-harbour turbines? Developers met this requirement before the end of 2016 – they have four years to complete a project to qualify for 100% PTC. This means purchased blades, hubs, nacelles and towers have been sitting in ports and yards gathering dust since then after being manufactured.

“Go see your safe-harbour equipment now while you have the time,” he said, to make sure water is not sitting in the components and rodents haven’t gotten in and chewed the cable. Make other checks to ensure that once they arrive at a site they function as they are supposed to.

-Can by turbines get to my site unimpeded? He urged a trial delivery run at least 30 days before turbine blades and towers arrive to confirm access roads are suitable from entry point to pads. Identify areas that need fixing. Last-minute re-working of access roads with tight construction and delivery schedules is expensive and time-consuming.

-Can I receive turbines early? This will help hugely in the fourth quarter as the “just-in-time” delivery model commonly used for wind farm construction will not be a viable option. Answer: get equipment to site as soon as possible. Having an expensive crane wait on site is "substantially worse" from a cost perspective than having turbine components there before the crane arrives, he said.

-What season am I installing? Many turbines will be installed this summer which tends to be less windy. The flip side is that wind is necessary to commission them. Plan for extra delays If wind doesn’t blow for a period. Try to pre-commission turbines and have first 75 or so items check-listed. While this costs $5-7,000 per turbine, it can save money by accelerating commissioning by a week, said Anderson.

Five more questions

-What are my long lead-times for eauipment? This not a typical market. Order items such as transformers and other electrical equipment early.

-Is my site team qualified? Taken for granted in past. Contractors hired are expected to be experts in what they do. What is starting to occur is that contractors' “A teams” will not be at every project site. Developer may get the “B or C team.”

“What’s going to suffer is quality. They won’t have the experience or know-how to do that project in the same way the A team will,” he said, noting project owners need to have people onsite for quality control, particularly things that go underground and are not easier verifiable. Engineers are in short supply and not all created equal.

-Can I get the tools I need? Each turbine installed requires special tooling. Cranes, especially those for bigger, heavier and taller turbines, are in red-hot demand. Get deposits in as early as possible. “Otherwise, you will have turbines and no way to put them up,” he said.

-What happens when the unexpected happens? It is easier to get money from a lender up-front that saying later more money than planned is now necessary. Build with contingencies.

-What is my critical path? Understand your schedule. Be pro-active in taking steps to ensure it is met – expedite factory testing and buy advanced production slots, for example.