Waning Wind
Facing the abyss
Jan Blittersdorf has seen the ups and downs of the wind industry for 30 years, so the expected slump that will hit the sector when a key subsidy expires for the fourth time in two decades shouldn't be anything new.
The earliest of the early indicators of industry health, the wind measurement equipment manufacturer NRG Systems, where Blittersdorf is president and CEO, demonstrates the future perhaps better than most.
The picture is not pretty.
As the federal production tax credit is set to expire at year's end, the wind industry is bracing for a slump from a much higher perch than it has ever seen before. Even if Congress extends the credit this fall, the effects of a recovery wouldn't be felt until well into next year.
"This time feels different," Blittersdorf said. "Whenever there was slowdown our customers kept looking at projects and we waited for the next cycle. Now, I'm not sure if we're at the beginning of the next cycle, or the end."
One thing new for Blittersdorf was a dwindling order book and the hard decisions it forced on her company. In its 30-year history, NRG Systems never had to cut staff, until this spring, when it let go18 employees, 15 percent of its workers.
Shaky employment prospects and an even shakier long-term outlook for the industry even took a toll on wind's premier event. The American Wind Energy Association annual conference in Atlanta in June attracted only 11,000. Although the American Wind Energy Association says a drop-off was expected as the industry ventured into the South for the first time, the conference drew about half as many people as its record-setting event in Chicago in 2009.
One similarity between 2009 and 2012, however, was that the industry was in the midst of record-setting years. In 2009, the produc-tion tax credit had been extended. More than 10 gigawatts of capacity were added.
The wind industry is expected to break all previous records, with upward of 10 gigawatts to 12 gigawatts of capacity being built this year. Developers are rushing to finish projects as wind farms must be put into service by Dec. 31 to qualify for the 10-year, 2.2-cents-per-kilowatt-hour production tax credit. Then plant construction is expected to fall off a cliff.
To put it into context, the last time the PTC lapsed completely, installation fell from 1,700 megawatts in 2001 to 410 megawatts in 2002. Total installed wind capacity will surpass 50 gigawatts this year.
A widely quoted study done by Navigant Consulting in December said 37,000 jobs out of the 75,000 now attributed to the wind industry are at risk if the PTC is allowed to lapse. Component makers further up the supply chain reported slowdowns in mid-2012 as their products are already being used in turbines being assembled for delivery later this year.
Billions have been invested in the United States in recent years by both domestic manufacturers and foreign companies seeking to cut costs for wind turbines. Five years ago, 25 percent of turbine components were manufactured here, while now, 60 percent of the components are manufactured domestically.
Those jobs are at risk. "One thing that businesses want before they invest is certainty and a long-term PTC gives them that," said Denise Bode, chief executive of AWEA.
Many worry about the future.
Perhaps there is no better example than Vestas, the world's biggest turbine manufacturer, which in the past five years invested more than $1 billion in Colorado. Vestas issued the most ominous-sounding warning yet, when earlier this year it said its 1,600 manufacturing jobs spread over four plants in Colorado were at risk. Ditlev Engel, Vestas chief executive, told a Danish conference of economic ministers that he expected the U.S. market to drop by 80 percent next year.
The economic impact of such an event during an economic downturn is what state officials everywhere hope will save the PTC.
"It's become an election year hot button, but we're confident it will be extended after the election. There are a lot of forces that want to see it extended," said Chris Worley, regulatory analyst at the Colorado governor's energy office. "We had estimated 3,000 direct jobs in wind."
Another wind giant, GE, doesn't anticipate layoffs as it has expanded its worldwide footprint during the decade it has been in the sector. GE picked up the assets of bankrupt Enron Wind and recently noted the installation of its 20,000th unit.
"This year is a record year for us, with about $7.5 billion in business," said Vic Abate, who heads GE's renewable energy unit. "The way we're thinking about 2013 and beyond is that over the past 24 months, more than half our orders have been from outside the U.S."
Without a PTC, GE is looking to markets like Brazil, and has even deferred Canadian projects until next year to serve U.S. customers rushing to finish projects in 2012.
"This is not the way to run a competitive business. We would prefer to have a stable PTC," Abate added.
Wind energy companies are trying to diversify. Like NRG Systems, AWS Truepower grew up with the industry over the past 30 years as one of the first site-evaluation and wind-forecasting firms. Bruce Bailey, its founder and president, said the business withstood previous slowdowns when the PTC was set to expire or had already lapsed.
"My customers would be evaluating sites knowing they wouldn't be developed for three or four years, just to maintain their competitive advantage. That doesn't seem to be happening now," he said.
To keep employment stable, AWS has branched out, establishing a beachhead in an emerging wind energy giant, India, and also looking to South America.
Companies that serve other segments of the utility industry, unlike a Vestas, which really is a pure play in the wind business, seem to have a better chance of prospering in 2013.
Peter Duprey, CEO of tower manufacturer Broadwind Energy, based in the Midwest, saw the winds shifting last year and is preparing for the downturn. "We have moved to diversify our product line, even to move a bit into oil and natural gas services," he said.
And that would be the ultimate irony for a company whose survival was once dependent on the clean energy economy.
Published In: EnergyBiz Magazine September / October 2012
