US study shows huge scale of looming wind oversupply
While US wind construction is booming ahead of the expiration on 31 December of the production tax credit (PTC), equipment manufacturing capacity far exceeds likely demand in the coming years.
The potential absence of the PTC in 2013, "in concert with continued low natural gas prices and modest electricity demand growth... threatens to dramatically slow new builds". That's the conventional wisdom summed up in the latest Department of Energy (DOE) Wind Technologies Market Report for 2011.
The 93-page report [PDF] – authored primarily by Ryan Wiser and Mark Bolinger of the Lawrence Berkeley National Laboratory and required reading for anyone in the industry – distills much of the information made available by trade and market research groups such as the American Wind Energy Association (AWEA), but also provides a wide-angle view of US wind.
While the AWEA has yet to publish a 2013 market forecast, citing uncertainty about the extension of the PTC, the DOE report gathers forecasts from seven government and private-sector entities. Assuming the PTC is not extended, these estimates for the 2013 market range from 1GW to 2.4GW. If it is extended, the 2013 market would be significantly larger – though still shrunken from the potentially record-setting 2012 – ranging from 1.2GW to 7.5GW.
Supply chain faces uncertainty
That uncertainty is already wracking the US supply chain, parts of which are significantly over-built for the coming market downturn. Many manufacturers have invested in US factories in the last three years, helping boost the domestic content of the US wind fleet from about 35% for installations in 2005-06 to 67% last year. But this investment, combined with a market slowdown in 2010 and 2011, created a significant over-supply situation. For example, at the end of 2011, US nacelle assembly capacity exceeded demand by an estimated 5GW. That's compared to a 4GW under-capacity in 2009. The over-capacity is expected to worsen in the next two years. "As a result of this over-supply, coupled with increasing competition, including from new entrants from China and Korea, a wide range of turbine manufacturers have reported weakened financial results, with companies throughout the US wind industry’s supply chain announcing cuts to their US workforce," according to the report. Vestas, which has already warned of up to 1,600 layoffs in absence of the PTC, cut jobs earlier this week at its Pueblo towers factory. LM Wind Power Blades has also recently announced job cuts related to falling sales.
Vestas and GE lead market
Vestas and General Electric each claimed about 29% of the 6.8GW 2011 US wind market. Siemens took 18%, followed by Suzlon and Mitsubishi (5% each), Nordex and Clipper (4% each), REpower (3%) and Gamesa (2%). Twenty manufacturers installed at least 1MW of turbines in 2011, up from only five in 2005. These new entrants include several Chinese and South Korean manufacturers. In 2011, Sany Electric installed 10MW of turbines in the US; Samsung installed 5MW; Goldwind, 4.5MW; Hyundai, 3.3MW; Sinovel, 1.5MW; and Unison, 1.5MW. Competition among manufacturers has helped push down the average price of wind turbines sold in the US from more than $1,500 per kW of nameplate capacity in 2008 to $1,150-1,350/kW in 2011, despite continued technological advancements. More recent price quotes range from $900-1,270/kW. This is starting to translate into lower project costs, which were $2,100/kW in 2011, down nearly $100 from 2009 and 2010 levels. Preliminary estimates suggest further declines for 2012 projects as turbine prices continue lower. But this did not translate to lower wind power prices. Projects built in 2011 had an average power price of $74/MWh, compared to an average of projects built from 1998-2011 of $54/MWh. The report notes that many projects built in 2011 actually signed power purchase agreements (PPAs) in earlier years, when equipment prices were at or near their peak. PPAs signed in 2011 brought an average price of $35/MWh – with significant regional variation – suggesting 2012 wind power prices will be lower. And they must be lower to compete with wholesale power prices depressed by abundant natural gas and slack demand.
Manufacturers look to exports
Many manufacturers hope to keep their US factories in business during the 2013 market downturn through exports. While trade data for blades, towers and other components is uncertain, there has been a marked uptick in exports of wind generating sets from $15m in 2007 to $149m in 2011. The top export markets from 2005 to 2011 were Canada, Brazil, Mexico and China. The US remained the second-largest wind energy market, behind China, representing 16% of total installs in 2011. Its end-of-2011 cumulative capacity of 47GW made the US the second-largest market by that measure, with about a fifth of all the world's wind power. Wind energy provides about 3.3% of total US electricity demand in an average year – a penetration rate far lower than European wind energy leaders Denmark, Portugal, Spain, Ireland and Germany. Individual states, however, have reached globally competitive levels of penetration. South Dakota had wind capacity sufficient to generate 22% of its in-state electricity at the end of 2011. Iowa could get 20%, and four more states could exceed 10%.