Small turbines get second wind from climate regs
Born in 1980, the Norman, Okla., company grew in a time of sky-high energy prices that trailed the 1970s’ Arab oil embargo and generous federal tax incentives for renewable power. But the going got tough when crude prices fell and the Reagan administration canned the tax breaks.
Many of the 40 or so turbine companies staggered, collapsed and died. Bergey survived, through exports and pluck.
“We learned,” company President Mike Bergey said, “to suck water out of rocks.”
And now Bergey Windpower is thriving. It’s leading the charge on reviving the domestic industry and market, which looks tantalizingly close to finally turning the corner propelled by rising electricity prices and worries about climate change.
It’s important to understand what small or distributed wind is — “behind-the-meter” generation generally found on farms, industrial sites and rural homesteads. It generates on-site power first, and then it can feed extra electricity to the grid.
What small wind is not: towering turbine farms dotting ridgelines and feeding megawatts of electricity to wholesale markets. Smaller turbines are lower to the ground, generating little noise and posing less of a threat to wildlife than their tall cousins.
It is also not what Bergey calls “eggbeater” turbines stuck on the roofs of office buildings.
“The stuff that goes on office roofs is ‘eco bling,'” he scoffs. “Those never work out because you are going against physics. Our advice to people is to do it for the looks, not for the energy.”
There’s no bling in Bergey Windpower, which was founded after Bergey’s father, Karl, a University of Oklahoma engineering professor, developed a prototype at the university lab. Karl Bergey is the company’s founder and CEO.
The company found a niche with farms, schools, businesses and homes with just enough space — about 2 acres — for a tower and turbine. The United States has enough properties like that to provide all the power currently generated in the country, about 30 gigawatts, according to the Distributed Wind Energy Association.
Distributed wind includes small wind turbines of 1 to 100 kilowatts, midsize turbines of 101 kW to 1 megawatt, and a few multimegawatt installations that are all generating for a local load first and selling any excess back to the grid.
Although on average distributed wind is still more expensive than solar and fossil fuel generation, with the right wind conditions the turbines can provide the cheapest electricity, and it has a much smaller land “footprint” than the equivalent solar panel capacity.
And unlike with solar panels or large wind turbines, U.S. small wind manufacturers have a strong market presence accounting for 98 percent of last year’s domestic new turbine unit sales and $60 million worth of exports, more than 40 percent of total worldwide sales, according to the Department of Energy’s annual “Distributed Wind Market Report” released this week.
The industry still has a long, long haul to reach the 30 GW goal, though. The industry was up to 1 GW of installed capacity in 2014, with New Mexico accounting for more than 50 percent of annual U.S. capacity, according to the DOE report.
A drop in state incentives after the end of the 2009 stimulus package and high upfront costs have hurt small wind recently, but certification requirements, innovative financing, expanding export markets and a boost in grants from the Department of Agriculture could give the industry the lift it needs, the DOE report says.
Small wind is the only renewable energy technology that the IRS requires to get certified to get federal tax incentives.
It’s expensive to be the only energy technology “with that hoop to jump through,” but it could boost consumer and investor confidence, according to Alice Orrell of the Pacific Northwest National Laboratory, the author of DOE’s distributed wind report for the last three years.
Growth opportunities, hurdles
DOE has tried to relieve some companies of the burden of component and certification costs through its Competitiveness Improvement Project (CIP) and regional test centers.
Bergey Windpower was one of the first recipients of the CIP grants, and a second round has included Pika Energy of Maine, Northern Power Systems of Vermont, Endurance Wind Power of Utah and Urban Green Energy of New York.
While those programs have helped, the industry sees third-party financing for small wind as a “game changer,” Orrell said.
So far, the only company offering leasing for small wind is United Wind Inc.
The Brooklyn, N.Y.-based company was started two years ago to fill a “huge hole” in the market for customers who want small wind but cannot afford the upfront costs, said Russell Tencer, United Wind’s co-founder and CEO.
That problem is similar to what the rooftop solar industry faced about a decade ago when California-based SolarCity introduced the third-party leasing program.
Mike Bergey called United Wind’s leasing program “one of the brightest market opportunities.”
The company offers turnkey financing, operation and maintenance of small wind turbine installations. United Wind started in New York because the state offers a rebate for small wind projects, but the company is already looking beyond dwindling state rebates or the federal tax credits, the uncertainty of which continues to plague the industry.
It already has several projects in the pipeline in the Midwest, where there are pockets of quality wind resources and high electricity costs, Tencer said.
The company soon expects to announce total capital “in excess” of $100 million for multiple transactions in the area, Tencer said.
While it is currently the only company offering third-party leasing for wind, Tencer expects competition soon.
“We see that there is a potential $20-billion-plus market in the U.S. over the next five to 10 years,” he said.
Still, financing is only one of the issues small wind must overcome here.
Other big impediments for small wind in the domestic market, Orrell said, are the “soft” costs of permitting and marketing — something the industry hopes DOE can help out with as it has done for rooftop solar.
Distributed solar could be seen as a competitor for small wind, but Tencer said each has a role to play: wind in the more rural markets and solar in the urban and suburban markets.
Wind turbines also “just aesthetically” fit in with the rural landscape and environment better than solar, Tencer said.
Bergey similarly finds the technology beautiful.
“It is like kinetic art,” he said.
The key to making that art affordable, Bergey said, is to raise the volume of small-turbine manufacturing.
The small-turbine makers eye with envy the 60 percent plunge in component prices experienced in the solar panel industry.
Bergey said his company will significantly lower costs in the next two years. He said he sees a “technology path that can drive down costs 50 percent or more.”
Export growth
While Bergey is hoping the California market will see a revival with additional state incentives, it’s the export market that will likely pay the bills and bring in the orders the industry needs to achieve cost cutting from economies of scale.
In addition to strong markets in Italy, South Korea and the United Kingdom, the lucrative Japanese market is now open for U.S. business.
Earlier this year, Bergey Windpower’s small wind turbines became the first to successfully qualify for certification through Japan’s notoriously difficult process. The market is particularly sweet as Japan has boosted its feed-in tariff for small wind even as the solar incentives introduced after the Fukushima Daiichi nuclear disaster have been reduced in an effort balance out its grid resources.
The certification process took three years and “a fair amount of money,” but Bergey said the path looks to be easier from here. The company installed and connected its first project in June and has already shipped equipment for three other projects.
“There is not a shortage of places on the island for good wind resources,” Bergey said. “Although it’s been maddeningly frustrating to get the overall approvals for the equipment, the actual approval for each project permitting seems to be easier there than here in the U.S.”
He added: “That is a little inconsistency, which I hope they don’t correct.”
In addition to easier permitting, other “soft” costs are reduced over there, Bergey said.
“In general, we have really found that there is just a tremendous interest, a higher-level interest in environmental technology in Japan,” he said. “Typical Japanese customers put more value on the environmental aspects, whereas U.S. customers place a little bit less on that and more on economic returns.”