Tough times ahead for wind industry, regardless of tax credit renewal — analyst

Source: Robert S. Eshelman, E&E reporter • Posted: Tuesday, October 9, 2012

The clean energy sector is closing the gap on fossil fuels, but the wind industry faces significant challenges and could see a free fall in new construction over the next three years, said Ethan Zindler, head of policy analysis at Bloomberg New Energy Finance.

The decline in new wind power generation, he added, is likely to occur regardless of whether Congress extends a production tax credit (PTC) that has been a blessing to the industry.

“Overall, we’re seeing greater diversification, more heterogeneity, in terms of the way capital is deployed,” he said Friday at a Washington, D.C., forum on clean energy sponsored by the Pew Charitable Trusts.

Zindler said that historically, the Group of 20 leading industrial nations has been responsible for roughly 90 percent of investment in clean energy generation. That trend is changing, he added, as is the composition of projects.

More finance is flowing into solar projects, and less is getting behind new wind facilities, he said, and developing countries are seeing greater investment, while less finance is bound for the developed world.

“We’re seeing very interesting things happening in a lot of countries that are much smaller countries around the world,” Zindler said.

Investors cut back on wind projects

“If you look at the amount of money going into new clean power generation versus fossil fuel, it’s not that big a gap anymore,” he said, adding that investment in green energy nearly matched that in traditional fuels several years ago.

“The idea that [renewable energy] is alternative, weird, unusual is really a misnomer at this point,” he said.

But, while highlighting some positive news for the clean energy sector overall, Zindler offered a sober forecast for wind energy production in the United States.

He says a total of 12 gigawatts of new wind capacity will likely be brought online by the end of 2012, a record amount.

“The bad news is that next year we’re looking at … only one and a half gigawatts of capacity added,” he said.

“[T]his isn’t just pure speculation on my part. There is a way to track this, which is that money foreshadows construction,” he added.

For the fourth quarter of 2012, he said, Bloomberg projects “almost no money going into wind construction for next year.”

“Yeah, I’m speculating here about how bad it’s going to be,” Zindler said, “but I can tell you we’re counting the dollars, and there’s not that many.”

He added that the drop in production will occur regardless of whether Congress extends the PTC, which is set to expire at the end of this year.

Assuming no extension of the subsidy, Zindler estimates that added wind generation would drop 87 percent, from 11.8 megawatts in 2012 to 1.5 MW in 2013. He projects production doubling in 2014 to 3 MW of new generation and remaining flat with 3 additional MW of wind power brought online for 2015.

A one-year extension, Zindler said, would bring about a 56 percent drop from 10.8 MW in 2012 to 4.8 MW of additional generation in 2013. He projects a rise of 67 percent to 8 MW of new wind generation in 2014 and then a drop of 63 percent in 2015 to 3 megawatts.

Decline coming in next 3 years

At best, with a three-year extension of the PTC, Zindler still projects the U.S. wind sector to decline over the next three years. He forecasts a 75 percent drop in new construction in 2013 to 3 MW, followed by an 83 percent jump in 2014 and an 82 percent rise in 2015. Even under this scenario, new wind generation in 2015 would be below that in 2012.

The PTC for the wind industry provides $22 per megawatt-hour of electricity generation for the first 10 years that a wind project operates.

The tax credit has helped make wind cheaper, but demand at the state level has been key, Zindler said. Many states have adopted renewable portfolio standards (RPSs) that require utilities to generate a minimum amount of electricity from renewable sources. That demand-side driver, he said, is petering out.

“There’s about 30 states that have RPSs on the books. In many cases, those quotas are actually being met or in some cases exceeded,” he said. “So those are not creating bottom-up state-level demand for new capacity that they once were.”

The other challenge, Zindler said, arises from the availability of cheap, domestically produced natural gas, which is selling at about $3.50 per million British thermal units.

He said: “If natural gas were trading where it was three or four years ago and wind is as cheap as it is now, wind would actually be … doing very well against natural gas, in many cases competing and beating natural gas. But with natural gas prices coming down even as wind prices come down, there’s still a gap there in many places, and that’s very challenging for the industry.”

The American Wind Energy Association declined to comment on Bloomberg’s projections or say how it intends to advocate for continued public financing of wind projects. The organization is the leading advocate for wind power manufacturers.