A prolonged shortage of wind turbines is pushing up prices for projects in the West and forcing developers to scramble for deals long before construction begins.
Record-breaking U.S. demand, tapped out manufacturing capacity and higher materials costs have kept markets tight and costs rising. The supply squeeze is more than three years old and only now is showing some signs of easing, wind developers and consultants say.
“It’s almost the worst possible world,” said Tom Karier, chairman of the Northwest Power and Conservation Council, which helps shape regional energy policy.
The shortage is affecting developers nationwide, but the pinch is particularly acute in windy Western states such as Oregon, Washington and California, which have ambitious plans to increase wind-power production.
This year alone, Oregon developers are on track to more than double the wind power generated by wind farms in the Columbia River Gorge. Boom-time construction is expected to continue through 2008 – longer if, as expected, Congress extends a federal tax credit set to expire at the end of that year.
If developers haven’t secured their turbines – each costing about $2 million – they face at least a two-year wait, energy consultants and power planners say.
So far, large developers haven’t had to delay projects in the Northwest, according to Renewable Northwest Project, an industry trade group that tracks wind development in the region. Instead, they’ve pulled out the checkbook and locked up large numbers of turbines in anticipation of a sustained construction boom.
Some small developers have put projects on hold, finding turbine makers either sold out or uninterested in filling relatively paltry orders.
The biggest effect shows up in the price. Developers and utilities in the Northwest won’t disclose how much they’re paying for turbines. But a study by the U.S. Department of Energy found that average turbine costs in the country, measured per megawatt, rose 17 percent in 2006. The study projects prices to rise another 14 percent this year and perhaps further in the next couple of years.
That means a 1.5 megawatt turbine – a popular size in the Northwest – cost a developer $2.5 million this year compared with the average cost of $2.2 million last year. The price includes all turbine components and installation.
Impact on ratepayers
The higher costs are still working their way through to consumers. Utilities such as Portland General Electric and Pacific Power – which either buy the wind power from developers or build and operate projects themselves – are allowed to recover the expense through rate increases, but they first must ask state regulators for permission.
PGE and Pacific Power’s parent company, PacifiCorp, acknowledged that costs are rising but said wind power, which needs no fuel to operate, remains competitive with – even cheaper than – traditional forms of generation such as coal and natural gas. Both utilities plan to add more wind power, pushed by growing demand and a state mandate that requires utilities to steadily increase their reliance on renewable energy.
PGE expects to finish the first phase of its massive 450-megawatt Biglow Canyon wind project in Sherman County by year’s end. It has pegged development costs for the 125-megawatt initial phase at about $260 million and is asking regulators to approve an on-average rate increase of less than 1 percent to begin recovering costs.
The turbines, towers and blades arrived at the Port of Vancouver last week. PGE officials estimated it would take 700 truckloads to transport all the pieces east along Interstate 84 to the Biglow site.
When the turbines begin generating electricity, they will produce enough power for the equivalent of about 32,000 homes annually. Every megawatt of wind capacity powers roughly 250 homes annually.
Phase 2 is scheduled to hit the grid in 2009 and Phase 3 in 2010. “It’s a safe bet we’ll pay more for the second phase than the first,” said PGE spokesman Steve Corson.
PGE bought the 76 Phase 1 turbines from Vestas Wind System of Denmark. It recently paid $17 million in earnest money to an undisclosed vendor for the 150 turbines it will need for the remaining phases, even though the final towers won’t go in until 2010.
PacifiCorp has purchased turbines for two just-announced wind farms in Wyoming and is aggressively negotiating deals for future projects, said PacifiCorp spokeswoman Jan Mitchell.
PacifiCorp is owned by Iowa’s MidAmerican Energy Co., which in turn is controlled by billionaire businessman Warren Buffett’s Berkshire Hathaway. The financial depth gives PacifiCorp and MidAmerican extra clout in the marketplace. Turbine makers “are more interested in selling when you order in large numbers,” Mitchell said.
GE Energy, the only U.S. manufacturer to break into the top five list of global turbine makers, sold PacifiCorp the turbines for the Wyoming projects.
GE’s name is on half the turbines pumping out electricity from U.S. wind farms, said Ed Lowe, general manager of market development for the renewables business within GE Energy. The company has increased production fivefold since buying Enron Wind from the bankrupt parent in 2002 and expects continued growth, Lowe said.
But GE is sold out of turbines until 2009. “We absolutely are increasing capacity so we can meet demand,” Lowe said.
GE and other turbine makers rely heavily on suppliers for the hundreds of components that go into a complete product. And here, too, the squeeze is on.
Lowe said a long-term extension of the federal tax credit for wind developers would give the turbine industry the certainty it needs to ramp up production.
Small operators struggle
Big independent developers have been the most aggressive in buying turbines. Portland-based PPM Energy, owned by Spanish energy giant Iberdrola, announced huge deals this year with India’s Suzlon Wind Energy Corp. and Japan’s Mitsubishi Power Systems America to buy a combined 700 turbines.
Suzlon called its 400-turbine contract with PPM Energy “one of the largest in the history of U.S. wind power.”
Given its turbine stockpile, PPM Energy has increased by 50 percent the amount of new projects it plans to bring online by 2010.
The picture isn’t as bright for the smaller operators. Those hoping to develop projects of 10 megawatts or less – so-called community wind projects – are having trouble securing the turbines.
Paul Woodin, the principal of Western Wind Power in Goldendale, Wash., said he lined up financing more than a year ago for a couple of his small-scale projects in the Columbia River Gorge. He’s had no luck getting a turbine deal.
“The big players bought up everything available,” he said. “There was nothing left.”
Recently, he’s seen signs of easing. Where once GE Energy and Vestas dominated the U.S. market, other manufacturers, domestic and foreign, have begun to appear. More turbine, tower and blade manufacturers also are expanding production in the United States.
Within the past month, Woodin has talked with five turbine vendors that might have products to sell at a price he can meet. “I’ve gone from being concerned a year ago to being optimistic.”
Troy Gagliano, a policy analyst with Renewable Northwest Project, agreed that an influx of competitors and expanded capacity “should break bottleneck and stabilize prices.”
By Gail Kinsey Hill
22 August 2007
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