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Wild is the wind: Wind power is in the doldrums  

Credit:  The Economist, www.economist.com 23 September 2010 ~~

Storms have brought alternating ruin and fortune to the small German town of Husum. A 14th-century gale flooded and destroyed parts of the town. Yet it also carved an inland harbour, allowing the survivors to build a prosperous market. These days the town still depends on the weather. Wind turbines are built in its shipyards and every second year it plays host to the world’s biggest gathering of wind-energy companies.

Two years ago, windmill-makers were fretting about their inability to meet a surge in global demand. Last year the industry installed 37,500 megawatts of electricity-generation capacity, increasing the total installed base by almost a third. Capacity in China doubled. Wind firms’ main worry was a shortage of components.

That typhoon of demand has now passed. Installations this year in America could be little more than half what they were last year, predicts the American Wind Energy Association, an industry club (see chart). In Europe demand for new windmills will fall by 14-15%, say analysts at HSBC, a bank. The only big market that continues to grow, albeit slowly, is China. Wind firms face their first recession.

The credit crunch does not help. Some 40% of wind parks in America and Europe are built by small operators that finance their projects through debt. Lehman Brothers, the bank whose collapse was the starter’s gun for global panic, was a big financier of wind power. “Lehman Brothers was a sort of a switchboard for the industry,” says Peter Kruse of Vestas, the world’s biggest wind-turbine manufacturer, “and they didn’t pick up the phone any more.” A study funded by the German government found that the availability of ten year debt for wind parks had fallen by as much as 40% while the cost of debt relative to benchmark interest rates more than tripled in 2009. The credit squeeze has eased in America, but less so in Europe. Wind farmers in Spain and Portugal find it hard to borrow because of worries that their governments may default or trim subsidies.

The credit crunch may blow over, but two more persistent eddies are also wafting through this market. The first is that the recession has curbed electricity consumption in Europe, both by shuttering plants, some permanently, and by encouraging firms to use power more efficiently. All this will make it easier for most European countries to meet their renewable-energy targets by 2020. Germany and most southern European countries will exceed their targets if they keep building windmills at the current pace, so analysts at HSBC predict cuts in clean-energy subsidies. In America, meanwhile, a proposed cap-and-trade bill got nowhere this year. New wind installations are likely to remain lower than last year’s for the next five to ten years, predict analysts at HSBC and Bernstein Research. Low natural-gas prices are also undermining the case for wind power.

Amid the gloom, however, is some respite for the biggest manufacturers. During the boom of the past five years there was a proliferation of small manufacturers and a fragmentation of the market. The market share of Vestas, for instance, slipped from 28% in 2005 to 15% last year. In these leaner times, buyers in Europe and America are placing orders mainly with the biggest firms, since they seem less likely to go bust.

The next year or two will doubtless see mergers and takeovers. Some of the weaker manufacturers will die. Mortality is nothing new in other industries, nor indeed for the birds who blunder into whirling windmill blades. But it comes as a shock to an industry that until now has had a gale in its sails.

Source:  The Economist, www.economist.com 23 September 2010

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

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