January 16, 2013
U.S.

Wind industry’s roar may diminish in 2013

By Ryan Tracy | The Wall Street Journal | January 15, 2013 | wsj.com

The U.S. wind industry is planning new wind farms again after Congress renewed subsidies, giving idled factories that make turbines and components the prospect of a fresh set of orders in the second half of 2013.

But industry officials say this year’s projects are unlikely to match the record number of megawatts installed in 2012, calling into question the long-term viability of a supply chain that ramped up to match last year’s surge in demand.

Wind power faces competition from low-priced natural gas and slow growth in U.S. electricity demand. Its largest uncertainty is the fate of the federal tax credit for wind-power production. After some doubt, Congress at the start of the year extended the subsidy of 2.2 cents per kilowatt-hour, but only for projects that start construction by the end of 2013–leaving it unclear if the subsidy will be available in future years. That could curtail the number of installations that developers might otherwise plan.

“If you saw [the tax credit] more long-term, you would start hiring people,” said Richard Klausen, who manages a factory in Hanover, Pa., making tire-sized bearings that help control the motion of a spinning turbine.

The plant, owned by Swedish firm SKF AB, probably won’t restart production on its wind line until the third quarter at the earliest, Mr. Klausen said. “Everything right now is up in the wind,” said Henry Redding, who operates grinding machines at the factory and is the local union president. “The mood in the plant is very, very low.”

Wind power is still a small part of U.S. electricity capacity: Through October 2012, wind turbines generated about 3.3 % of the country’s electricity. But the industry has grown dramatically in recent years and installed some 12 gigawatts of capacity in 2012, according to preliminary industry estimates.

Subsides have fueled the growth. Between 2009 and 2012, wind-farm developers claimed about $10.8 billion in grants, and the latest extension of its tax credit will cost about $12 billion over 10 years, according to congressional estimates. Wind proponents argue that traditional forms of energy have also received subsidies for decades.

As the end of 2012 approached, developers stopped work on new projects amid uncertainty about whether Congress would extend the expiring tax credit. Germany’s Siemens AG said in September it was cutting more than 600 positions at wind-turbine factories in Kansas and Iowa. Vestas Wind Systems A/S of Denmark cut about 600 jobs in Colorado. Gamesa, a Spanish firm that makes turbines and blades at two Pennsylvania locations, furloughed more than 260 workers.

Even with the tax credit extended, it isn’t clear if those jobs will come back. A spokesman for Vestas, Michael Zarin, said the company is ready to increase production when orders come in but expects a “significant reduction” in 2013 installations.

Siemens spokesman Alfons Benzinger praised the tax-credit extension, but he also said that “the U.S. energy market remains very competitive with record low natural gas prices and slow energy demand growth.”

David Rosenberg, Gamesa’s vice president of marketing in North America, said it could be fall before the company starts making turbines for U.S. wind farms again because it takes months for new projects to get under way.

Some wind-farm developers are drawing up plans. Greg Wolf, president of Duke Energy Corp.’s renewable-energy development arm, said in an interview that the nation’s largest utility is looking at “hundreds of megawatts” of wind farms that could start construction this year. Boston-based wind-energy developer First Wind said it expects to have projects totaling at least 500 megawatts qualify for the 2013 tax credit.

Beyond that, much depends on Congress. Conservatives and some energy companies argue the industry should stand on its own. The utility Exelon Corp. broke ranks with fellow wind-power producers by opposing the tax credit last year.

“The incentive is so powerful that they’re building [wind generation] whether it’s needed or not,” said David Brown, Exelon’s senior vice president for federal government affairs, in an interview. The subsidy discourages investment in other kinds of power, such as nuclear, that operate when the wind isn’t blowing, Mr. Brown said.

In December, the American Wind Energy Association for the first time said it would accept a phase-out of the credit and suggested a six-year plan for doing so. Chief Executive Paul Gaynor of First Wind, a member of the association’s board, said he hoped the current session of Congress would adopt the industry’s phase-out plan. Exelon has called the six-year span “completely unacceptable.”

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