May 12, 2011

Cautious Optimism for the North American Wind Market

 As the wind industry continues to face multiple challenges, cautious optimism is essential to accurately forecast its future. According to the U.S. Energy Information Administration (EIA), the North American wind industry is now pulling out of the recession and should be back on track by 2015. With gas prices on the rise, the general public, policymakers, and private industry are showing growing interest in renewable sources of power.

The EIA conservatively predicts that natural gas and liquid fossil fuels will lose market share to renewable sources with hydro and wind leading the way – though relatively flat growth is expected overall. Coal plants continue to close, and the EIA expects the trend toward renewable energy sources to continue through 2020. Many industry analysts predict that the improved economic climate will allow for more secure financing and the construction of new renewable power facilities across North America.

This is good news, but there are other factors that temper the optimism regarding the state of this year’s wind industry. For instance, wind operators in the Pacific Northwest are being asked to “feather” their blades due to a surplus of electricity in this region. The Bonneville Power Administration continues to place emphasis on grid management and environmental concerns. The Bureau of Land Management and other environmental groups, and specifically, states such as Wisconsin, are enforcing stricter wind installation site requirements for greater protection of endangered species and property setbacks. There are also pockets of landowners asking for increased setbacks. All of these present challenges for the wind industry in different parts of the country at varying levels of severity.

Asian interests in the North American market continue to be strong and are increasing. China alone contributed 84 percent of capacity growth in Asia Pacific, overtaking the U.S. in new grid-connected wind power capacity. Asian manufacturers not only continue to market their turbines competitively in North America, but they also have aggressive plans to acquire wind developments in the U.S. and Canada. Expect Asian companies to target North America during the next two years while economic recovery is still largely the focus of the U.S. wind market.

Recovery of the financial markets and lack of (PPAs) Power Purchase Agreements in North America has led many top tier developers and turbine manufacturers to reduce their staff and installed megawatt projections over the next two years. Many developers continue development activity but appear to be taking less risk in the merchant market due to lack of PPAs. They are reducing the number of planned wind power projects that would be ready for construction in 2011 and 2012. Per Ernst & Young, LLP, venture capital investor deals in cleantech companies in 3Q10 fell 55 percent compared to 3Q09; however, it appears as though several investors and developers are actively seeking opportunities to support late stage projects scheduled for completion in 2012. Generally, the industry is working with conservative projections for 2011 and 2012 compared to past years.

2011 and 2012 Projections

The number of 2011 wind power installations is expected to be greater than in 2010, which is largely attributed to the 5,300 megawatts of wind under construction at the beginning of the second quarter 2011 according to AWEA. Many of the experts within the wind industry who had once projected as many as 10,000 to 13,000 megawatts installed in each of the next two years in the U.S. have reduced their projections to more conservative numbers ranging from 6,000 to 7,500 megawatts for 2011 and 2012, respectively. Some forecasts are as low as 5,000 megawatts for 2014 and 2015.

Though trends such as uptick in oil prices, increased demand for electricity, and closure of coal plants help create an optimistic forecast that defines the current wind market in positive terms, the other trends discussed here inject some caution.

Finally, given the volatile economy, lack of standardized long-term governmental legislation, and current instability in the Middle East and North Africa, it is still unclear what to expect beyond 2012.