Wind Turbine Price Rise: Sign of Industry Health

By Published On: June 17, 2005

Wind energy is coming on strong in California and around the world as it becomes cost-competitive with gas-fired generation. Wind turbine manufacturers are backlogged with orders, and equipment prices are rising in a sure sign that the industry is becoming robust. Turbine prices have escalated by 35 percent in the last year, said Clare Lees, BCL & Associates project manager in Palm Springs. ?It?s very similar to the run-up in [gas] turbines in 2000-01,? said Henry Martinez, Los Angeles Department of Water & Power chief operating officer for power. In the midst of the energy crisis, manufacturers could not build turbines fast enough, so power plant developers wound up paying premiums for equipment. Now, as Martinez knows well, the same thing is happening with wind turbines. The cost of building the department?s 120 MW Pine Tree Wind Farm north of Mojave increased by more than 50 percent. The tab for the project?s 80 turbines?to be supplied by General Electric?is up $37 million. Installing needed power collection and transmission lines will cost $31 million more than initially planned. Throw in an extra $20 million for contingencies and the total project cost goes from $167 million to $255 million. The department is hardly alone. Its experience mirrors that of other wind energy projects across the nation, according to Jim Johnson, National Wind Technology Center senior mechanical engineer at the National Renewable Energy Laboratory in Colorado. ?It?s definitely a seller?s market,? he said. Johnson cites unprecedented worldwide demand for new wind turbines and a big boost in the U.S. after Congress restored the 1.5 cents/kWh federal wind energy production tax credit in 2004. Another big reason is the rising cost of steel, which has roughly tripled as a result of booming Chinese demand coupled with limited worldwide manufacturing capacity, according to Johnson. Large amounts of steel are needed to make the turbine towers for wind farms. Then there?s the rising cost of the oil used to make and ship wind turbines as another reason for the price hike and, in the U.S., the monetary exchange rate. Because Europe generally makes the turbines and components needed for wind farms, the sinking dollar has boosted the price of equipment. Finally, Lees and other analysts believe that turbine makers have seized the moment to reap a windfall while demand is high. After years of struggle, this is hardly surprising. Yet, unlike the large number of fossil-fuel projects planned during the energy crisis that ultimately never were built, wind project developers remain undaunted by the higher price of turbines. Analysts could not cite any developer or financier who has pulled the plug on a wind project of late, either in California or around the world. That?s because the unit cost of wind power has hardly budged while the capital cost increases. Power from the Pine Tree project, for instance, will cost 5.3 cents/kWh?almost the same amount as initially estimated, even though building the wind farm will cost half again as much, said LADWP?s Martinez. Once built, he observed, the windmills will produce power for 20 years. Thus, the initial cost increases will be a wash. The difference between wind and conventional plants, of course, is that the fuel cost will never change. That is the widely recognized beauty and urgency of catching the wind. While the cost of wind will never change, the cost to fuel the parts to catch it is only going up. With oil prices looming behind the increasing cost of wind turbines, nations around the world realize that now is the time to invest in wind energy because the petroleum used to make and ship the materials and components needed to build wind farms will only rise in price as worldwide production plateaus. It will be cheaper to build them now than to wait. Meanwhile, the cost of the fuel to power windmills? competition?natural gas?fired power plants?is also only going up. As the market globalizes, many analysts project that natural gas eventually will follow oil?s upward price trend, although liquefied natural gas may reduce the cost in the United States at first. In the long run, however, depletion of the resource is inevitable. Indeed, concern about rising fossil-fuel prices and global warming made 2004 a banner year for wind power. Global wind power capacity grew 20 percent to a total of 47,317 MW, with 72 percent of the new installations in Europe, according to the Global Wind Energy Council. Germany and Spain are the leaders, with 16,629 MW and 8,263 MW of capacity, respectively, compared to the 6,740 MW in the U.S. This year, U.S. developers will bring between 2,000 and 2,500 MW of new U.S. wind power projects on line, according to the American Wind Energy Association. California remains in the lead with more than 365 MW of planned projects. Other states, such as Texas and New York, are catching up, however. The boom comes as producers are overcoming concerns about the reliability of wind power. A recent study for the New York State Energy Research and Development Authority shows that wind can actually add to the grid?s stability. A Minnesota Department of Commerce study found that adding 1,500 MW of wind generation capacity would contribute 400 MW to system reliability and that wind generation variability declines as the number of wind turbines is increased. So the cost increase for wind turbines is not an ominous sign. Instead, it should be viewed as a hopeful development showing that the industry is maturing and gaining health. Yet its condition is still tenuous, so energy policies in the coming years must continue to foster wind power to achieve its full potential. That is why it is crucial for the U.S. Congress to extend the federal production tax credit for wind, which is set to expire at the end of the year. Even if federal energy policy legislation stalls, lawmakers should extend the credit this year through another vehicle to avoid any lapse in the improving economic outlook for the burgeoning wind industry. Anything less would be penny-wise and pound-foolish.

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