Last year was a banner year for the wind industry with some 12,000 new MW installed. You might guess the top three states for new installations: Texas, California, and Iowa. But can you guess the fourth? It was Illinois.
The state is also home to a couple of turbine OEMs – Nordex and Acciona – gearbox manufacturer Winergy, tower manufacturer Broadwind, along with many other second and third-tier manufacturers. So to put Illinois in the spotlight, AWEA recently organized the AWEA Chicago Wind Energy Leadership Forum to let several of its wind-industry executives comment on the course of the industry and their best guess where it might be going this year and next.
Karen Weigert, Chief Sustainability Officer – Office of the Mayor
John Eber, Managing Director, Energy Investments, J.P. Morgan
Jim Murphy, Executive Vice President, CFO, COO, Invenergy, LLC
John Purcell, Vice President, Wind Energy, Leeco Steel, LLC
Terry Royer, CEO and President, Winergy Drive Systems Corp.
Rob Gramlich, Interim CEO, AWEA
And Chris Martin from Bloomberg News served as moderator.
The 90 minute discussion ranged from needed legislation, the PTC and the fiscal cliff, improving capacity factors, financing ideas, the compatibility of wind and natural gas, and more. Here are a few of the discussion highlights.
Leeco Steel’s John Purcell: “We made quite a transition from the end of 2012 in which the last five months were almost idle production. We were blessed with the extension of the PTC and that let us ramp up into 2013. Customers are getting more active through this year and we expect that next year as well.”
J.P. Morgan’s John Eber: “Wind delivers clean energy and at a constant fixed price over 20 years. Few other energy sources can do that, so that it provides stability to the market. And that is a big difference compared to where we were in 2004.”
Winergy Drive System’s Terry Royer: “From the manufacturing and supplier’s perspective, we’re also planning on growing into 2014. But questions will arise in the summer months when we start looking out 12 to 18 months more, when the impact of the extension begins wearing off. What happens then? What will be the next discussion regarding legislation that continues to support the industry? Of course, that depends on what legislators do, which might include comprehensive tax reform. Still we look for a healthy 2014, even as we work with legislators to better clarify what will come.”
Bloomberg’s Chris Martin: “The definition of ‘begin construction’ from the PTC is broad enough.
“Cape wind says it received some financing support and would be the first offshore wind if it gets built, but they have to show they started construction this year. Do you see projects forming that could last more than a couple years, to keep the industry moving?”
Winergy’s Terry Royer: “Chris, this is why we are anxious to hear from the Treasury Dept. It is hard to define ‘begin construction’ now. But to a previous question, I think manufacturers are resilient, and financial guys are creative, so we are waiting on legislators. We are just waiting for solid policy and certainty. We think we have a good product and the message is this: Costs have come down, turbines are more reliable than ever, and manufacturing is waiting to do its job again. So when we hear from the Treasury Dept. as to what they say defines the term from the PTC. We’ll also see if there is another cliff in 2014.”
Invenergy’s Jim Murphy: “For onshore wind, the development construction cycle is well known. Typically it’s 6 to 12 months, so I don’t expect to see projects going on for years as an offshore project might. Hopefully, as John was saying, it’s a non-issue, by the time we get to a point where we have certainty in the system.”
Leeco Steel’s John Purcell: “As long as I have known wind energy, it has been asking for more stability, and there have been a variety of different legislative proposals for that. Certainly the RPS provides additional stability and that has been discussed at the national level, but there are more subtle policies in the tax code. One that is getting attention is the Master Limited Partnership which would be an investment vehicle. If put into law, it would not need extending every other year. It’s there for oil and gas, and other energy sectors. So one financing option is to write renewable energy into that law along with gas and oil. That would be helpful, but that takes an act of Congress. Those three small words are such a hurdle.”
Bloomberg’s Chris Martin: “What tone do you expect from the upcoming AWEA WINDPOWER conference and what will be the important topics for the industry?”
Leeco’s John Purcell: “Since the president has made renewable energy a large part of his administration, and without the hazard of reelection, he has nothing to lose from his actions. So I hope we’ll hear in May that renewable energy remains on the forefront and something that will be a bigger negotiated package for future energy policy. We are here in the President’s hometown, and a state supportive of development and manufacturing.
We make the steel for the towers and turbines, so policy will be a huge jobs creator and positive impact on Illinois and the states around us. A lot of manufacturing that was created has gone away. But I know about capital markets and manufacturing, and if there is certainty in the market, money will be borrowed, lent, and put to good use. That is what I’m hopeful for.”
AWEA’s Rob Gramlich: “One theme at this year’s conference in May is that we are coming off a year for an industry that relies on Washington policy. Things got pretty nasty last year. There was partisan gridlock and partisan attacks. Although some things got accomplished, the attacks on clean energy got pretty nasty.
“Despite that, the wind industry emerged from all that. We look around now and realize that if something does not kill us, it makes us stronger. The wind industry stayed united through all that turmoil, all our allies stood proudly with us, and actually, we feel good about the campaign for the PTC extension. We survived the worst, and some of the gridlock is subsiding. We could have an option teed up with bipartisan support. It is hard to say what legislation opportunities are out there, but we will be ready to keep things moving.”
Bloomberg’s Chris Martin: “We talk about the cost of wind power coming down, and fortunately, the development of shale gas has made natural gas more competitive. That has changed the economics of energy. How does it affect the wind industry?”
Invenergy’s Jim Murphy: “Our costs have been coming down and we have seen great improvement in turbine efficiency. Here’s an example. Our first wind project began development in 2003 but did not finish because the net capacity factor would have been about 20%, not good enough. That would not have been an economic success for the company. Now fast-forward to 2012. We put several farms in Illinois and completed construction on others with net capacity factors over 40%. That is a huge move, a huge increase in energy production, of course with incremental costs and more turbines. So the economics have improved. The net capacity factor is a critical driver and a metric that is important when comparing wind with other sources of generation. You often hear that wind is intermittent and does not have a high capacity factor. And yet, we are moving to higher capacity factors. Projects now in other parts of the Midwest are approaching or exceeding 50%.”
J.P. Morgan’s John Eber: “I can confirm that. We have clients all over the country, some 90 different wind farms. In the last two years, capacity factors are increasing all over the country. Equipment manufacturers have come up with improved designs, taller towers, longer blades, and improved electronics. So the same sites a few years ago would produce the lower factors are now much higher, and that has allowed reducing the cost of power and competing with natural gas.
“In fact, I see wind and natural gas as compatible. They need each other. Natural gas is important to the country but it is not nearly as clean as wind. And wind needs a base load power available when it is not blowing. So there is a compatible mix between the two, and a few utilities show that.
“Remember, you can fix in the cost of wind for 20 years. You can’t do that with natural gas. It’s too volatile even though the price is attractive now.”
(Editor’s note: Bloomberg.com/energy reports that as of March 29, Nymex natural gas carries a price of $4.07/million BTUs, and that is up from about $3.50 a couple months ago and about $2.50 a year ago.)