Bloomberg News

U.S. Wind Power Market May ‘Fall Off a Cliff,’ Vestas CEO Says

November 16, 2011

Nov. 10 (Bloomberg) -- U.S. wind turbine sales may dry up in 2013 unless lawmakers extend tax credits supporting the market beyond the end of next year, said Vestas Wind Systems A/S Chief Executive Officer Ditlev Engel.

The so-called production tax credit, or PTC, provides an incentive of 2.2 cents a kilowatt-hour for electricity from wind applied to operators’ tax bills. In the past, the termination of such policies has shown markets can “disappear,” Engel said today by phone interview.

“Our concern is that if the PTC is not extended, history has shown us that these markets tend to fall off a cliff,” Engel said from the company’s headquarters in Aarhus, Denmark. “We should prepare ourselves for it.”

The expiration of the program would be a blow to Vestas and General Electric Co., two of the three biggest turbine makers, which are struggling with falling turbine prices caused by increasing competition from Chinese rivals. Engel’s comments echo concerns made by Lewis Hay, CEO of Nextera Energy Inc.

Hay said last week he expected no new wind projects in 2013 and 2014. The American Wind Energy Association is lobbying for congress to extend the tax measure. Until that’s done, the market for 2013 “has a question mark over it,” AWEA Chief Economist Elizabeth Salerno said Oct. 25.

Vestas in 2010 delivered 1,093 megawatts of turbines to the U.S., or 19 percent of its total sales, according to its most recent annual report.

Political Debate

The House of Representatives is considering a draft bill that would extend the credit, though that measure may get tied up by politics surrounding the presidential election next year. Congressional Republicans are focusing on probing loan guarantees granted to Solyndra LLC, a solar manufacturer that went bankrupt in September.

Wind energy supports 75,000 U.S. jobs, a number that could rise to a 500,000 within 20 years, according to a Nov. 3 AWEA statement citing the Department of Energy.

Vestas spent more than $1 billion building four factories in Colorado to replace turbine imports in the U.S. with domestic production. Because of the scheduled end of the tax credit, Vestas will probably be “quite busy in the U.S.” next year, though the company won’t base plans on the tax credit being extended, Engel said.

“We won’t take it for granted that it will happen,” Engel said. “We probably won’t know before we pass the presidential election in November and we have a new congress, and then it is too late to adjust Vestas for an American market in 2013 without the PTC.”

Congress Proposal

U.S. Representatives Dave Reichert, a Republican from Washington state, and Earl Blumenauer, a Democrat from Oregon on Nov. 2 introduced a draft law that would renew the tax credit through 2016.

A total of 5,116 megawatts of wind power capacity was installed in 2010, according to AWEA. In its 2010 annual report, the organization said 221 megawatts of Vestas turbines were installed that year, giving the Danish company 4.3 percent of the U.S. market, less than a 10th of GE’s 49.7 percent share.

Engel also said Vestas has no plans to get involved in mergers and acquisitions, concentrating instead on growing its own business. He said the industry as a whole “needs to do better” at finding new financing, and that growing sources could include wind bonds and pension funds.

Vestas yesterday abandoned its profit margin and sales targets for 2015 as weakness in developed markets pushed them out of reach. That company on Oct. 30 published earnings early, cutting its full-year revenue and margin forecasts for the third time in 21 months.

The company plans to make 650 million euros of investments in 2012, and cut costs by 150 million euros, Engel said in a conference call with investors. The manufacturer expects 2012 and 2013 to be “tough years,” he said.

“The challenges we are seeing in 2012 and 2013 are less Vestas-related and more the-world-around-us-related,” Engel said.

--With assistance from Ehren Goossens in New York and Reed Landberg in London. Editors: Reed Landberg, Randall Hackley

To contact the reporter on this story: Alex Morales in London at amorales2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net


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