Bloomberg News

Wind Power Faces Zero Margins, U.S. ‘Boom and Bust,’ Suzlon Says

November 17, 2011

Nov. 14 (Bloomberg) -- Wind-turbine makers have seen profit margins wiped out, and the potential end of tax credits in the U.S. will see its “boom-and-bust” market persist, Suzlon Energy Ltd. Chairman Tulsi Tanti said today.

“Today everyone is selling just at cost level,” Tanti said in an interview in Mumbai. “You’re almost getting Chinese prices in the U.S. Nobody is making any margin whether it’s a supplier, a turbine company or a project construction company.”

Tanti’s remarks add to concerns voiced last week by the heads of Vestas Wind Systems A/S and Gamesa Corp. Tecnologica SA, Suzlon’s rivals in Europe, about the health of the world’s second-biggest wind-turbine market. The companies already are coping with slimmer margins caused by cuts to subsidies across Europe and the growth of Chinese competitors led by Sinovel Wind Group Co., which benefit from state funding to expand abroad.

U.S. tax credits, which give an incentive of 2.2 cents per kilowatt-hour of wind power on payments by turbine operators, expire next year. The American Wind Energy Association is lobbying congress to extend the measure. Until that’s done, the market for 2013 “has a question mark over it,” the AWEA said Oct. 25.

“There’s no clarity or visibility after the cutoff date,” Tanti said today. “The U.S. is a boom-and-bust market and that trend will continue.”

Withdraw From U.S.

Suzlon, based in Ahmedabad, India, got 19 percent of its sales from the U.S. in the year through March 2010 and less than 5 percent the following year, according to data compiled by Bloomberg. It stopped manufacturing rotor blades and nose cones at its Pipestone factory in Minnesota at the end of 2010, and will only resume U.S. production “if we get five-year visibility” on policy, Tanti said.

The chairman estimates that the U.S. may add as much as 12 gigawatts of capacity in 2012 before the tax credit runs out, and about 5 gigawatts in 2013.

Ditlev Engel, chief executive officer of Vestas, said Nov. 10 that U.S. turbine sales may “fall off a cliff” unless lawmakers extend the tax credits. Gamesa CEO Jorge Calvet Spinatsch said Nov. 11 that the policy uncertainty “has started to weigh on renewable investment decisions.”

The Bloomberg Wind Energy Index, whose members include the two biggest turbine suppliers Vestas and GE, has lost 19 percent since July on concern that the sovereign-debt crisis in Europe may dry up new project loans and competition from lower-cost Chinese rivals will increase. Turbine prices are down 22 percent from their 2008 peak, according to Bloomberg New Energy Finance.

NextEra Energy

Among U.S.-based companies, renewable-power producer NextEra Energy Inc. said its growth targets for 2013 and 2014 aren’t factoring in any new wind projects at home. Its forecast for annual earnings-per-share growth of 5 percent to 7 percent through 2014 assumes no U.S. wind additions, CEO Lewis Hay said last week.

Some investment will continue in the U.S. because the cost of wind power has become competitive with other sources, Tanti said. For utilities with cash, it’s a good time to snap up cheap turbines, he said, adding that prices may rise 10 percent by 2014 as the economy recovers and commodity prices rally.

European utilities are already taking advantage of rock- bottom prices to place orders, skirting the debt crisis by using cash on hand to pay for equipment, he said. Utility customers of Suzlon’s German division, Repower Systems SE, include Vattenfall AB, EON AG and Enel SpA, according to Repower’s annual report.

Future Policy

For the past two years, Suzlon has studied establishing a base in the U.S. as a manufacturing hub for sales to Latin America, taking advantage of low-cost financing from the U.S. Export-Import Bank. The board has so far refused to approve the plan, citing a lack of policy visibility, Tanti said.

Suzlon, which gets about half its sales from Europe, is now looking to new markets such as Brazil, where it expects to complete a 400-megawatt rotor-blade plant in 2012, Tanti said. The company will also decide whether to build another facility in South Africa by 2013 after an auction there this month, he said. African Clean Energy Developments Pty. signed an agreement to buy 76 turbines from Suzlon for the Cookhouse project in May, with the option to purchase an additional 124 machines.

Assuming the Cookhouse project is awarded a power-purchase agreement in the auction, Suzlon will build a 400-megawatt rotor-blade plant in the country, he said.

The Indian turbine maker, which also owns wind farms at home, plans to sell about 50 megawatts of wind projects this financial year, “because that’s not our core business,” Tanti said.

--Editors: Amanda Jordan, Reed Landberg

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

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


Silicon Valley State of Mind
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus