US Wind Developers Struggle To Ink Power Contracts
March 23 2010 - 5:22PM
Dow Jones News
The number of wind-power projects coming online in the U.S. is
expected to decline this year, even with an influx of cash from the
federal government, as developers struggle to find buyers for the
electricity.
A big drop in power demand, expectations that wind-turbine
prices will fall further and uncertainty over federal policy are
making utilities hesitant to sign multiyear power-purchase
agreements to supply their customers. At the same time, wind-farm
developers and their financial backers are less willing to bet on
future power prices and are increasingly looking to seal these
long-term contracts.
The amount of new wind-power capacity coming online this year,
largely spurred by federal grants, is projected to dip 18% to 8,000
megawatts before rebounding in 2011, although this will be slightly
below last year's record level, according to Emerging Energy
Research, a Cambridge, Mass., research firm.
The projected dip comes as the federal government pumps money
into wind-power projects through a grant program. This program can
fund up to 30% of a project, with developers having to start
construction by the end of the year.
Yet even with increased federal support, the wind-power industry
is struggling to reach agreements to sell their output. The main
driver for wind-power demand is state-level renewable energy
mandates, which require a percentage of annual electricity sales to
come from wind, solar and other renewable sources.
Although state mandates rise over time, the math right now
doesn't favor wind energy. Power demand has fallen 5% over the last
two years to levels last seen in 2004, trimming the amount of
renewable generation needed to meet the state standards.
Wind-turbine prices are falling as well, causing utility buyers to
hold off inking deals with developers in the hope of negotiating
lower power prices in the future, said Matthew Kaplan, a senior
analyst at Emerging Energy Research.
Developers are expected to face the greatest difficulty securing
power purchase agreements in the Midwest and Southeast. Demand in
the Mid-Atlantic states is likely to be mixed, while the Northeast
and California will likely see strong demand, according to a
Macquarie Capital report earlier this month.
"It is not an easy environment to get utilities to buy the
output of a wind farm," said Gabriel Alonso, chief executive of
Horizon Wind Energy, a North American unit of EDP Renovaveis SA
(EDRVF, EDPR.LB), in an interview.
Horizon will cut its U.S. build-out by nearly 30% from last year
to 500 megawatts for 2010 and 2011. Developers such as Horizon--and
the manufacturers that supply them--say they need a stable federal
policy around renewable generation to grow. They favor a national
renewable-energy mandate, similar to the state-level programs now
in place.
For now, Kaplan said the federal grants should help wind-power
development grow year-over-year in 2011. Developers must get their
projects started by the end of the year in order to qualify for the
grants, so many of the projects should be completed next year.
But without a federal renewable standard, the wind-power
industry is likely to continue on a boom-and-bust cycle dictated by
short-term federal policies promoting development, said Elizabeth
Salerno, director of industry data and analysis at American Wind
Energy Association, an industry trade group.
"We could be hiring people, or downsizing, at the end of the
year," she said.
Despite efforts by the Obama administration and several U.S.
senators to get an energy and climate bill passed, any action
remains uncertain this year because of the partisan divide and a
focus increasingly shifting to November's mid-term elections.
-By Mark Peters, Dow Jones Newswires; 212-416-2457;
mark.peters@dowjones.com
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