Monday, July 09, 2007

Wind Bottleneck

The front page of today's Wall Street Journal features an article on an important strategic shift in the growing wind energy industry. A large backlog of wind turbine orders is apparently leaving some developers with a choice between long project delays or acquisition by larger companies that have turbines to spare--or a large enough project portfolio to shift turbines around to more attractive opportunities. Although some of the causes of this situation look like a microcosm of the same global hardware crunch that has oil companies delaying drilling projects for lack of appropriate rigs, the biggest are quite specific to the expanding renewable energy market. If wind power is to grow as fast as environmentalists and alternative energy investors hope, then these bottlenecks must be eliminated.

Sporadic support for wind and other renewables by the US government is the main underlying cause of the situation described in the Journal. Because wind power is still not fully competitive without subsidies, government policy remains a key driver of growth. Wind turbine manufacturing capacity has grown faster in countries where the market for its output wasn't riding the roller-coaster of biennial wind subsidy expiration. That's why a European firm such as Iberdrola can leverage their call on Gamesa's turbine output into an entree to the US wind market. This may be just another example of the increasing globalization of the energy sector, but with the EU providing dependable incentives, it also provides a new twist on the old industrial policy debate of the 1980s.

I've always been squeamish about governments choosing winners and losers among industries and technologies. The market seems to do this better, on average. But if we're going to place such a big bet on renewable energy as a means for reducing greenhouse gas emissions and enhancing our energy security, then we are implicitly betting on the technologies that deliver that energy and on the companies that make the hardware with which to do it. If we like wind electricity well enough to promote its generation through production tax credits and state renewable portfolio standards, then wouldn't it make sense at least to make that support stable enough to foster the growth of the domestic wind turbine industry? The alternative will leave us no less reliant on foreign suppliers of turbines than we are on foreign suppliers of oil.

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