ANOTHER BIG YEAR FOR SMALL WIND

AWEA Small Wind Turbine Global Market Study
mAY 2010 (American Wind Energy Association)

THE POINT
A distinguished brain scientist at one of the world’s great research and teaching institutions has often observed to NewEnergyNews that the people of this nation are not stupid, they are slow. But they will arrive at the core of the matter eventually.

This echoes the foundational belief of former President Bill Clinton, who reportedly believes passionately that when the people have the necessary information, they will always get a matter right.

The steady growth of small wind turbines is a case in point. Slowly but surely, the owners of small businesses and large residential properties are getting at the core of the energy issue and getting it right. They are slowly steadily moving to efficiency retrofits and distributed electricity generation such as small wind, rooftop solar and geothermal heat pumps.

As detailed in the AWEA Small Wind Turbine Global Market Study, released last month by the American Wind Energy Association, 2009 was another year of big growth for small wind. Yes, the recession had an impact, but, no, the marketplace did not lose sight of the fact that electricity prices are going to go up and having a private personal supply of it is, sooner or later, going to pay off.

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Small wind turbines are those of 100 kilowatts (kW) or less capacities. Small wind should be distinguished from the even smaller rooftop turbines and the much larger utility-scale turbines. Some 9,800 new small wind units were sold in the U.S. in 2009, a market growth of 15% (over 2008) that brought in $82.4 million. As a result, total U.S. installed capacity reached beyond 100 megawatts.

Momentum gathered through the New Energy boom years of 2005-to-2008. With 2009’s 20.3 installed megawatts, half of the total U.S. installed capacity was built in the last 3 years of the sector’s 80-year history. Small wind industry insiders say continuing 2009 growth in the face of the recession is partly attributable to sustained commitment to small wind by consumers and private equity investors and partly to new and improved federal and state incentives.

The international small wind sector also sustained its growth in 2009, buoyed by aggressive U.S. manufacturers. Two-thirds of the small wind turbines installed in the world last year (as well as 95% of those installed domestically) were built by U.S. manufacturers. The world’s 10% growth over 2008 added up to ~21,000 units, 42.5 megawatts of capacity and $189 million in sales.

There are now 250 companies in the world making small wind turbines. One-third of them (95) are U.S.-based.

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THE DETAILS
In the 2009 American Recovery and Reinvestment Act, the 30% federal investment tax credit (ITC) was extended to the full cost of a small wind system.

$252.7 million in outside equity was invested across 20 (mostly U.S.) wind manufacturers over the past five years. $80 million of new private equity was invested into small wind turbine manufacturing companies in 2009, despite the recession. That capital that allowed production increases that led to cost decreases, increased business volume and mergers and acquisitions.

Findings of an AWEA survey on what sustained the small wind market in 2009: (1) the federal investment tax credit (ITC), (2) consumer demand, (3) new private equity
investment in manufacturing, and (4) finding specific market niches. The ITC, especially, opened new market segments by bringing in many who previously could not afford small wind.

Still needed: (1) improved permitting processes, (2) net metering and standardized interconnection regulations, and (3) more federal research and development funding.

Manufacturers are working on improving turbine performance, standardizing and certifying equipment, cutting costs, strengthening dealer networks, getting into new markets, and increasing production.

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Though installed capacity increased 15%, the number of units sold decreased 6% because the market continues to shift toward bigger, grid-tied systems. Since 2007, residential and commercial/light industry turbines have dominated sales, and sales of off-grid turbines smaller than 1 kW are flat.

Manufacturers say consumers are now delaying their purchases and shopping for affordable financing. They expect a surge in sales when credit loosens.

The foremost market drivers:

(1) Economics as market drivers: Length of payback period and hedge against increasingly expensive and volatile grid electricity.

(2) Practicality as market drivers: Unreliable grid supply, synergism with rooftop PV, multiple and off-grid applications.

(3) Values as market drivers: Environmental concerns, energy independence and self-reliance, manifesting an image of being commited to sustainability, having a Do-It-Yourself power supply.

Marketr drivers for Real Estate developers: Zero-energy homes are more marketable, wind and rooftop solar PV go together, rebates could go to developers and home buyers, installation could be part of the property purchase price, wind defines the neighborhood, there is great appeal in owning and not just renting an electricity supply.

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The internal rate of return (IRR) of any New Energy system is widely agreed be the foremost market driver.

The 15 top small wind manufacturers in the world predict sales will grow exponentially over the next 5 years and expect to reach one gigawatt (1,000 Megawatts) of cumulative installed small wind capacity in the U.S. by 2015. The primary support will continue to be the 30% federal ITC, which does not expire until October 2016. It will assure continued private equity investment and increasing manufacturing capacity.

The fastest growing small wind markets were in the Midwest in 2009 but the biggest markets are still in the Northeast, upper Midwest, and California. States that offer small-wind incentives of $2 per Watt or more get the biggest action (CA, NV, AZ, OR, NY, MA, and OH).

The December 2009 AWEA technical standards now certify small wind system performance and safety. 6-to-12 months of field testing are required, so the first certifications are not expected until late this year.

Certification is expected to increase sales by increasing consumer confidence. It is widely seen as a sign of small wind’s maturity and as a promise of long-term growth.

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Department of Energy (DOE), Environmental Protection Agency (EPA) and other certifications will likely incorporate small wind systems based on the AWEA standards.

That private equity and venture capital investors put money into small wind during the recession is indicative of the value in the sector.

The bad news: One-third of small wind projects are subjected to poor or nonexistent local permitting practices. The good news: There is a hint of a trend toward statewide and streamlined permitting (9 states). AWEA is working to add states to the trend. (The AWEA permitting guidebook: In the Public Interest: How and Why to Permit for Small Wind Systems)

Siting begins with picking high average prevailing wind speeds. Private sector companies are developing advanced technologies to identify the best winds. There is also a focus on identifying average wind speeds at heights appropriate for small wind systems, as opposed to making estimates for small wind based on measurements made for the taller utility-scale turbines.

The North American Board of Certified Energy Practitioners (NABCEP) will soon credential and certify Wind Site Assessors.

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Worldwide, 250+ manufacturers are competing for market share. Consolidation is expected in the coming few years. 2009 saw acquisitions and bankruptcies.

State, utility, and local policies are fragmented but generally improving. Policy goals: (1) Streamline zoning, (2) Increase financial incentives, (3) Standardize grid interconnection rules and procedures, and (4) Get state/utility net metering policies.

With more small wind players (manufacturers, dealers, installers, supply chain members, unit owners, advocates), there is and will continue to be more political action.

The recession caused many to delay the decision to buy small wind until home values return and credit is more available. Because consumer interest is still strong, manufacturers expect a surge in residential and light industrial sales with economic recovery.

Manufacturers are expanding vertically and extending dealer and installer networks. They are also investing heavily in selection and training. Installers/dealers typically also assess sites, lobby for local incentives and zoning regulations and see to customer satisfaction.

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The movement toward the Property-Assessed Clean Energy (PACE) bond is growing rapidly. PACE bonds make distributed energy systems and Energy Efficiency more affordable. PACE bonds are issued by municipalities and usually purchased by institutional investors such as banks, pension funds, or mutual funds.

Municipalities lend the capital raised by the sale of the bonds to residential or commercial applicants to defray the upfront cost of systems and retrofits. The consumers repay the loans over 20 years via an annual assessment on their property tax bill.

In combination with other state, utility, and federal incentives, PACE programs have accelerated consumer involvement. If a residential turbine’s payback period is seven years, but the homeowner plans to sell the property in five, the owner will not install. But because a PACE bond is repaid over 20 years through property taxes and the next owner of the property (and turbine) assumes payment, present owners are less constrained.

Institutional investors like PACE bonds because they are backed by property taxes, which have very low default rates and survive foreclosures.

PACE bonds also have political appeal because they expand installations and therefore employ local installers at the cost of tax increases to only those who get the advantage of lower electricity bills.

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PACE bonds are presently available in 18 states but the list is growing fast.

The small wind sector has long pursued the same treatment as solar PV from policy makers. Getting the 30% ITC for 8 years, like PV solar, is its bell weather achievement. Also signaling new viability was the awarding by the U.S. Department of Energy’s highly competitive Advanced Research Projects Agency-Energy (ARPA-E) program of two of four renewable energy projects to small wind turbine developments.

Surprisingly, small wind sales are seasonal, falling off late in the year as energy consumption declines and increasing as much as 20% in late spring and summer months.

In 2009, ~20% of the 50-to-100 kW turbines sold were for wind-diesel hybrid systems, almost all in Alaska for remote off-grid purposes. Canada is looking to increase market share in this hybrid technology and growth is reported in Caribbean, Pacific, Asian, Russian markets.

Electricity prices are up 6% since 2006. Rising price drives growth in all the New Energies, including the distributed New Energies. The higher the price of electricity, the more competitive they become.

States and utilities are slowly growing better grid-interconnections and net metering laws and practices for small wind. The market is shifting significantly to grid-connected systems.

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Arcane utility regulations don’t completely stop installations, they just slow them by making them more complicated and more expensive. Federal legislation may standardize nationwide grid interconnection and net metering policies.

Public exposure of small wind options is growing but the media tends to focus on the sensational, which too-often are the controversial and the high profile failures. This makes careful siting, installation, product development, and testing crucial.

The need for field-ready professionals is growing with the small wind sector and manufacturers are expanding training programs to community and technical colleges.

The wind industry’s biggest fight in 2010 is for a national Renewable Electricity Standard (RES) that would require all regulated U.S. utilities to obtain a specific portion of their power from New Energy sources by a specific date. The wind industry believes it will create a sustained market for New Energy nationally as it has in the 31 states that have passed an RES.

Depending on how the federal RES is ultimately structured, it could drive small wind sector growth. Many recent RESs give more weight to distributed generation like small wind and solar PV than utility-scale New Energy. The House energy/climate bill passed in the summer of 2009 has an RES. Senate legislation is not yet finalized.

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Eventually, there will be a price of some kind put on greenhouse gas emissions (GhGs). It could be a carbon tax, a Cap&Trade system, a Cap&Dividend system or something else. If Congress does not enact a price on GhGs, the EPA could use Clean Air Act powers to impose hard caps.

The market study contains data on small wind system costs, numbers about the GhGs displaced by small wind, a discussion of building mounted turbines and a catalogue of small wind manufacturing.

U.S. manufacturers had ~50% of the world small turbine market in 2009. 36% of U.S. manufacturers’ sales came from exports, a 28% increase over 2008.

The use of feed-in tariffs (FiTs) is expanding worldwide. A national FiT is proposed in Congress but action is unlikely.

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After the U.S., the U.K. and Canada are the 2nd and 3rd biggest small wind markets.
Asia is believed to have a huge potential market, especially in China, Japan, and India, but little data is available.

10 of 95 U.S. manufacturers own the bulk of the market but competition is growing and - as evidenced by increased private external investment, state and federal incentives, mergers and acquisitions, certification, and a host of other factors - the sector is maturing.

Much change in the market and the industry is expected over the next 5-to-10 years.

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QUOTES
- From the small wind report: “In early 2010 the Federal Energy Regulatory Commission (FERC) ruled that wind turbines 1 Megawatt (MW) and smaller, including all small wind turbines, no longer are required to file an application with the FERC in order to obtain classification as a Qualifying Facility (QF). This is expected to ease the process for small wind systems to benefit from applicable state/utility net metering programs…”

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- From the small wind report: “The U.S. continues to comprise approximately half the global market, which, according to a 2010 AWEA survey, grew by at least 42.5 MW (10%) and more than 21,000 units in 2009. U.S. manufacturers produced 2/3 of this capacity, maintaining their historically dominant position in the global market…Exports accounted for approximately 36% of U.S. manufacturers’ sales, an increase from 28% in 2008…An overwhelming majority (95%) of units sold in the U.S. in 2009 were produced by U.S. manufacturers, continuing an historical trend…”

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- From the small wind report: “Overall, the industry appears to be heading for sustained growth; the question is at what rate. If trends in investment and policy support continue, the U.S. may very well reach the industry’s projection of installing more than 1 GW of cumulative capacity by 2015…The small wind industry is expanding quickly but remains sufficiently small so that the success of any given company is more dependent on its products, managers, and capitalization than on global or national trends…”