TODAY’S STUDY: HUGE GROWTH IN SMALL WIND

2010 U.S. Small Wind Turbine Market Report
Larry Flowers, October 2011 (American Wind Energy Association)

Foreword

The 2010 U.S. market for small wind turbines (≤100 kilowatts, or kW) was both impressive and changing. More than 25 megawatts (MW) were installed, representing a
26% growth from 2009 and an almost eight-fold increase in annual installation capacity and more than twelve-fold increase in annual revenues compared to just 5 years ago.The cumulative installed small turbine capacity increased to 179 MW (deploying 144,000 turbines).

Seven U.S. manufacturers reported annual sales over 1 MW. Twenty-two manufacturers with a U.S. presence reported sales of 51 turbine models. There was a significant
shift away from micro and off-grid systems to larger, grid-connected units, continuing a 5-year trend (nine of 10 leading wind turbine models sold in the U.S. were grid-tied). While domestic sales by U.S. manufacturers accounted for an 83% share of the U.S. market, 27% of U.S. manufacturers’ output went to foreign markets.

While the federal 30% investment tax credit remained an important financial incentive, the U.S. Department of Agriculture’s Rural Energy for America Program (REAP) and U.S. Treasury 1603 payments supported 250 small wind installations in 30 states. State distributed energy incentives remained a major driver, especially in California, New Jersey, New York and Ohio. More than 30 states offered small wind incentives (including American Recovery & Reinvestment Act funds).

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The year saw the emergence of several important institutional developments, including the Small Wind Certification Council, the North American Board of Certified Energy Practitioners program for small wind installers, four regional small wind test centers and the Distributed Wind Energy Association, all signs of a maturing industry sector.

The U.S. manufacturers report a large majority of U.S. content, and the industry represents an estimated 1,500 full-time jobs. From an environmental perspective, the 179 MW of small wind installations displace 161,000 metric tons of CO2 annually, the equivalent of removing 28,000 cars from the highways.

While 2010 was a strong year for the U.S. market and industry, the industry is experiencing some challenges at the time of this report’s publication (2011). Some key state incentive programs have (temporarily) stalled, the 2012 REAP funding is in jeopardy, and the U.S. Fish & Wildlife Service is proposing guidelines that are inappropriate and cost prohibitive. Planning and zoning remain a serious barrier in many jurisdictions. Untested, poor quality imports have also created negative impacts on the industry and affected the products’ credibility with public officials and the public. On the bright side, the export feed-in-tariff markets and power for telecommunications are somewhat offsetting the soft domestic market situation.

AWEA appreciates the cooperation of the 26 domestic and international manufacturers contributing data, which made it possible to develop the 2010 market report. We also thank the many content contributors, as well as the U.S. Department of Energy’s Wind and Water Power Program for the majority of the funding for the report’s development. We hope you find the report interesting and informative.

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Market Highlights

In 2010, the market for small wind systems grew 26%, with 25.6 megawatts (MW) of annual sales representing 7,811 turbines and $139 million (in 2010$).i Sales revenue grew sharply by 53%, while the 7,811 units sold represented a 20% decline from 2009. The 2010 market growth increased cumulative sales in the U.S. to an estimated 179 MW of small turbine capacity, consisting of 144,000 small wind turbines.

Seven U.S. manufacturers reported sales (including exports) of more than 1 MW; an additional six non-U.S. manufacturers reported annual sales in excess of 1 MW.

The U.S. market experienced a pronounced shift to larger, grid-connected systems. On-grid systems comprised 92% of 2010 small wind capacity additions, and in terms of 2010 turbine unit sales, 36%.

Nine of the 10 leading small wind turbine models sold in the United States were grid-connected. The shift to larger turbines also is reflected in the average size of on-grid units, which increased to 8.4 kilowatts (kW) in 2010 from 4.4 kW in 2007.

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Off-grid units actually experienced a modest average size reduction, from the fairly constant 0.5 kW (2006-2009) to 0.4 kW in 2010.

Combining off-grid and on-grid sales, the average unit size has increased more than three-fold since 2007 (from 1.1 kW in 2007 to 3.3 kW in 2010).

While only slightly more than 4% of the small wind turbines sold in 2010 were larger than 10 kW, they accounted for 62% of total capacity, up from 40% capacity in 2009. Sales of turbines less than 1 kW decreased by 35%, while turbines in the 1- to 10- kW range increased sales by 14.4%, and units larger than 10 kW increased a dramatic 74%, further demonstrating the market shift.

Twenty-two manufacturers with a U.S. sales presence, including imports from Europe and Canada, reported sales of 51 wind turbine models; three-fourths of the models are rated 10 kW or less, and one-fifth are rated 11 to 50 kW.

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The top three U. S. manufacturers in terms of 2010 capacity sales were Northern Power, Southwest Wind Power and Bergey Windpower.

The average installed cost of small wind turbines sold in the U.S. in 2010 was $5,430/kW.

Small wind turbines manufactured in North America typically incorporate a large majority of domestic content.

The roof-top (sometimes referred to as “urban turbine”) units experienced substantial sales growth in 2010 to more than 1,700 kW, or 7% of 2010 U.S. capacity sales.

This represents a remarkable 430% growth reported from 2009. In terms of units, 1,074 roof-top units were sold.

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The annual CO2 savings associated with the 179 MW of installed U.S. small wind turbine capacity is estimated to be 161,000 metric tons, or the equivalent of removing 28,400 cars from U.S. highways

Domestic sales in 2010 by U.S. manufacturers accounted for a 94% share of the U.S. market turbine sales, representing 83% on a capacity (kW) basis. The domestic turbine sales percentage has remained relatively flat the past 3 years, while the percentage of capacity is slightly down from 2009 (87%) but greater than in 2008 (75%).

Thirty-four percent of U.S. manufacturers’ turbine sales (3,752 units) went to export markets in 2010, reflecting a decline from 46% in 2009, but the same percentage as in 2008. In terms of capacity, 27% of U.S. manufacturers’ sales (7,848 kW) were to exports, down from 36% in 2009 but similar in percentage to 2008.

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Economic Value of Small Wind

The benefits of small wind deployments for the economy can be measured in several ways. Perhaps the most obvious are potential domestic jobs linked to the manufacturing, installing and selling of small wind turbines. The higher the domestic content, the greater number of jobs created in the U.S. Other key economic metrics are operations and maintenance (O&M) expenditures. Finally, exports to overseas markets also contribute to economic activity associated with the small wind turbine industry.

Small Wind Workforce Estimates

Of the top five small wind manufacturers worldwide, three are U.S. companies. These companies have experienced strong growth and employ thousands of workers and suppliers worldwide. More labor hours are required to manufacture small wind turbines than comparably priced cars — and because the wind turbines must operate under severe conditions for decades, quality manufacturing and craftsmanship are required. Small wind also creates jobs in the areas of tower manufacturing, transportation, installation and education. Installation materials, services and labor account for about 30% of total costs — these are local jobs at local small businesses. And with the increased demand for installation comes an increased demand for training, resulting in more education-related jobs.

The 2010 U.S. small wind industry represents an estimated 1,500 full-time equivalent jobs in manufacturing, installation, maintenance and sales.iii Based on reports of direct employees, vendors and dealers by leading manufacturers, this workforce estimate indicates that 50 full-time jobs are created per megawatt of installed U.S. small wind capacity and 30 jobs are created per megawatt of exports by U.S. small wind manufacturers. While these figures are higher than job estimates from utility-scale wind turbines, they are similar to rates determined for the Canadian small wind industry,iv and some U.S. small wind industry leaders have reported more than double this rate. Other factors at play in the U.S. include different ownership and development patterns that favor greater economies of scale (i.e., large wind farms instead of smaller projects owned by local communities).

As land-based wind turbines grow in scale, the corresponding number of jobs created actually declines when measured on a per-megawatt basis. This same phenomenon explains why small wind turbines create so many jobs when compared to utility-scale, land-based wind projects. Deploying wind in smaller increments for on-site power requires more labor per unit of power produced. It is clear that small wind produces more jobs per unit of installed capacity than any other power generation resource. Solar photovoltaics is in second place, with jobs-per megawatt estimates ranging from seven to 43 jobs, with the majority of jobs created during installation…

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Operations & Maintenance Costs

O&M costs for small wind typically vary, with the size of the turbine being a major factor: the larger the small wind turbine, generally speaking, the higher the annual costs, although this is not always the case. Reliability is also a critical factor. A developer of small and mid-size wind turbine projects has estimated that small wind O&M costs are 2 to 5 cents per kWh. This is higher than previous estimates, and not all industry leaders agree. One manufacturer estimates O&M costs at 1.3 cents per kWh. Another believes that O&M costs have declined in recent years due to increased reliability of inverters, suggesting 0.5 to 1 cent per kWh as more accurate.

Most prefer to frame O&M costs on an annual basis, with the highest estimates for 100-kW turbines: $2,500 annually (with remote sites in Alaska as high as $3,500 annually). On the lower end, $200 to $700 per year is expected for residential-scale turbines.

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Domestic Content of U.S. Small Wind Turbines

The domestic content of utility-scale wind turbines has been increasing over the past five years due to global wind manufacturing’s insourcing into the U.S. alongside the entrance of non-wind U.S. companies into the wind industry. The small wind turbine story is mixed.

Most small wind turbines purchased in the U.S. feature a higher domestic content than what has historically characterized the utility-scale wind turbine market, with the majority of components coming from within the states in which their companies are based.

Unlike most of the small wind turbine U.S. manufacturers, non-U.S. suppliers import the majority of their components, especially towers and blades. Gearboxes are typically imported from Europe, with U.S. suppliers dominating steel and generators. Growing numbers of manufacturers are looking for redundant suppliers globally.

The issue of domestic content is actually more complex than a simple matter of percentages. Based on a simple component count reported by its supplier, the domesticcontent of a leading wind turbine is roughly 80%. However, the price of rare earth magnets (a key component for the turbine’s magnetic rotor) recently escalated more than six-fold. If analyzed according to today’s “component value,” the domestic content has decreased substantially. See the 2010 Developments and Challenges section for more on this issue.

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Export Market Trends

American small wind manufacturers have exported products to more than 120 countries, and exports were one-fourth of U.S. manufacturers’ total 2010 sales. However, the industry faces immense challenges from international competition, particularly from Europe and China. These competitors often benefit from stronger support from their governments and robust local markets.

Export sales declined from 36% of total sales in 2009 to 27% in 2010 when measured on a capacity basis. When measured in unit sales, exports represented 46% of sales activity in 2009 and 34% in 2010. This downward trend is expected to reverse, however, in 2011.

Most U.S. manufacturers expect exports to play a much larger role in the coming months and years due to current low electric costs and scaled-back state and federal small wind incentive programs. The European Union is poised to surpass North America as small wind’s top global market in 2011, and certification will be critical for U.S. products as incentive programs and consumers require more evidence of product quality.

With residential domestic sales down substantially in 2011, many U.S. manufacturers see Europe and other markets as a better bet, forecasting that as much as 70% of future revenue will come from export sales over the next two to three years.

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AWEA’s sales data show that U.S. small wind turbines amounted to 58% of global sales in 2010, an increase over historical trends of capturing roughly half of the world’s total sales. According to a market forecast prepared by Pike Research, the U.S. small wind market is expected to grow at a compounded annual growth rate of 16% until 2015, accumulating more than 51 MW of small wind capacity that year. During that same year, the U.K. is expected to add 56 MW, a growth rate of 23% over the same period.

The small wind industry’s other wild card is China, which became the world’s largest wind power market in 2010, and which has historically played a critical role in reducing manufacturing costs due to low labor rates. While quality control issues still persist, China is now trying to expand its presence and market share in the international small wind arena.

A traditional global market has been to power cell phone towers in China, Africa and other parts of the world. Developing countries in South America and elsewhere are a major emerging market for U.S. exports.

Other Economic Benefits

Small wind systems provide economic benefits for the turbine owner, the community and the utility. Turbine owners benefit through reduced utility bills, tax incentives and renewable energy credits. In addition to local jobs, the community also benefits from revenue derived from permit fees, sales tax and, in some cases, property taxes. Utility benefits include decreased distribution and maintenance costs, decreased fuel required to run plants, decreased demand on the distribution system, emission mitigation and increased ability to meet renewable portfolio standard requirements. Small wind systems supply power close to the point of consumption. This reduces the burden on the electric distribution system and increases energy security…

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2011 Prospects

The industry has mixed perspectives on the 2011 small wind climate. Clearly the residential market is softer than the 2010 market because of the uncertain economy and the current public loss of focus on energy and the environment. The temporary curtailment and re-development of some key state incentive programs also hurt 2011 sales. Some manufacturers are reporting flat sales in 2011, while others are forecasting reduced domestic sales. Some state programs remain strong, and overseas sales, as mentioned earlier, are helping the overall 2011 picture. The agricultural sector market is growing, partly due to strong commodity prices and resulting income that farmers are investing into on-farm capital items.