Dodging wind policy lunacy

Vestas chief marketing officer Morten Albaek reveals that the US wind market will drop off a cliff next year thanks to stop-start US wind policy but turbine prices will remain steady. It shows why we can’t rely on budget-funded programs, like the Coalition’s Direct Action policy, for reducing carbon emissions.

Last week I caught up with the Chief Marketing Officer of Vestas globally, Morten Albaek.

Albaek reports directly to the Vestas CEO and his role covers not just marketing and brand management, but also government relations and business development activities.

According to Albaek, the wind industry globally will be facing a tough 2013 thanks to delays in extending the US wind production tax credit. While he’s confident it will be extended relatively soon, wind development activity and orders have ceased in the meantime. This means the US market, the second largest in the world, will drop off a cliff next year, declining by 70 to 90 per cent.

The chart below illustrates the lunacy of the US policy. It illustrates a pattern of stop-start development in US wind capacity installations, with several points (1999, 2001 and 2003) where wind capacity installations precipitously drop for a year before then reviving (the drop off in 2010 was because the tax credit lost its value for banks suffering losses due to the fall-out from sub-prime meltdown).

Source: US Energy Information Administration (2012)

The reason is that the wind production tax credit is usually enacted with a two year sunset clause, rather than being designed to last a decade or two like the Australian renewable energy target or German feed-in tariffs, which provide a steady build-up of the industry. Often the tax credit is just extended without any gap but sometimes, like this year, other matters come up (like the debt ceiling for example) and it simply falls off the agenda. That's even though it probably won’t have trouble getting extended when it finally comes up for a vote. 

This is a perfect illustration why you shouldn’t use budget-funded programs to support carbon abatement in this country, such as the Coalition’s proposed Direct Action policy. The bi-annual Expenditure Review Committee will dangle like a sword of Damocles over emission reduction activity and businesses, threatening arbitrary and sudden cuts to the program. It will make it incredibly difficult to plan and very risky to invest in building businesses and skills in carbon abatement.  

Unfortunately Albaek was adamant that in spite of this drop-off in demand, Vestas won’t be noticeably dropping its turbine prices. While Vestas is taking a pretty sharp knife to its cost base, his view is that Vestas and the industry as a whole just can’t afford to give much more on price. And he includes Chinese turbine manufacturers in that assessment.

In his view the overall cost of energy from wind will continue to decline, but due more to a given turbine producing more energy, rather than its price substantially declining. 

When I put it to him that some critics of the RET suggest it can’t be met due to inadequate wind resources, he thought I must have been joking. Albaek says Australia’s wind resources are so good that to his way of thinking not exploiting them would be “like not drilling for oil in the Middle East”. 

He also made an incredibly interesting point about the effort that has gone into technological improvement to extract energy from low wind speeds. Holding his hand out slightly less than an arms-length from his face he forcefully exhaled, then noted this wind speed would be sufficient to start turning the blade of a modern low-wind speed turbine.

It seems Australia barely recognises just how lucky we’ve got it.

Part 1 of the interview transcript can be found here.