Wind Turbine Manufacturers Getting Greedy?

An article in the January 2006 Windpower Monthly corroborates the rumors heard over the past year in the wind industry: the installed price of wind turbines is rising. Since the installed cost of the turbine is the dominant factor in wind energy economics, this means that the cost of wind energy is rising.

Windpower Monthly Article on Wind Energy Economics

The article goes on to note that wind turbine costs have increased because of unavoidable factors such as higher materials costs and higher shipping costs. Fair enough. But, distressingly, the article points out only in passing two important factors that are well within in the control of the wind turbine manufacturers: tightness of supply and increased margins.

In other words, the wind turbine manufacturers — Vestas, Gamesa, GE, et al — are not expanding assembly capacity commensurate with the rate of demand growth, and are instead using the favorable situation to extract higher prices from project developers who purchase wind turbines.

As a capitalist, I generally have no problem with manufacturers taking advantage of a strong bargaining position to make good money. However, I don’t think the current pricing practices are a good situation for the still-maturing wind industry. Especially without subsidies, wind is still largely uncompetitive relative to other forms of electricity production (especially coal), and wind still faces considerable skepticism from utilities and many uninformed observers. In other words, wind energy is not yet on firm ground: now is not the time to get greedy.

It strikes me that the manufacturers are gouging a little bit while they can — maybe the first time that conditions have allowed them to do so — but at the risk of damaging their market, and thereby reducing the full magnitude of the growth potential open to wind energy. It is a risky strategy that could backfire.

I’d like to see a bit more manufacturing capacity expansion, especially here in the U.S. where little currently exists. Not so much as to create a glut and a subsequent bust — the industry definitely doesn’t need that — but enough so as to facilitate the growth potential of the sector and serve what currently seems to be unmet demand.

Of course, another interpretation of the current situation is that the improvement curve of the dominant 3-bladed upstream wind turbine is flattening out. If so, this would open up opportunities for alternative turbine designs to come into the market. I’ve seen some interesting designs (e.g., vertical axis) with potentially better economics, but these have largely been ignored as unviable against the tried-and-true conventional paradigm.

However, if the standard wind turbine has minimal further cost reduction potential, then perhaps it’s time for the innovators to get to work again on new wind turbine technologies. That would shake things up for the wind turbine manufacturers — and maybe make them regret the overly strong pricing tactics they seem to be using today.

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