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Distributors Face Many Unknowns in Wind Energy Markets

Distributors Face Many Unknowns in Wind Energy Markets

September 24, 2012
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Scientists say there’s enough kinetic energy in global winds to, once harnessed, meet or exceed global energy needs, according to a 2012 study from Stanford on wind power potential. Wind energy is also considered renewable in that the production of energy itself doesn’t require the use of fossil fuels. This translates to less pollution and less dependence on foreign fuel.

Despite all this, wind energy has hit serious obstacles along the road to broader implementation. MDM’s 2012 Distribution Trends Report revealed that some distributors trying to enter or grow business to companies involved with wind energy are seeing stagnation in the market and barriers to entry.

Uncertainty around future incentives may be playing a role. Federal incentives, such as the production tax credit of the Energy Policy Act of 1992 and the income tax credit of The Recovery Act are set to expire at the end of 2012. According to a report from the U.S. Department of Energy, the wind energy sector is currently experiencing “serious federal policy uncertainty.” According to the department’s 2011 Wind Technologies Market Report, “2011 saw another year pass without any concrete Congressional action on what are seemingly the wind power industry’s two highest priorities – a longer-term extension of federal tax (or cash) incentives and passage of a federal renewable or clean energy portfolio standard.”

Absent federal support, wind energy projects would depend on state assistance. Local grant programs and tax incentives vary by state, and in many states they don’t exist, so geography may help to determine future growth. Geographic factors will also shape the profitability of future wind farms. Some states are much windier than others, so high-wind states, such as those along the Great Plains, are better positioned for cost-competitiveness and profitability.

In addition to the structural challenges of the market, distributors have run into more practical challenges serving the market.

Windmill construction in recent years has been handled “more on a manufacturer-direct basis,” according to David Pugh, CEO of industrial distributor Applied Industrial Technologies. Pugh, who spoke with MDM in 2010 about opportunities in new markets, also noted challenges in penetrating the repair aspect of the market: “A lot of the repair services are built into maintenance contracts of the initial sale of the manufacturer.” The massive structural components required to help windmills reach winds at these heights are typically assembled in advance rather than on location, according to author and Berkeley professor Richard Muller in his recent book.

The Department of Energy projects 2012 will be a strong year for capacity growth, due to continued state and federal incentives, improvements in the cost and performance of wind power technology and investors’ rush to meet end-of-year construction start deadlines.

Projections for 2013 and beyond are less certain. The department report cites the expiration of federal incentives, as well as “continued low natural gas and wholesale electricity prices; inadequate transmission infrastructure in some areas; modest electricity demand growth; existing state policies that are insufficient to support future wind power capacity additions at the levels witnessed in recent years; and growing competition from solar energy in certain regions of the country.”

Whether uncertainty around these factors will take the wind out of this industry’s sails remains to be seen.

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