Wind Power Market Meltdown?

A graph plotting the November stock price activity of Vestas Wind Systems shows the normal ups and downs of a publically traded stock, hovering between US$12 and US$14 per share.

Ringkøbing, Denmark – December 13, 2002 [] Until November 27. On that day, the red line price indicator – tracking the wind turbine manufacturer’s stock price – plummeted, finally closing at about US$9 per share – a whopping 35 percent drop. The price drop came on the heels of a report reducing earnings projections based largely on worries about the U.S. wind energy market. The company also said it was holding off on plans to build a turbine manufacturing plant in the U.S. and said it will layoff 533 employees. The drop in stock price – and the announcement that caused the dive – launched concerns about the Danish company and about the potential wind energy market in the U.S. A Danish newspaper even speculated that Vestas may be ripe for a hostile takeover, possibly by GE Power Systems who purchased the assets of Enron Wind earlier this year. In a statement released earlier this month, Vestas said it expected an energy bill including an extension of the Production Tax Credit (PTC) beyond 2003 would be passed during the 2002 session of Congress. The company blamed several order postponements on the lack of an energy bill as well as the decline in the dollar, “declining rating of energy companies and more difficult financing opportunities.” (The PTC provides an incentive of US1.5 cents per kWh (adjusted for inflation) for electricity generated during the first 10 years of operation of a new wind plant installed during the program.) Vestas said that, although a further extension of the PTC through 2006 could come as early as spring, they expect it to be delayed until the fall, causing the company to reduce its expected order intake for the American market. If extension of the PTC beyond 2003 is delayed, what is in store for the wind energy market in the U.S.? In August, the American Wind Energy Association (AWEA) reaffirmed its assessment that 2003 will be a record year for the wind market in the U.S. with “well over 2000 MW of new wind capacity installed” following an all-time high of 1,696 MW of new installations in 2001. (For reasons including the delay in the two-year extension of the PTC last year, 2002 installations will be significantly down from 2001.) The wind industry received a boost this year not only from the two-year extension of the PTC, but from a series of announcements by utilities, oil companies, and other firms that they see wind energy in their future. But recent financial difficulties of utilities has created concern that is quite unrelated to the PTC, but rather their overall financial health, according to AWEA’s Executive Director Randy Swisher. Last week, Swisher said AWEA is reworking its 2003 outlook in light of the failure of Congress to act on an energy bill during their last session and the changing marketplace. “We are very busy evaluating our market projections for next year, right now,” Swisher said. “We are certainly mindful that the electric industry in the U.S. is going through very wrenching experiences and have some concern that our industry will be effected by that as well.” He said many large companies are struggling and pulling back from investments, while the financial minds on Wall Street are rethinking the credit worthiness of electric companies. “We don’t yet have a quantitative sense of how our industry is being effected by that,” Swisher said. “It would be naïve to think that that will not have some impact in the market for wind (energy).” He said there is “huge, bi-partisan political support” in Congress for the PTC and it is only a matter of time before it is extended. But, he said, the PTC is only a part of the reason for the slowdown in orders at the end of last year. “In some ways I feel that too much weight gets placed on the credit, clearly you have to have the credit in place to have a deal go forward – I am very confident that the PTC will be extended,” said Swisher. “The fact that the PTC hasn’t been extended yet has had less impact on the current wind market than the massive re-evaluation of the creditworthiness of the electric industry that Wall Street seems to have undertaken. That has made financing any electric generation project more expensive, including wind, and has helped (when coupled with excess generating capacity in some regions) reduce the interest of utilities in bringing on new generation projects.” Despite the announcement and stock drop, Vestas continues to be a player in the industry. The company this week announced the order of 1.8 MW wind turbines by FPL Energy, the largest developer, owner and operator of wind powered generating plants in the United States. The deal, an extension of a previous agreement and valued at US$85 million is the first major order to the U.S. for the new V80 turbines and includes towers and other services to the Highwinds project in Solano County, California. Shares in Vestas Wind Systems have slowly begun to climb again, closing near US$10.70 Wednesday.
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