Am I the only one in the industry who thinks that the wind turbine business is shaping up to be a repeat of the gas turbine business in the 1990s? Actually, there is a Siemens executive who spoke at an industry conference last year and alluded to this situation. Beyond his allusion, I've heard or read precious little.
I am referring to the industry's earlier infatuation with the advanced F-class gas turbine technology. Despite warning signs and mounting evidence of serious operational and performance issues in the field, in the mid-1990s, the orders kept coming (worldwide) and by year 2000, we had a situation of irrational exuberance. Utilities and merchant generators were lining up, paying deposits, accepting escalating prices, and swallowing service agreements on supplier terms just to stay in the queue for hundreds of these machines. Ultimately, the segment collapsed with the post-Enron malaise, but it was pretty clear to intelligent industry observers that the situation had, relatively quickly, become untenable.
We have analogous factors at work in the wind turbine market. Once again, General Electric (GE) is driving the market, and forcing the other suppliers, once the technological leaders, to play catch up. Just like with gas turbines, wind turbine technology is being scaled up rapidly to reduce costs and improve the economics. Demand worldwide is substantially ahead of supply of turbines and components. Other parts of the supply chain, like building transmission to serve wind farms, are lagging behind as well. The industry will consolidate to three dominant suppliers (as it does for virtually all major components in the power industry). Finally, the reliability issues are just beginning to surface. These machines are deceptively simple. The blades are pushing the limits of structural engineering and transportation (therefore need to be field erected), and the power electronics packages supplied with these machines get ever more complicated because of the grid interface and the intermittent nature of the energy source.
The number one problems facing wind project developers today is turbine supply. Not permitting. Not subsidies. Not financing. New suppliers will jump in to fill the void.
At the same time, the one power generating option that best satisfies (notice I did not say completely) all stakeholders today is a wind farm. Ratepayers are happy because it is renewable. Utilities are happy because they can build something, and relatively quickly, and maintain control (unlike distributed energy at customer sites which can cause loss of utility load). Investors are happy because the production tax credits and long-term power purchase contracts offer a predictable financing model. Environmentalists are happy because there are no emissions. Landowners (typicaly farmers) are happy they get some revenue for their land. Regulators are happy because no seems particularly unhappy, and there are no fuel costs to worry about.
Like gas-fired power in the 1990s, all stakeholder interests seem to converge on wind power today. But that is pushing up demand, pressuring suppliers, and forcing technology deployment and rapid cost reductions. The only question is this: Is irrational exuberance a year away, two years, five years?
We called the F-technology bubble through a widely references industry report, entitled, "Banking on Advanced Gas Turbines: Prospects for a Financial Meltdown," issued in October 2000. I was the principal investigator for that report.
We think we're on to something similar with wind turbines. It may be early, but the same warning signs are appearing.
What do you think?