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Supply chain crunch could cost US wind sector 1.1 GW, $2.1B

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Supply chain bottlenecks could cost the U.S. wind industry up to 1,100 MW in lost capacity, and $2.1 billion in lost revenue, through 2020 if the sector does not adapt to the growing scale of the market and turbines' expanding size, a new study found.

The U.S. could add more than 23,000 MW through 2020 as project developers rush to meet deadlines to qualify for the expiring production tax credit, or PTC, while upgrading older turbines with larger and more efficient machines, according to a report from data analytics and consulting firm Wood Mackenzie Power & Renewables. But that growth could be limited by constraints on shipping larger wind turbines and the components needed to build utility-scale wind farms.

"Increased demand for transportation capacity due to growth in partial repowering activity, logistics requirements, and competition from other industrial sectors could severely hamper the transportation segment's ability to ship components," Dan Shreve, head of global wind research at Wood Mackenzie, said in a statement. Those constraints could lead to "higher costs, missed deadlines, lost production and fewer PTCs if projects can't be commissioned in time."

Wood Mackenzie's analysis indicates that supply chain issues could affect nearly a quarter of wind capacity installations expected in the 2019-2020 period, potentially eliminating 1,100 MW of new capacity altogether. That would slash $800 million in turbine sales and $1.3 billion from PTC benefits over the 10-year tax credit period.

Wind turbine-makers building larger products with bigger nameplate ratings and longer blades. The average turbine in 2020 is expected to have a nameplate rating of 2.36 MW with blades 59 meters long, compared to an average of 1.97 MW and 44-meter blades in 2012. Super-sizing turbines helps reduce project costs for developers and produce more energy per turbine, but also means that suppliers must transport bigger parts to project sites. Some giant blades can travel from a ship to a truck to a train and back onto a truck before reaching their final destination.

Suppliers need to take "aggressive action" and start finding ways to eliminate or mitigate the gap between supply and demand, said Shreve.

"A different mode of operation will be essential in 2019 and 2020, requiring an immediate and broad-based collaborative effort," Shreve said. "The industry should also seek public policy relief to allow PTC extensions to 2021 and beyond, which would support the wind energy industry's efforts."

Under a December 2015 deal in Congress, wind projects that started construction or met a financial safe harbor by 2016 were eligible for a tax credit of $23/MWh over the first ten years of their lives. After 2016, the PTC's value goes down by 20% annually until after 2019, when the credits end. The U.S. wind industry could lobby for Congress to extend the federal subsidy into the 2020s, when wind installations are projected to drop dramatically, but the sector does not expect the tax credit to get another lifeline. That raises the stakes for developers and suppliers in 2019-2020.