Steel tariffs threaten US wind generation growth as input costs rise

Published 5 March 2019

Steel tariffs and the looming end of the tax credits in 2020
could slow the booming wind build out in the coming years.

Solar and wind energy are expected to be the fastest growing
sources of US electricity generation over the next two years, according to the
US Energy Information Administration. EIA’s January 2019
Short-Term Energy Outlook forecasts wind generation to grow by 12% in 2019 and
14% in 2020, even while total U.S. electricity generation across all fuels will
fall by 2% this year and then show very little growth in 2020.

Electricity generated from wind this year will surpass
hydropower generation, as the share of total U.S. electricity generation
produced by all renewables, excluding hydropower, will increase to 13% of total
generation in 2020 from 10% in 2018, according to EIA.

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However, the introduction of a 25% tariff on steel imports one year ago changed trade flows and set off a chain reaction of retaliatory tariffs and additional safeguard measures from other countries.

“The tariffs are increasing the cost of wind energy and will reduce our ability to grow, and in fact, we may end up laying men and women off because of these tariffs,” said Tom Kiernan, American Wind Energy Association president and CEO, in a General Electric video titled “The Trade War on Wind.”

The tariffs helped push domestic steel prices to eight-year
highs. Steel plate is a major input in the construction of wind towers. The US
price for steel plate surged by 66% between November 2017 and December 2018 on
the back of the tariffs and improved demand from energy markets, particularly
from oil and gas midstream companies for pipeline projects. Still, most of the
price increase occurred during the first quarter of 2018 when prices rose by
29% and remained mostly stable through the remainder of 2018.

Denmark-based Vestas, which in 2018 surpassed global
installations of 100GW of wind turbines with the completion of the 250MW Arbor
Hill project in the US, has raised concerns surrounding the impacts of the
tariffs. The company has production facilities located globally, with US
operations based in Colorado.

“Considering the amount of steel and many key parts in a
wind turbine, Vestas is naturally not immune to those kinds of tariffs,” Vestas
said in its annual report 2018. “The eventual impact obviously depends on
numerous factors and with details changing daily, Vestas continues to monitor
and explore multiple avenues of mitigating the impacts.”

Projected renewables growth is coming from new generating capacity, including about 11 GW of wind scheduled to come online in 2019, which would be the largest amount of new wind capacity installed in the United States since 2012, according to EIA. An additional 8 GW of wind capacity is scheduled to come online in 2020 to push the total US generation from wind up to 9% in 2020 from 7% in 2018, according to EIA.

Go deeper: S&P Global Platts podcast on US wind power development and steel price impacts

The Electric Reliability Council of Texas, which represents about 90% of the state’s electric load, currently has nearly 21.8 GW of installed wind capacity, the most of any state in the nation, with plans to add more than 7 GW this year and another 6.7 GW in 2020, according to ERCOT.

In the neighboring Southwest Power Pool, which covers all or parts of Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming, there is currently 21.5 GW of installed wind capacity with 64 GW of wind in all stages of study and development across its footprint. SPP has about 10 GW of unbuilt wind with signed interconnection agreements, and expects nearly 23 GW of wind generation to be installed in 2020, with between 28 GW and 33 GW forecast for installation in 2025, according to SPP data.

Meanwhile, the California Independent System Operator has about 6,505 MW on installed wind capacity.

“We have about $150 billion invested in wind energy across
the country and its’ exciting because we’re approaching 10% of all electricity
in this country is from the wind industry,” Kiernan said in the video. “We’re
looking at a significant growth in the coming year. We now have over 100,000
people working in the industry. We expected another 50,000 jobs by 2020.

“We will not be able to invest in facilities here in our
country because of the tariffs.”

The tariffs could eliminate up to 21,000 American jobs, mostly in rural America where these jobs are desperately needed, according to the AWEA. It will also put thousands of domestic manufacturing jobs at risk as the wind industry reduces US manufacturing of wind components in states like Colorado, Texas and Ohio. In addition, the tariffs could devastate already struggling farming and ranching families in states like Kansas, Oklahoma, North Dakota, and South Dakota, who count on turbine land-lease payments as a drought-resistant cash crop.

The other issue looming over the future of wind projects is the end of the federal renewable electricity production tax credit. This is an inflation-adjusted tax credit paid per kWh of electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. The duration of the credit is 10 years after the date the facility is placed in service.

Currently, wind facilities commencing construction by
December 31, 2019 can qualify for the tax credit, according to US Energy
Department. Originally enacted in 1992, the PTC has been renewed and expanded
numerous times, most recently by the Bipartisan Budget Act of 2018.

However, as candidates begin to enter the upcoming
presidential race, no one knows what will happen come election day 2020. If a
new party comes to power, things could always change for tariffs and tax
credit.

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Source: Platts – The Barrel Blog – Steel tariffs threaten US wind generation growth as input costs rise