Why subsidize the surfeit of wind turbines?
With an oversupply of wind turbines, why are governments subsidizing new manufacturing plants?
In recent years, China has ramped up its efforts to become a world leader in manufacturing and installation of wind turbines.
But the other side of the story is that China has also idled 40 percent of its industrial wind turbine manufacturing capacity as a result of oversupply and plummeting prices.
In Europe, the world’s largest turbine manufacturer, Vestas, announced a bond issue of 600 million euros ($807 million). This is the first bond issue in the company’s history and it was due to slow growth.
Even with an oversupply of manufacturing capacity, and falling prices for wind turbines, taxpayer-funded investment in wind turbine manufacturing by foreign companies in North America has been moving ahead with great fanfare.
In Canada, Ontario signed a $7 billion dollar deal with South Korea’s Samsung to manufacture industrial wind turbines and develop wind energy projects in the province — creating 4,000 jobs.
A Chinese and American business consortium announced plans to develop 1,000 jobs with the support of $450 million in taxpayer stimulus funds as part of recovery spending.
Vestas took the unusual step of announcing that it would consider building a manufacturing facility to build turbines for Ontario Trillium Power – a wind farm proponent without the necessary approvals to install turbines, or sell power into the grid.
Last year Vestas cited an oversupply of industrial wind turbines as justification for laying off 1,900 European wind turbine-manufacturing workers.
China idling 40 percent of their wind turbine manufacturing capacity demonstrates the oversupply is severely impacting even the most competitive manufacturing market in the world.
Under normal circumstances, China’s competitive advantage should allow Chinese-manufactured turbines to meet the demands of the global market at the expense of less competitive jurisdictions.
But these procurement decisions are based on politics, not economics.
North American jurisdictions seeking “green” manufacturing jobs are selling the idea to voters as a means of developing a green manufacturing sector as part of an economic recovery.
The reality, as evidenced around the world, is that these jobs aren’t permanent and could not exist without extensive ongoing government subsidization and therefore involvement in the business decisions of this industry.
Until the industry addresses the oversupply and governments address ever growing subsidization rates, real turbine prices will continue to fall, oversupply will continue to grow and subsidization rates will move this industry even further from market principles other sectors follow.
The impact will be felt by jurisdictions that have embraced and financially supported the technology.
They will surely feel the pressure higher electricity prices place on traditional manufacturing sectors, and the eventual loss of these temporary jobs when the wind turbine manufacturer pulls out.
Photo shows the sun rising over a windmill farm in Palm Springs, California November 26, 2005. REUTERS/Lucy Nicholson