Business News : Vestas CEO: U.S. market likely to drop 80 percent in 2013

AARHUS, Denmark (Business News) - The head of the world's biggest wind turbine maker, Vestas (VWS.CO), said on Sunday that the U.S. wind turbine market is likely to fall by 80 percent next year because of the expected expiry of an important tax credit.

The U.S. production tax credit (PTC) for renewable energy is due to finish at the end of 2012, and, in an election year, it is widely believed that Congress will not pass legislation to renew it before the expiry.

The prospect of a lapse for the PTC is just one of the problems troubling the renewable energy sector amid a global economic slump, which has hit support from governments forced to cut budgets and delayed much investment in energy projects.

But the prospect of the PTC lapse has boosted activity in the U.S. market this year ahead of the expiry.

"In the United States, the market this year is very, very busy," Vestas Chief Executive Ditlev Engel told a gathering of EU European affairs ministers and other senior officials at Vestas' research and development centre in the Danish town of Aarhus on the Jutland peninsula.

"But because of the potential lapse of the regulatory framework in the U.S., this market will probably go down 80 percent next year," he said.

That view of a potentially steep drop was in line with analysts' estimates cited earlier by Vestas, including in material provided to shareholders before the annual general meeting in March.

But Engel's remarks made it clearer than ever that the Danish company now also sees that as the likely scenario for the U.S. market next year.

In the material sent to shareholders in March, Vestas, citing the American Wind Energy Association, said the last time the PTC was abolished in 2002, more than 75 percent of the market "disappeared from one year to the next".

Vestas cited a study from IHS Emerging Energy Research showing there is a risk that the U.S. market could drop from about 11 gigawatts (GW) in 2012 to just over 2 GW in 2013 if the PTC is abolished and added: "Such an 80 percent decline would be even worse than what we witnessed a decade ago."

The PTC gives a 2.2-cent per kilowatt-hour benefit for the first 10 years of a renewable energy facility's operation.

Engel declined to say how Vestas planned to cope with such a plunge in the U.S. market. He referred to the company's earlier statements that it will decide in the third quarter whether it will need to adjust U.S. capacity and jobs.

When it announced plans for 2,335 job cuts in Europe in January, Vestas said it may need to cut a further 1,600 U.S. jobs if the production tax credit ends.

Vestas employs 3,500 people in the United States, mainly at four manufacturing plants in Colorado.

"It is v ery difficult to keep them employed if there is no market," Engel said.

Vestas does not provide figures separately for the size of its U.S. business, but the Americas region accounted for 31 percent of group revenues in the first quarter.

Engel told the gathering of European Union ministers and other senior officials that the U.S. example showed the need for a predictable regulatory framework.

"I sometimes say to those involved in other sectors, 'Imagine if you are told that next year you can only use 20 percent of your capacity,'" Engel said. "That is of course not the best way to move on to make long-term plans."

Engel said he would meet next week in London with executives from large pension insurance groups interested in investing in the wind power sector.

"They will only do so if the regu latory framework is there," he said, urging the EU officials to put in place regulations for a single market for energy and for a truly Europe-wide electricity grid.

He said the wind turbine industry had become truly global, which heightened the importance of competitiveness.

Many Chinese competitors have emerged in the past five years, although they are still predominantly focused on that country's market, Engel said.

"Therefore, our ability to keep focusing on innovation and development is absolutely essential for us," he said. "But it will only happen if there is transparency, longevity and certainty in public policy. Otherwise it is going to be very difficult."