Lull in orders for Bucks wind-turbine plant

Workers in Bucks County will load 10 giant wind turbines onto a ship this weekend, dispatching the first part of an order that Gamesa USA is building for a buyer in South America.

But after Gamesa completes the order for 25 windmills, around the end of February, there are no other jobs in the pipeline for the company's seven-year-old factory in Fairless Hills. The domestic market for new wind turbines has stalled.

"We probably won't see any orders for several months," said David J. Rosenberg, the vice president of marketing for Gamesa, the Spanish wind-turbine manufacturer with U.S. headquarters in Trevose.

Two years ago, the Gamesa plant on the former site of a steel mill was operating three shifts and could not build turbines fast enough.

The Fairless Hills plant assembles the power-generating contraptions called nacelles that sit on towers hundreds of feet above ground. The devices, about the size of a shipping container, are the guts of a wind turbine.

Gamesa's production contributed to a record year for the wind industry in 2012. According to the American Wind Energy Association, the industry installed 13,124 megawatts (MW) of power-generating capacity last year, about 42 percent of the nation's new production capacity. Total U.S. wind capacity has grown in five years from 25,000 MW to 60,000 MW.

But the scheduled expiration of a federal production tax credit at the end of 2012 has put a brake on the growth. AWEA says that only 43 megawatts of new capacity is now under construction in the United States, a fraction of last year's total.

If it weren't for exports, Gamesa would be completely idle. In August, it laid off 92 workers at Fairless Hills and an additional 73 in Ebensburg, Pa., where it makes the 150-foot-long turbine blades. The workers were called back after 10 weeks of furlough when Gamesa got the contract to build 25 turbines for South America.

Congress last month renewed the production tax credit as part of the fiscal-cliff rescue package - the credit provides generators a tax break of 2.2 cents for every kilowatt hour produced, which gives a qualifying wind project an advantage over conventional power projects.

But it will take many months for new orders to restart because a large wind farm requires complex planning, financing, and permitting.

"We're fairly confident, unfortunately, this is going to be a slow year for the industry," Rosenberg said.

He expects the industry to install less than a quarter of the capacity it built in 2012. Manufacturing is projected to pick up in 2014 to fill orders placed this year before the tax credit expires again at the end of 2013.

The boom-and-bust cycles of the business take a toll. Some of Gamesa's suppliers - manufacturers of hydraulic machinery, gear boxes, towers - have called it quits. Some workers, who Gamesa invested in their training, have moved on to other jobs.

Tom Bell, the manager of the Fairless Hills plant, said the factory has reduced the number of hours it takes to build a turbine by 15 percent to 20 percent with a more disciplined approach.

"We pay a lot of attention to detail," he said.

But the uncertainty of the market also caused Gamesa to hold back on investing in some improvements at its Ebensburg plant that would reduce production costs. "You can't continue these investments," said Rosenberg, "if you don't know there will be a long-term market."

The economics of wind production continue to improve. Equipment prices, tracked by the Bloomberg New Energy Finance's Wind Turbine Price Index, have fallen by more than 21 percent since 2010. Turbines now cost about $2 million per megawatt of capacity.

The price gap with natural-gas-fired generators is narrowing. By some estimates, wind becomes competitive with natural gas prices of around $5 per thousand cubic feet, compared to current prices below $4.

The industry has proposed gradually phasing out the production tax credit (PTC) in five years, by which time technological advances might allow the industry to compete without the need for a subsidy.

"We can be weaned off the PTC by the end of 2018," said Rosenberg.

Exports might provide some business to tide over Gamesa until the domestic market can recover.

Gamesa's current order for 25 two-megawatt turbines was placed by Abengoa, S.A., a Spanish multinational that is building a 50 MW wind farm called Palmatir in Cuchilla de Peralta, Uruguay.

Gamesa's Bucks County plant got the job because the project was funded by the $73.6 million loan from the Export-Import Bank of the United States, which requires that the machinery contain domestic content.