Vestas Wind Systems A/S (VWS)��s threat tofire 1,600 workers in the U.S. undermines President BarackObama��s goal of creating green jobs and adds to pressure onCongress to extend a tax credit that the industry relies on.
The world��s biggest maker of wind turbines said yesterdayit will probably reduce its staff beyond the 2,335 posts it��seliminating worldwide if the U.S. doesn��t renew the so-calledProduction Tax Credit, which expires at the end of this year.
��We will evaluate it during 2012 depending entirely on howthe political situation evolves,�� Chief Executive OfficerDitlev Engel said in an interview in Copenhagen. U.S. jobs willbe scrapped ��for sure�� without the credit, and a decision isdue ��no later than the fourth quarter,�� he said.
Obama took office three years ago pledging to generate jobsin the wind and solar industries, and calling in January 2011for a ��Sputnik moment�� to wean the U.S. off fossil fuels.Since he came to power, carbon cap-and-trade legislation stalledand lawmakers attacked backing for solar manufacturer SolyndraLLC, which filed for bankruptcy in September.
Vestas shares have fallen almost 10 percent in two days andwere down 2.8 percent to 56.85 kroner ($9.80) at 11:15 a.m. inCopenhagen today. Short positions in the company, or bets thatthe stock may fall, rose to 20.6 percent on Jan. 11, accordingto the most recent figures from Data Explorers Inc., a record ina series that goes back to July 2006.
Industry Concern
The Vestas warning adds fuel to the wind industry��s pleasfor lawmakers to extend the credit, which grants an incentiveworth 2.2 cents a kilowatt-hour of wind power.
Continuing the tax credit is needed to avoid the boom andbust cycles of the past in the U.S., where the wind industryemploys more than 75,000 people, according to the American WindEnergy Association, a lobby group. Wind power growth is alsothreatened by natural gas prices, which fell almost a third lastyear as production from shale formations r! eached a record.
��The production tax credit is incredibly vital to the U.S.market,�� Jacob Pedersen, an analyst at Sydbank A/S (SYDB) whocorrectly predicted the scale of the Vestas cuts, said in aphone interview from Aabenraa, Denmark. ��If it isn��t there, noone will invest. If you don��t get the tax credit, the return oninvestment is lower.��
Tax Credit
The last time the production tax credit, or PTC, wasallowed to expire, at the end of 2003, U.S. annual windinstallations declined, to 397 megawatts in 2004 from 1,670megawatts the previous year, according to AWEA data.
Vestas said 182 workers in the U.S. were included in itscurrent round of reductions, about 7.8 percent of the totalcuts. Most of the employees affected will be in Europe.
��Ultimately, if the U.S. does withdraw PTC support, thenVestas will commercially have no choice�� other than firingworkers, Charlie Thomas, a London-based fund manager withJupiter Asset Management Ltd., which owns Vestas shares, said bye-mail. ��The boom/bust scenario the industry saw in 2003/4 onthe same issue was clearly unhealthy for the wind turbinemanufacturers then, as it would be now.��
Another incentive, the U.S. Treasury Department��s 1603 cashgrant program, expired Dec. 31. It offered as much as 30 percentof development and construction costs for renewable energyplants, and had paid out $9.6 billion through October to supportmore than 22,000 projects. Developers said funding for cleanenergy projects will fall this year without the 1603 program.
Threat to Developments
Letting the PTC expire this year will similarly threatennew development, Denise Bode, chief executive officer ofWashington-based AWEA, said in an e-mailed statement.
The ��Vestas announcement shows the danger to U.S.manufacturing jobs if Congress waits any longer to extend theproduction tax credit,�� she said. ��With stable tax policy thewind industry can grow to nearly 100,000 American jobs in thenext four years and support 500,000 Ameri! can jobs by 2030.��
Engel said that the tax credit ensured that the wind sector��got going�� in the U.S., and that its expiration will hurt theturbine maker��s clients.
��It��s not us who gets the PTC, it��s our customers,�� Engelsaid. ��I��m sure a lot of them are very dependent on the PTC.��
Vestas has spent more than $1 billion building fourfactories in Colorado, and it has more than 3,000 employeesacross the U.S. according to Engel. He said it would be��wrong�� to say Vestas will close down its U.S. plants.
Engel��s Assessment
��What we would do would be to ramp them down because theUnited States market has been coming and going,�� he said. ��I��mabsolutely certain that the U.S. market will come back again,but maybe not in 2013.��
U.S. new installations declined in 2010 to 5,116 megawattsfrom 9,996 megawatts a year earlier, according to AWEA.Bloomberg New Energy Finance estimates that 2011 installationstotaled 7,300 megawatts. U.S. installations may grow to 8,000megawatts this year before dropping to 5,500 megawatts in 2013.
��The U.S. market has turned into a huge disappointment forVestas and other wind turbine manufacturers who invested heavilyin that market a few years ago when growth prospects seemedstrong and turbines were in short supply,�� said Justin Wu, aHong Kong-based analyst with New Energy Finance.
��Now U.S. wind installations are in decline due tocontinued policy uncertainty and factories are becoming idle asa result,�� Wu said.
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