Waiting for that Spark
Metals demand in markets for wind, solar and other renewable energy sources will be among the first to take off once the economy improves.
By Myra Pinkham, Contributing Editor
While service centers may not be seeing much demand from alternative energy markets at the moment—especially given the weak economy and low energy prices—that will change. How quickly depends on how successful the Obama administration is in ending the recession and promoting the use of renewable energy sources.
“Right now, at least from a service center point of view, we see it as much more talk and not so much walk,” says Bill Jones, vice chairman of O’Neal Industries, Birmingham, Ala. Despite the administration’s emphasis on alternative energy, “I don’t see that much activity leading to service center sales, at least at this time. What is happening is more planning than actual work.”
The potential, however, is clear. The federal New Energy for America plan sets a goal of 10 percent of all electricity coming from renewable sources by 2012, increasing to 25 percent by 2025. Renewable sources include wind, solar, geothermal and hydropower—technologies that are all metal intensive—along with clean coal and nuclear, which are also potential growth markets for metal suppliers.
So is the power transmission sector. Additional transmission lines and transmission towers will be needed to tie all this new power into the already congested U.S. power grid.
“Actually, our business from the alternative energy sector was better last year and the year before than it is right now,” says David H. Hannah, chairman and chief executive officer for Reliance Steel & Aluminum Co., Los Angeles. “Certainly the decrease in the energy price is a factor, as is the availability—or unavailability—of credit and a general lack of confidence in the economy.
“I think there is a lot of money out there waiting to be invested [in energy],” Hannah adds. “Once people regain confidence in the economy, things will start to pick up relatively quickly. But I don’t know when that will happen.”
The alternative energy sector most likely to benefit steel producers and distributors initially is wind power, says Mark Breckheimer, executive vice president of Namasco Corp., Roswell, Ga. The installed base of wind towers should ramp up very quickly through 2018 and then continue to increase gradually. About 2 percent of domestic steel plate shipments are used for wind power applications today. “To meet government projections, that would need to rise to about 10.5 percent by 2018,” he says.
That would indeed be good news for steel suppliers, says Chip Foley, director of public policy for the Steel Market Development Institute unit of the American Iron and Steel Institute in Washington, D.C. The average wind tower and turbine contain more than 200 tons of steel, about 150 tons for the tower structure itself, along with 22 tons for the gearbox, 14 tons for the rotor hub, 13 tons for the frame, 5 tons for the gearbox and 0.3 tons for the blades. If wind power accounts for 6 percent of total power generation by 2020, as SMDI anticipates, that could mean an additional 13 million tons of steel consumption over that time period, Foley notes.
Last year, new wind towers accounted for an additional 8,500 megawatts of power—42 percent of all the new generating capacity and almost as much as natural gas—up more than 60 percent from 2007, says Michael Goggin, electric industry analyst for the American Wind Energy Association, Washington, D.C.
This burst of wind power was driven by several factors, Goggin says. Last year natural gas prices were very high, making wind energy more attractive. In addition, 30 states have passed renewable portfolio standards, setting requirements for the percent of power generation that should come from renewable energy. There also was a rush at the end of the year when it was uncertain whether investment tax credits for building new production capacity would expire.
AWEA is forecasting a slower rate of wind tower installations in 2009 due to the “triple whammy” that has hit the industry, says Goggin. Not only have natural gas prices fallen significantly—to around $3.30 per mcf from over $13 last July—but the credit crunch is hurting investment. In addition, the production tax credits are “basically unusable” in a down economy, he adds, when companies are not profitable and, therefore, not paying high tax rates on income.
The American Recovery and Reinvestment Act, the federal economic stimulus program, does not provide direct funds for the wind power industry, but it does include certain provisions that could stimulate wind power investment, including a three-year extension of the production tax credits. “There are also measures for companies that would not otherwise benefit from tax credits to take cash up front, as well as certain loan guarantees, although the details of those guarantees aren’t fully worked out at this time,” Goggin says.
Should comprehensive energy reform legislation pass as anticipated, that could also provide a push for wind power, especially if it results in a federal renewable portfolio standard, Goggin says. Current proposals call for RPS levels ranging from 20 percent of all power coming from renewables by 2020 to 25 percent by 2025. So even with the dip this year, he adds, “I think there will be a good long-term growth trend for wind power, especially if we get a federal RPS.”
Construction of new clean-coal burning power plants also holds the potential to benefit steel producers and distributors, says Namasco’s Breckheimer. SMDI estimates that clean coal plants would use roughly 90 to 95 metric tons of steel per megawatt, about the same as in conventional coal plants.
There is also potential future demand for steel from the nuclear power industry, says Hannah at Reliance. Nuclear plant construction consumes a lot of steel plate—about 40 metric tons per megawatt, according to SMDI. However, steel suppliers are not likely see any of that business for several years, given the long time it takes to plan and permit nuclear plants.
Likewise, growing interest in solar power generation stands to boost sales of aluminum, as well as high-grade stainless alloys and tubing, Hannah adds.
Monique Harris, spokeswoman for the Solar Energy Industries Association, says the total installed capacity for solar energy was up 16 percent in 2008. She could not forecast what will happen this year, “until we see how the stimulus plan plays out and if a comprehensive energy bill passes.”
The federal government’s economic stimulus plan includes 19 provisions involving financing for solar energy, including both loan guarantees and grants. Harris says there are currently two-dozen large, utility-sized solar projects in the pipeline. All told, SEIA projects that cumulative solar installations will increase to 28,000 megawatts by 2016, up from about 9,000 megawatts of installed capacity today.
There will also be considerable metals demand—both for steel and aluminum—to tie all this potential new generating capacity into the U.S. power grid. According to Ohio-based utility American Electric Power, incorporating alternative energy sources ideally would require an additional 19,000 miles of ultra-high-voltage, 765-kilovolt transmission lines, as well as four to five transmission towers per mile. If more conventional lower-voltage technology is used, even more transmission lines and towers will be needed.
According to SMDI’s Foley, each high voltage transmission tower would contain 40,000 to 60,000 pounds of carbon plate and structural steel. Type 1455 ACSR transmission lines weigh about 1,600 pounds per thousand feet, of which 270 pounds is steel and the rest is primarily aluminum.
Marshall Wang, sustainability specialist for the Aluminum Association, estimates that if the AEP projection comes to fruition, it would require about two billion pounds of aluminum. Currently, U.S. aluminum shipments to the entire electrical sector—not just for transmission lines—total only 300 million to 400 million pounds per year.
Installation of new transmission towers and lines has been on the upswing since 2000, says Ed Legge, a spokesman for the Edison Electric Institute. Planned transmission investment this year by shareholder-owned electric utilities is $9.6 billion, up 9.8 percent from last year’s $8.8 billion and just about double the $4.6 billion invested in 2000.
“The massive deployment of renewable generation envisioned by President Obama cannot occur without a renewed investment in our country’s transmission infrastructure,” states the Green Power Superhighways report published jointly by AWEA and SEIA. Currently, almost 300,000 megawatts worth of wind projects are waiting to be connected to the power grid.
“Concern about inadequate transmission is shared by the solar, geothermal and hydropower industries, as well,” add the authors of the report, noting that in California alone more than 13,000 megawatts of capacity at large solar power plants is waiting to connect to the grid.
Certain provisions in the economic stimulus program—specifically those giving the Bonneville Power Administration and the Western Area Power Adminis-ration additional borrowing authority of $3.25 billion each—are expected to enable the addition of 3,000 miles of high-voltage transmission lines, says Wang.
But bringing transmission projects online isn’t as easy as it seems, Legge says. “The real challenge is getting projects permitted and sited anywhere. There is a real NIMBY (not in my backyard) attitude when it comes to power generation.”
Some proponents of comprehensive energy reform favor proposals that would make the Federal Energy Regulatory Commission the lead agency in permitting issues, eliminating the need for separate siting approval at the state level, notes Goggin.
“Even while demand for alternative energy is slow right now—probably down 35 to 40 percent—I think that long term it offers good opportunities for the service center industry,” says Hannah, especially with the push it is being given by the Obama administration. “But first we have to get through this economic downturn.”
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