Many top steel analysts don't pay much attention to the wind energy sector. After all, it represents less than 10 percent of total steel demand in North America, according to CIBC World Markets analyst Michael Willemse.
But that doesn't mean you shouldn't keep your eye on the market, given that it is expected to grow exponentially in coming years. In 2006, global installed wind energy capacity jumped 26 percent to about 74 gigawatts (GW), according to a report by the Global Wind Energy Council, creating demand for approximately $23 billion in new equipment—much of it made of steel.
Windmills are essentially composed of three parts The tower, generally constructed of steel plate, which supports the gigantic blades and turbine; the nacelle, which includes the turbine and other bars, gears and bearings used to create electricity; and, attached to the nacelle, the blades (usually made of high-technology composites also used to build some airplane frames) that harness the wind.
As tall as some skyscrapers, the towers consume enormous quantities of plate. In fact, they represent one of the fastest-growing markets for plate in North America, said Paul Lowrey, managing partner at Pittsburgh-based steel industry consulting firm SteelBase Partners. "The North American demand for towers outstrips the capacity to manufacture them," he said. "As a result, all the major tower manufacturers are increasing their production capacity."
And unlike other sectors of the economy, such as housing and automobiles, wind energy shows no signs of slowing down. The sector grew at a rate of about 24.3 percent from 2002 to 2006 and is expected to continue to grow at a 19-percent pace through 2010, the Global Wind Energy Council said. Europe is currently the biggest market for wind energy, with about 48 GW of installed capacity.
"The Europeans are very dependent on imported energy; consequently, a domestic resource is very popular," said Daniel F. Ancona III, a senior mechanical/industrial engineer at Princeton Energy Resource LLC, Rockville, Md., and former top official with the International Energy Agency, a Paris-based policy advisory group.
But the industry is expected to grow at its fastest pace in coming years in the newer markets, like North America and China. In the United States alone, wind capacity jumped 27 percent in 2006, making it the second-fastest growing source of new energy, behind natural gas, according to the International Energy Agency. Coal came in third.
California had long been the U.S. leader in wind energy. But Texas, more noted for its oil and gas drilling, last year passed the West Coast as the top wind-energy state in the U.S., thanks largely to state incentives that enticed many energy companies to invest in wind and other alternative technologies, Ancona said. "They've got good wind resources. They can export the gas and oil (to other states). It makes money. It's just good business."
Other states have taken notice and are following the Texan lead, he said. "It may cost you a bit more in the beginning, but long term it can be very attractive," Ancona said.
And it's not just the steel industry that's benefiting from the wind energy boom. The composites used to make windmill blades might be in even shorter supply than wind towers, said John Mothersole, senior economist at Global Insight Inc., Waltham, Mass., because production of the new Boeing 787 Dreamliner, which uses composites in its frame, is expected to ramp up at the same time that demand for wind energy units is predicted to surge. "There may be some capacity issues for that part of the industry," he said. "There may be an availability problem regarding those composite blades."