Cold front gathers in US renewable energy Very very strong magnet. Please stay 4 feet away" reads a sign as you walk into Danotek's factory in Ann Arbor, Michigan. The warning is an indication of the powerful technology being built here: Danotek is developing new permanent magnet generators that it will sell to turbine manufacturers to cut the cost and increase the reliability of wind power. This is exactly the sort of renewable energy company that the Obama administration hoped would emerge to fill the gap left by the decline of traditional industries in the US. Yet Danotek is facing an uncertain future. Export sales should keep it going even if most of the domestic market evaporates. But Don Naab, its chief executive, says the threat to the Production Tax Credit is already hitting the large international manufacturers. "For Vestas, Siemens and Gamesa, the question over the PTC is having an effect on their forecasts for growth," he says It has an impact on how much they are willing to spend and invest, and how quickly they bring on new products. After China, which has become an increasingly difficult market for foreign companies as its domestic industry has developed, the US is the world's second-largest wind power market. Last year, 28 per cent of all wind investment, by capacity installed, outside of China was in the US. Right now, the US market is booming. About 12,500 megawatts of capacity will be installed this year, according to IHS, the research group, beating the previous peak of 10,000MW in 2009. It is, however, the feverish activity that precedes a collapse. The US market has been reliant on the PTC, a tax credit that was introduced in 1992, and intermittently in existence since then, but has been continuously available since 2005, during which time the US industry has been through a great boom, installing about 85 per cent of the wind capacity now on the grid. The US market has been extremely attractive to wind generators, including US companies such as NextEra Energy Resources, the utility owner based in Florida, MidAmerican Energy, owned by Warren Buffett's Berkshire Hathaway, and international groups including Iberdrola of Spain, EDP of Portugal and BP of the UK, which is building an $800m wind farm in Kansas this year. It has also attracted a growing number of manufacturers. General Electric of the US is the largest, with about 29 per cent of the market last year, followed by Vestas of Denmark and Siemens of Germany. The leading Chinese manufacturers, Goldwind and Sinovel, have had ambitions to become significant suppliers in the US, although they have so far made little progress, selling a total of just four turbines in 2011. All of this activity, however, has been critically dependent on the tax credit, worth $22 per megawatt hour generated, typically cutting the cost of a wind project by about 20-30 per cent. With the credit, and the help of other incentives such as state mandates for generators to produce a set proportion of renewable electricity, the economics of wind power in the US are favourable. Without it, they are prohibitive, according to manufacturers, developers and investors. "The PTC makes a dramatic difference," says Blake Nixon, president of Geronimo Wind, which sells wind power to corporate customers. Without it, the kind of offer we have becomes much more expensive. If the credit does expire, there will be not much else to sustain demand. Although 29 states have mandatory renewables standards, most generators have been investing so heavily in wind power that they have met their requirements up until the middle of the decade. Hopes that wind power could be competitive without any subsidy, meanwhile, have been dashed by the plunge in North American natural gas prices. In 2008, when gas peaked at more than $13 per million British Thermal Units, wind power was a highly cost-effective option for generation in states such as Texas. Now gas is about $3 per mBTU, and although the cost of wind generation has fallen a little, there was no way it could have kept pace with that precipitous decline. The PTC's misfortune is that it has become a highly politicised issue in an election year. Republican politicians, sceptical of the threat of climate change, hostile to government attempts to "pick winners" in industry, and often closely tied to the oil, gas and coal industries, have been arguing that the credit should not be renewed when it expires at the end of the year, and Mitt Romney, the party's presidential candidate, has taken up that case. Not every Republican agrees. Chuck Grassley, the senator from Iowa, the second-largest state in the US for wind generation, is one of a group of leading figures in the party urging that the credit should be extended. The industry has not given up hope. A one-year extension to the PTC was part of a tax package passed by the Senate finance committee last month by 19 votes to five, thanks to an intervention by Mr Grassley. The wind industry's hopes are pinned on the possibility that enough support can be mustered to extend the credit in the potentially less acrimonious atmosphere of the "lame duck" session of Congress after the election. However, not all energy companies support an extension. Exelon, the Chicago-based utility group that relies heavily on nuclear and coal-fired power plants, has been arguing that the credit should be allowed to lapse. For now, developers are racing to meet the deadline for eligibility for the PTC - they need to be supplying power to the grid by the end of the year - so many manufacturers are working flat-out. Others, however, are already beginning to wind down. The American Wind Energy Association, the industry body, estimates that about 1,700 job losses have been announced as a result of the looming expiration of the PTC, including 615 at Siemens announced last week and others at Vestas, Gamesa and Clipper, which was sold by United Technologies to Platinum Equity, a private equity group, last month. Matt Kaplan of IHS warns that even if the credit is now renewed around the end of the year, the uncertainty by the threat of expiration has been deterring developers, and lags in the system mean that the turbine market will slump in 2013. If the credit is not extended, he adds, the slowdown will last until natural gas prices pick up significantly, or state renewables mandates begin to force more investment, which could take several years. Mr Naab of Danotek fears stop-start government support will create a lasting problem for the US wind industry. "I worry what people's attitudes and investment intentions will be in the US if the industry's momentum is put on hold," he says. People will start to question whether they should put their dollars here.