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Vestas and General Electric, two of the world’s largest wind turbine manufacturers, this week both gave gloomy forecasts for the outlook of the US market because of uncertainty over a critical tax credit.

Vestas of Denmark, which was the world’s largest turbine supplier last year, warned that US demand was likely to shrink by up to 95 per cent in 2013 if the production tax credit for wind generation is allowed to expire as scheduled at the end of the year.

GE, which was the largest supplier in the US, also said it expected its wind business to shrink next year.

The credit has become a contentious political issue, with the Democratic party largely in favour and many – although not all – Republicans against it.

Giving tax relief based on the power generated by a wind farm, it can cut the effective cost of a project by 20-30 per cent, making it possible for wind to compete against gas-fired generation even at today’s low natural gas prices.

Wind developments must be completed and supplying power to the grid to be eligible for the credit, creating a rush of activity for manufacturers this year, but threatening a collapse in 2013.

The industry hopes that the credit can be saved, perhaps as part of a wider deal to avoid the “fiscal cliff” that is looming as a result of the scheduled expiration of dozens of tax reductions at the end of the year.

However, both Vestas and GE said they were planning on the basis that the credit would not be renewed.

Vestas said it was prepared for global sales of about 5,000 megawatts of wind turbines in 2013, down from an expected 6,300MW this year.

Jeff Immelt, GE’s chief executive, said the company would be targeting markets outside the US, including Mexico, Canada and Brazil.

GE predicted that in 2013 the wind downturn would cost $0.03 from its earnings per share, which are expected to be $1.54 this year on the average of analysts’ forecasts compiled by Bloomberg.

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