Wind energy, it appears, has never been so competitive. Prices for wind turbines last year dropped below €1 million ($1.36 million) per megawatt for the first time since 2005, due largely to over-capacity, greater manufacturing efficiency and increased scale, according to the market researcher Bloomberg New Energy Finance.

The group’s most recent Wind Turbine Price Index, based on confidential data provided by 28 major purchasers of wind turbines, shows that prices remain under pressure in most parts of the world. The survey includes more than 150 undisclosed turbine contracts, totaling nearly 7 GW of capacity in 28 markets around the world, with a focus on Europe and the Americas.

While the news is good for wind farm project developers hoping to save money, it’s troubling for manufacturers and component suppliers trying to make money – they have seen their margins shrink over the past couple of years. Global turbine contracts signed in late 2010 for the first six months of this year averaged €980,000 per MW, down 7 percent from €1.06 million per MW in 2009 and a peak of €1.21 million in 2008 and 2007.

All manufacturers covered by the survey showed “aggressive pricing, according to New Energy Finance, which was acquired by Bloomberg in 2009. Low-priced power-purchase-agreements in markets exposed to competitive electricity prices – rather than fixed feed-in tariffs – appear to have put additional pressure on turbine contracts. Average prices in Italy, the United Kingdom and the United States were well below €1 million per MW for contracts signed in 2010 and slated for delivery in the first half of this year.

The cost of electricity generated by wind is now at record low levels, according to the survey. “For the past few years, wind turbine costs went up due to rising demand around the world and the increasing price of steel,” Michael Liebreich, chief executive of Bloomberg New Energy Finance, said in a statement. “Behind the scenes, wind manufacturers were reducing their costs, and now we are seeing just how cheap wind energy can be when overcapacity in the supply chain works its way through to developers.”

Overall, the annual 2010 global wind market shrunk for the first time in two decades, down 7 percent from 38.6 GW in 2009 due mainly to a disappointing year in the U.S. and a slowdown in the Europe, according to figures released earlier this month by the Global Wind Energy Council. The U.S. which is traditionally one of the strongest wind markets, saw its annual installations drop by 50 percent from 10 GW in 2009 to just over 5 GW in 2010, GWEC said in a statement.

“Our industry continues to endure a boom-bust cycle because of the lack of long-term, predictable federal policies, in contrast to the permanent entitlements that fossil fuels have enjoyed for 90 years or more,” Denise Bode, CEO of the American Wind Energy Association, said in the same statement.

GWEC secretary general Steve Sawyer believes 2011 will be better. “Orders picked up again in the second half of 2010 and investments in the sector continue to rise,” he said.

On that note, French manufacturer Alstom won a contract this month from Traianel to build Germany’s 80-turbine Borkum West II wind farm offshore farm. The project is scheduled for completion in March 2012.