UPDATE 1-Clipper says strikes US windfarm pact with BP

(Adds more details, CEO's comments, share price)

LONDON, July 30 (Reuters) - UK-listed wind turbine maker Clipper Windpower said on Wednesday it will team up with the alternative energy unit of BP (BP.L) to develop a windfarm in the US, the world's fastest growing market for such power.

Clipper CWPR.L and BP will be equal partners in the 5,050 MW project in South Dakota, where BP will acquire 1,750 MW of wind development assets from Clipper for $26.25 million.

The joint venture will also buy a further 2,020 Clipper turbines as the project progresses, making it one of the world's largest windfarms, Clipper said in a statement.

However, Clipper shares were down 3 percent at 400 pence at 0727 GMT on concerns that the near-doubling in the price of steel, a key raw material, will sap profits.

Operating profit margins next year could be "substantially lower" than the 9-12 percent previously expected if recent increases in steel costs do not abate, Clipper said.

Nevertheless production glitches have been resolved and the majority of its startup costs have been accounted for, Clipper said, adding that margins should improve in 2010, helped by higher sales volumes and improved pricing.

It currently has over $265 million in cash, with that balance improving slightly by year-end, Clipper said.

"The tough times are behind us," Chief Operating Officer Doug Pertz said in a telephone interview. "We've turned the corner and anticipate breaking even in the second half. We still anticipate being profitable next year."

In 2007 Clipper produced 137 turbines and in 2009 is expected to produce over 350, increasing steel volumes by approximately 260 percent, Clipper said.

Sky-high costs of steelmaking raw materials like iron ore and coking coal, have pushed world steel prices to record highs, giving major steelmakers fat profits, as they are able pass on costs to their customers.

Clipper still has about 6,000 MW in its asset portfolio and is in various stages of talks with other partners in the US to develop similar joint ventures such as the one it has struck with BP, Pertz said.

Clipper shares are down about 40 percent this year, underperforming the FTSE All Share Electricity Index by about the same margin. (Reporting by Hsu Chuang Khoo; Editing by Greg Mahlich)