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From Site Selection magazine, March 2012

The Gale and the Lull

If ’13 is unlucky for the wind power industry in the U.S., it’s ready to go elsewhere.

Wind Energy
In June 2011 Siemens Energy installed the first prototype of its next generation offshore wind turbine in Høvsøre, Denmark. The turbine has a power rating of 6 MW and a rotor diameter of 120 meters (394 ft.).
Photo courtesy of Siemens

The Port of Duluth in Minnesota is one of several across the U.S. making hay through the transport of wind energy components.
The Port of Duluth in Minnesota is one of several across the U.S. making hay through the transport of wind energy components.
Photo courtesy of the Port of Duluth

estas, the world’s leading wind energy company, began the New Year inauspiciously, announcing it would be laying off more than 2,300 people worldwide. It will lay off as many as 1,600 more in the U.S. if the federal production tax credit (PTC) is allowed to expire on schedule on Dec. 31, 2012.

Is this a good time to talk about the growing wind energy manufacturing base? That depends on where you’re planted, where the plants are going, and which companies and territories are planting the seeds of sustainable power generation with the most care.

The tango between an industry’s economics and government policy is nowhere more dramatic than in renewable energy, especially where wind energy equipment manufacturing and supply chain are concerned. The push and pull takes place daily.

Peter Kelley, vice president, public affairs for the American Wind Energy Association, visited Site Selection’s offices in Atlanta in fall 2011 in conjunction with the opening of a major wind turbine gearbox manufacturing plant just north of the city in Gainesville, Ga., by Germany’s ZF (see the November 2011 issue of Site Selection for more on that project.) Among Kelley’s observations: “Vestas and Gamesa will go to Brazil without the PTC.”

But even as Vestas has since followed through with its threatened cuts, the U.S. Dept. of the Interior has made moves to push forward offshore wind development off of the mid-Atlantic states of Maryland, Virginia, New Jersey and Delaware. “Developing America’s offshore wind resource will help us capture a new American manufacturing opportunity and create thousands of new American jobs,” said Denise Bode, CEO of the American Wind Energy Association, on Feb. 2.

Project data since early 2009 on wind equipment manufacturing locations (not taking into account machine shops, logistics and other operations serving multiple industries) point to the United Kingdom and Canada as leaders abroad, led by Ontario with its feed-in tariff and by the tremendous momentum for offshore wind in the British Isles. Those countries are followed by Germany and China, with nascent clusters emerging in Brazil, France and Korea. China has recently pledged to install up to 5 gigawatts of offshore wind in just the next few years. (By comparison, Europe has 2,946 MW of installed offshore wind power, 3,000 MW under construction and another 19,000 MW authorized, while the U.S. has 488 MW authorized.)

A report by the Global Wind Energy Council (GWEC), and the Brazilian Wind Energy Association (ABEEolica), in partnership with the Renewable Energy Efficiency Partnership (REEEP) forecasts that Brazilian wind power deployment will exceed 5 GW by 2013. Brazil currently has installed capacity of 1.12 GW in 57 wind farms. Its northeast region is particularly suited for wind equipment manufacturing. Brazil has seen recent new plant investments in the sector from Gamesa, Alstom and Vestas. The Brazilian Wind Energy Association has projected investment totalling R$25 billion (US$14.5 billion) between 2009 and the end of 2013.

In the U.S., Michigan and Pennsylvania lead the pack, followed by Texas, Ohio and Kansas, with Colorado, Arkansas, Georgia, Iowa, Wisconsin, Minnesota and Indiana nipping at their heels.

The PTC is valued at 22 cents per kilowatt-hour for the first 10 years of a wind power plant’s operation. The PTC’s existence has helped bring work to 400 factories in 42 states making blades, turbines, towers and nacelles, says Keley of the AWEA. As of last fall there were 15,000 employed in wind manufacturing, he said, and 75,000 total jobs related to wind energy.

Kelley said location of plants has a lot to do with the cost of moving big components, noting that TPI Composites, which famously took over a former Maytag plant in Newton, Iowa, pays $14 a mile to move its blades. That plant expanded as recently as 2010, supported in part by the progressive wind policies of Iowa that have been in place since the 1980s, helping the state attain nearly 20 percent of power production with wind. An U.S. EDA grant awarded in December is expected to help Siemens Energy Inc., expand its wind energy production facility in Fort Madison, Iowa, creating 165 new jobs and generating $44 million in private investment,

Kelley observed that TPI has orders through October 2012 and is working round the clock and six days a week. But there are no orders after 2013.

He was quick to point out that only three out of 400 wind farms needed a loan guarantee. But if the PTC disappears, he said, “all bets are off and these plants could be idle.”

Many Fans, Some Blowback

Where is policy causing the industry’s sails to luff and sag? Do communities have the patience to wait out the lull?

Site Selection polled economic developers in the U.S. and beyond in early February to find out. We asked whether they were targeting wind energy manufacturing (not wind power farms) in their efforts.

Only 56 percent of respondents said they are currently targeting wind energy equipment manufacturing and related supply chain firms in their regional economic development strategies. One said wind would be a target “if there were any activity in the sector.”

Which leads to our second question: Do you support renewal of the PTC in the U.S.? Seventy-one percent of responding economic developers said they support renewal of the PTC, with many asserting that a young industry needs that type of subsidy early in order to get along without it later. Those of a practical bent pointed out that it’s needed in order to support the wind farms that in turn will support state-mandated renewable portfolio standards. According to a January update from the Database of State Incentives for Renewables & Efficiency (DSIRE), 30 states now have RPS goals to reach, while eight others have established voluntary goals. Some states have recently raised their wind energy goals, including Maine’s push to develop coastal and offshore installations.

Still others cited the need to wean from carbon, which has had its own support mechanisms for some time: “The tax credit support for wind is no more a cost to the taxpayer than the various tax subsidies for oil producers or the 1872 mining law for mining companies,” said one respondent.

Energy Circles

If the wind energy sector feels eerily still at the moment, for some there’s at least a zephyr, if not a breeze. Like the wind itself, it’s hit or miss.

One economic developer in South Carolina said the industry is a target due to a consultant’s recommendation. That said, he suggested that the U.S. wind power industry is still a decade behind Europe, and thus its U.S. potential is yet to be reached.

Another suggested that wind equipment fits nicely into a targeted focus on metals and machinery manufacturing companies. Yet even in a metals and machinery haven such as Michigan, one economic developer said wind isn’t a target, citing “too much competition in the sector without a clear growth opportunity.”

Supply chain is an opportunity for some. The Port of Duluth, Minn., for instance, has made the transport of wind energy components part of its stock in trade. The wind potential in Texas, though now spurned by the once enthusiastic T. Boone Pickens in favor of natural gas vehicles, is driving port activity in Brownsville and in Port Freeport near Houston.

In 2010, Houston-based BP Wind Energy joined Houston-based cargo specialist RBC Projects LLC as the largest users of Port Freeport’s facilities for movement and storage of wind energy components. They are among five firms utilizing those facilities, which now include 55 acres dedicated to storage and staging of the units. When the wind energy shipments began through Port Freeport in April 2007, with RBC imports of units made in India by Suzlon Energy Ltd., about five acres at the Port were designated for such activity. RBC Projects alone has handled more than $600 million worth of wind energy components into Port Freeport.
Turbine Turbulence

Proximity between equipment manufacturing and the equipment’s ultimate destination at wind farms has frequently been cited as a location factor by companies in the sector, but it’s not a universal requirement: The Port of Stockton in San Joaquin County, Calif., for instance, is well known for its import of wind turbine equipment, which is then placed on trains for shipment to wind farms throughout the Midwest.

That scenario may be good for Stockton, but hits home in a different way in Grant County, Wash.: “We have had a wind turbine tower manufacturer in our community for almost 10 years,” says Terry Brewer, executive director of Grant County EDC, based in Moses Lake. “They are a great company but have not been able to compete on price with the towers from Asian countries. They did employ 175 but dropped down to five, and are just now staffing up for one contract.”

That said, the area is known for its renewable energy supply chain profile, which takes the form of several wind farms in the region and a major plant from REC Silicon that supplies the solar power industry. However, that plant suffered from a power blackout in the area last fall that stopped production and led to lost product. Moreover, says one observer, too much wind can detract from other renewables: “In the Pacific Northwest, we have too much wind production now resulting in oversupply during spring months, to the detriment of our local and regional hydro systems.”

Such circular or overlapping energy and sustainability scenarios — for better, worse or somewhere in between — exist in many areas.

In Alpena, Mich., facility reuse similar to the Maytag facility reuse in Iowa was under way at one point from Alleghany Technologies, which purchased a local foundry to produce hubs for large scale wind turbines. But the contracts didn’t materialize as forecast, and the foundry has closed. Should the PTC be renewed, local economic developers hold out hope that Alleghany will reconsider.

However, at the Port of Monroe in southeastern Michigan, the 115,000-sq.-ft. (10,685-sq.-m.), $25-million Ventower Industries plant opened in September, employing 75 people (which will double to 150 eventually) in the manufacture of up to 300 wind turbine towers a year for customers in the Great Lakes and beyond, thanks to rail and waterway connectivity. The facility, built with certain green features, was sited on a remediated landfill. And the local community college is training Ventower’s work force.

“We would hope to build on this by attracting other wind generation component manufacturing concerns,” says Tim Lake, president and CEO of the Monroe County Industrial Development Corp.

Similar community college support is evident in the Lafayette, Ind., region, where both the wind farms and the wind equipment companies are growing. The Wind Energy Manufacturing Association in July 2010 located its headquarters in Muncie, Ind. Not far away in Yorktown, Brevini Wind makes wind turbine gearboxes.

In the Dodge City/Ford County area in central Kansas, major transmission lines are now going up to serve a projected 4,500 wind turbines coming to the region. Meanwhile, in nearby Joplin, Mo., devastated by the worst kind of wind in 2011 when a tornado killed 160, one economic developer sees hope: “Our region is positioned very well for the locating of Tier I & II suppliers to major OEMs — nacelles, blades, & towers,” says Kevin Welch, director of the Joplin Regional Partnership, which represents both southwestern Missouri and southeastern Kansas.

The Kansas City area also has a hand in the wind supply chain, last July welcoming the news that Oregon-based wind asset management services firm UpWind Solutions would open its first parts and tooling center in Lenexa, Kan. The region was chosen due to the surrounding infrastructure and its proximity to more than 70 percent of the wind farms coming out of warranty over the next three to five years.

“After extensive research,” said Peter Wells, COO of UpWind Solutions, “it became clear that Kansas City was the best location for our main distribution center due to the ability to quickly reach so many wind assets throughout the United States, especially the Central and Western regions.”

One economic development leader in Nebraska says, “The area between Texas and North Dakota has some of the best wind characteristics in the country and gives Nebraska an advantage for wind energy.” At the same time, he’s not as high on the PTC: “We should let the market work and keep government out of trying to influence winners and losers.”

Not far away, Steve Arveschuoug, executive director of Big Sky EDA, has similar feelings about the PTC, even though his area is just beginning to scope out wind opportunities: “The tax credits themselves are not a bad approach to support this growing opportunity,” he says. “However, we just can’t afford the credits at this time with a $16 trillion debt! Are there other ways to support the development of wind energy that don’t have a negative impact to our debt? We need to figure that out.”

Jeff Janiszewski, vice president of business development for Empire State Development, says the state “is actively promoting the development of alternative energy technologies, including wind. The state is beginning to see an economic rebound related to public-private partnerships and their investments in clean technologies and renewable energy. We want to keep that positive momentum going.”

The Mohawk Valley in central upstate New York counts itself in the mix on multiple fronts: Not only are there several wind farms in the area, but General Electric’s worldwide R&D center for the sector is located there too.

Get it While You Can

From there, GE’s wind-driven activities stretch far and wide.

In LaSalle County, Ill., GE has successfully sold wind farm developer Invenergy, whose wind installation is still under construction, 23 MW of solar energy equipment to install at the same site. Analysts speculate that such doubling down will help GE and others weather a downturn in the wind energy sector if the PTC indeed is not renewed.

Since 2002, GE has installed more than 27 gigawatts of wind turbines around the world. In October it announced that BP Wind Energy had agreed to purchase 350 of its turbines for two wind farms being developed through 2012 near Scranton, Pa., and near Wichita, Kan.

Similarly, even as its leaders talk of coming job cuts, Vestas finds itself in a flurry of activity as the PTC expiration countdown continues. But there are plenty of territories in the world where no countdown is under way.

One of GE’s major markets is India, where last July it moved wind turbine production from Chennai in Tamil Nadu to Pune in Maharashtra.

Another big GE market is the U.K., where in October it announced it is supplying nine of its 2.75 megawatt wind turbines for the Little Raith Wind Farm project that recently began construction near Lochgelly in Fife, Scotland.

According to the European Wind Energy Association, a total of 1,371 offshore turbines have now been grid connected, with a total power capacity of 3813 MW in 53 wind farms in 10 European countries, and healthy increases in installations over the past few years.

Scotland, in addition to its recent push for independence from the U.K., wants to be grid-independent too: It aims to produce all of its electricity from renewable resources by 2020.
At a September 2011 press conference on the company’s African Growth Initiative in Johannesburg, South Africa (from left to right): Peter Löscher, president and CEO of Siemens AG, and Sigi Pröbstl, CEO of Siemens Africa, talk about the company’s new wind energy competence center being established in South Africa to serve all of Africa and the Middle East. The company recently signed on to supply turbines for two wind farms in Morocco, a prime area for coastal wind farm development.
Photo courtesy of Siemens

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