Reversing Winds: America’s Rediscovery of Manufacturing

Over the past three years, the U.S. wind industry has enjoyed a relatively stable policy environment. The federal production tax credit (PTC), the primary economic driver for wind, has been in place without interruption since August 2005 — after being extended for two years in the energy policy act of 2005, and extended for one additional year (through 2008) at the end of 2006. In addition, more than 10 additional state renewable energy standard (RES) programs have been put into place, bringing the total number of states with an RES to 26 plus the District of Columbia. During that time, total wind capacity grew by 150% and the annual market size more than doubled.

It is no coincidence that over the same period, the U.S. found its stride — in this case, that stride being a rapid clip — in expanding domestic manufacturing capacity for wind power components. Dozens of new manufacturing facilities serving the wind industry have been brought online across the U.S. the last few years.

Three years, however, is not sufficient time for any industry to build an optimal long-term business plan; it is merely enough time to offer the U.S. a taste of the manufacturing boom that the wind industry would spur with truly longterm and stable policy. In spite of this growth, manufacturing expansion is still hindered by the lack of policy stability holding back wind power; that is, wind power manufacturing’s growth rate is falling short of its potential — and what the industry ultimately desires.

With just three short years of policy stability since the production tax credit was extended in the Energy Policy Act of 2005, the wind industry has managed to turn the offshoring tides, bringing manufacturing activity back to the U.S. Historically, wind industry manufacturing has been dominated by such European countries as Germany, Denmark, and Spain, which export more than 50% of their manufacturing output. Prior to 2005 the U.S. drew minimal interest as a manufacturing location from the global wind industry thanks to policy instability, forcing the U.S. to import 70% or more of the major components for wind turbines destined for this market.

After three uninterrupted years of the PTC, though, by the end of 2008, the U.S. will be approaching domestic manufacturing capacity for components of approximately 50% of what’s needed to meet demand levels. Wind industry manufacturing facilities have surged from a very small base prior to 2005 to well over 100 facilities today.

One example of the domestic manufacturing trend: blades, one of the largest components that make up a wind turbine. By the end of this year, the U.S. will have at least eight different blade manufacturers with a total of eleven U.S. manufacturing locations. Those facilities employ over 5,000 people today, but only two of the eleven facilities were in production prior to 2005.

Open Doors: Abroad and Domestic, Old and New

Other than U.S.-based General Electric, none of the seven largest global U.S. wind turbine manufacturers had plants in the U.S. prior to 2005. Today, six of the seven top global turbine producers now have at least one manufacturing facility located in the U.S.

And while many European manufacturers with extensive experience in wind are now setting up shop in the U.S., there are even more U.S.-based companies entering the industry. U.S. manufacturers previously unfamiliar with renewables are finding a demand for their existing output (e.g., bearings) in the wind industry while other companies are tweaking their products and retooling their facilities to serve the wind industry and take advantage of this growing market.

Supplier PPG Industries, which provides protective coating for industries ranging from aerospace to marine, is now providing fiberglass for wind power blades after adapting its facility in Shelby, N.C., for its new customer base.

Gearboxes for wind turbines have been primarily imported in the past, but companies like Winergy Drive Systems and Brad Foote have started to fill in this demand. More specifically, for example, Winergy Drive Systems recently expanded capacity at its Illinois plant to meet growing U.S. demand from wind power.

Growth in U.S.-based manufacturing has not been limited to just the turbine assembly companies and manufacturers of major wind components. Wind power’s supply chain is reaching straight down through the underpinnings of U.S. manufacturing, spurring expansion in domestic capacity for producers of basic products and materials that are needed in multiple industries. Perennial suppliers to the automotive and other major heavy-equipment industries — such as steel providers, foundries, and fabricators — are now serving wind energy, providing raw materials, metal castings, and machining for wind turbines.

Some companies, such as K&M Machine Fabricating, Inc., that once primarily served the mining and construction industry, today find most of their business from wind power. With wind energy’s growth, K&M continues to make additional investments and expand production capacity in its home state of Michigan; the company expects to bring an additional 120 jobs over the next two years to a state that’s in its fourth year of recession. And Dowding Industries, Inc., another Michigan manufacturer of fabrications and assemblies, is getting an increasing percentage of its business from the wind industry after primarily supplying the automotive industry for years. Last year, Dowding responded to the voracious wind market by adding a 30,000-square-foot facility to produce housings and other large components for wind.

Competition Around the Globe, and Among the States

The U.S. is not alone in its demand for wind components. The global market is expanding at a rate close to that of the U.S., with countries like China and Spain right behind the U.S. in market size. And Europe, as a whole, continues to dominate turbine demand, installing close to 8,300 MW of wind in 2007, compared to 5,249 MW in the U.S., and 3,200 MW in China. Given the high cost of transportation costs for large wind components, building manufacturing capacity close to markets with stable demand is necessary. Any sign of wavering policy support for wind in the U.S. could quickly shift wind component manufacturing out of the country and into the global market, severely damaging the golden opportunity to expand this nation’s manufacturing production capacity and create jobs.

Seeing wind’s impact on their economies, many U.S. states are doing their utmost to keep that from happening. States such as Iowa, Pennsylvania, Michigan, and Ohio have been quick to seize the wind opportunity, creating task forces and outreach plans to find ways to capture wind component manufacturing interest from companies both abroad and within their state borders. Since 2005 Iowa alone has successfully enticed wind energy companies to locate at least a half-dozen new major manufacturing facilities in the state, luring thousands of jobs to the Hawkeye State. As for Ohio, Gear Technology magazine notes that “from castings for gearboxes, to tension bolts, to pitch control system, Ohio companies are already manufacturing key components for this rapidly growing industry.” To capitalize on those resources, the state’s energy office recently established a wind industry supply chain outreach effort, the need for which was further enhanced with the recent passage of a state RES.

Much Remains to Be Done

The rapid progress of domestic manufacturing in the wind industry over the past few years has created jobs and brought economic development to several states, but it also creates a clear picture of what Congress and the White House jeopardize by allowing the PTC expiration to continue to loom over the industry.

The U.S. Department of Energy recently released a report analyzing what it might take for 20% of the nation’s electricity to come from wind energy by 2030 (see related story). According to the report, annual U.S. Installations would have to increase from 5,200 MW today to over 16,000 MW. Such a steep growth rate has serious implications for the manufacturing side of the industry, which would have to ramp up capacity at an equally steep rate.

According to the report, the domestic percentage of production (relative to components imported) would have to double for most major components. This type of dramatic increase cannot occur overnight.

While the U.S. has made considerable progress on this front in just a few years, the nation is unlikely to continue to reach necessary benchmarks without national energy policy and steady federal support that provides the unmistakable signal that the nation’s desire for more wind is steadfast.

Elizabeth Salerno is manager of policy analysis at AWEA.

This article first appeared in the May 2008 issue of Windletter and was republished with permission from the American Wind Energy Association (AWEA).

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