I saw an article in the Wall Street Journal recently claiming that wind turbines need 8,000 parts and that there are parts shortages, leading to backed-up wind turbine orders. What is holding them up? — Susan Kraemer, California
The wind-turbine shortage is both real and solvable. In fact, it’s one of the top challenges in the industry with which executives are currently grappling. The good news is that increasingly, manufacturers are setting up shop in the U.S., which is considered one of the top markets for the industry. Just this year, turbine manufacturer Vestas announced it would open a facility in Windsor, Colorado, adding its name to the list of producers operating in the U.S.
Still, you need parts and raw materials to assemble turbines, and the shortage—both in the U.S. and worldwide—is largely due to a shortage in components, as the Wall Street Journal article correctly explained. It’s important to remember that many of the parts and materials used by the industry are also used by other industries.
“The global market is more than just turbines,” said Clipper Windpower Senior Vice President of Commercial Operations Robert Gates during a panel discussion at AWEA’s WINDPOWER 2007 Conference & Exhibition, which took place in June in Los Angeles, California. “We’re competing against the basic industrial capacity of the world.”
Gates, who happens to be the board president of AWEA this year, raises an important point. Gears, bearings, composite materials, steel, you name it—all of these parts and materials are not only used by the wind energy industry, they’re consumed by other manufacturing businesses as well.
Adding some complexity to the situation is the need to ensure quality from the turbine manufacturers’ suppliers. Wind turbines are fairly complex machines and, as the Wall Street Journal article pointed out, have many components, just as any high-tech machine does today. The wind energy industry has worked hard over the years to design and build reliable products; turbine manufacturers do not want to risk their hard-won reputations for quality by hastily entering into supplier arrangements with component producers with which they are unfamiliar.
In spite of such challenges, there’s good news to share. Supply and demand is a concept that’s known to be fluid no matter what business you’re in, and with the right market signals in place such issues are largely solvable. That is, supply can catch up to demand.
Bringing such new market entrants into the industry fold takes time, of course. And it also takes something else: a stable business environment centered on stable policy. The federal production tax credit (PTC), a per-kilowatt-hour credit provided to wind power generating facilities, has been extended in mere one- and two-year increments and even has been allowed to expire on occasion. Such inconsistent policy has created substantial boom-and-bust problems for the wind industry, and has also contributed to the component shortage now being experienced.
In a nutshell, one cause of the shortage comes down to this: if a component company—particularly one with a limited production capacity or high demand for its product—must choose between supplying an industry that operates in a stable business environment or one that must deal with policy uncertainty, which do you think it will choose? The answer is obvious: a component manufacturer naturally wants to know that its product will be needed not only today, but tomorrow as well.