The U.S. wind energy industry supply chain has grown substantially over the past seven years. According to U.S. International Trade Commission data and analysis from the U.S. Department of Energy, the domestic content of wind turbines has grown from less than 25% prior to 2005 to approximately 67% at the end of 2011.
Despite its successes over the past decade, the U.S. supply chain continues to face increased competition and pricing pressures from the global market. Further, the current low prices for wind turbines are driving down the cost for components. Some turbine makers – seeing as much as 50% savings – are bypassing domestic suppliers in exchange for bargains available offshore.
Over the past several years, some U.S. suppliers, particularly in the tower segment, have been hurt by foreign governments that have subsidized foreign suppliers trying to enter the U.S. market.
Another limiting factor is the uncertainty in U.S. policy, which handcuffs the planning and decision-making of suppliers.
This month, NAW spoke with five supply-chain experts about the challenges the sector faces in the U.S., what the supply chain is doing right and how long-term policy can aid in manufacturing.
The participants are the following:
- Ed Weston, executive director at Great Lakes Wind Network;
- John Purcell, executive vice president at Leeco Steel;
- Pedro Guillen, managing director at Kinetic Partners;
- Jeff Anthony, senior director of membership and business development at the American Wind Energy Association; and
- Bruce Hamilton, director of energy at Navigant Consulting.
Q: How significant is the lack of federal policy on the supply chain?
Anthony: The biggest challenge facing the U.S. wind energy industry supply chain now is the lack of a stable, consistent policy environment. Wind turbine manufacturers need market certainty to justify significant investment in the U.S., especially since turbine assembly facilities need significant production lead time to secure all of the more than 8,000 components that comprise a typical wind turbine. Long-term policy support, such as a multi-year extension of the production tax credit (PTC), will provide the market stability wind turbine manufacturers need to continue providing quality jobs to the American people.
Purcell: [Not having clear visibility] in the U.S. market creates a hiring/layoff cycle that makes it very difficult for both employer and employees. It becomes difficult to bring employees back after one round of layoffs, let alone two or three rounds of ramping up production – only to have it scaled back when policy is not implemented in a timely fashion.
Hamilton: The U.S. wind supply chain faces uncertain demand due to the lack of a long-term federal policy. This uncertainty impacts the planning function and inhibits investment. If the PTC is not extended or replaced, the total U.S. wind market is expected to be in the 3-4 GW per year range for the next few years. That size of a market is insufficient to support more than a handful of turbine original equipment manufacturers. We have already seen the departure of Nordex with the closing of its nacelle assembly facility in Arkansas and the restructuring at Vestas’ U.S. facilities. The effects of the downturn will cascade throughout the supply chain, leaving few opportunities to achieve economies of scale due to production volume.
Q: In which component categories has the U.S. lost its way?
Weston: I would have to say nacelle components ranging from large to small.
Hamilton: Although U.S. suppliers have a presence in essentially every segment of the onshore wind supply chain, domestic market share has been consistently low in areas such as castings, forgings, and pitch and yaw systems.
Domestic supply of direct-drive generators has also been limited due to the unavailability of rare-earth elements, although GE has recently developed new magnets, which will reduce the need for rare-earth elements in generators.
Guillen: The two categories that have suffered and will continue suffering the most will be towers and rotors. There has been minimal innovation in the steel manufacturing industry to support the wind industry. Southeast Asia foundries’ lower cost of labor and newer facilities support the further commoditizing of metal fabrication and foundry components. Similarly, rotors – especially blades – require a significant amount of labor, and labor can be provided in low-cost countries at a discount. While the labor productivity and skill is not as high as in the U.S., the costs make it difficult to compete with.
Purcell: Due to the uncertainty of a PTC extension in 2012, the category that impacted our [steel plate distribution] business is the loss of wind tower manufacturers in the U.S.
Six tower factories with a combined production capacity of 1,500 towers per year were shuttered. That equates to over 1,800 jobs lost, approximately 250,000 tons of steel consumption lost and countless other supply-chain jobs and companies that supplied those factories affected by the shutdowns. Local and state tax revenue also are affected by these shutdowns. It has been devastating to so many communities that were very fortunate to have these factories providing so many good-paying jobs. The likelihood is very small that those factories will be re-opened until there is long-term policy that will allow for new companies to bring these factories back.
There are many other facets of the industry that have been adversely affected as well. Many nacelle and blade factories have been forced to either close or reduce production by more than half during the last half of 2012 and will be struggling to re-hire and begin manufacturing again to support new orders for 2013 and 2014.
Q: Can the U.S. reclaim dominance in any of these categories?
Purcell: It is possible for the U.S. to manufacture 100% of its needs for wind turbines if there is certainty in the energy market for wind. We have one of the most capable workforces on the planet. Many community colleges and technical colleges have added wind energy technical courses to their curriculum to assist in the training of a new workforce for our industry. Our cost structures for many components are now cost-competitive with imported goods, when fairly traded and when coming from countries with open trading and monetary policies.
Guillen: The U.S. can and will reclaim its manufacturing competitiveness. However, there must be significant investment in innovation and technology to compete. Materials innovation could be used to compete with commodity steel towers. New family high-performance steels and concretes coupled with new fabrication strategies could allow lower costs over a tower’s lifecycle. That innovation resides in the U.S. Equally advanced manufacturing, such as automation, factory information systems and manufacturing control systems, will significantly reduce the lifecycle cost of blades while allowing for the manufacturing of more efficient and complex aerodynamic and structural shapes.
Hamilton: U.S. suppliers can improve their competitiveness by contributing to lowering the cost of wind energy (COE), which will in turn increase demand. COE reductions are possible with innovation in advanced design and materials, standardization, automation and partnering with sub-vendors. GE has been successful in reducing COE with a series of incremental improvements in its 1.5 MW turbine platform.
Weston: Some ideas come to mind, such as new designs that use local partners and proprietary technologies that offer sustainable competitive advantage. The U.S. Department of Energy is pushing for this through its Clean Energy Manufacturing Initiative. A national manufacturing strategy that levels the playing field against government-subsidized suppliers in other countries might incent new domestic investment in key industries, such as foundries and forges. Some think this could be achieved through changes to U.S. trade and tax policy. Creative domestic-content incentive programs, such as those currently at work in Brazil, might drive domestic investment here on a sustainable basis.
Q: What is right with the U.S. supply chain?
Guillen: The high-skill jobs, such as product development and validation, are stable. Operation and maintenance services are growing. New infrastructure, such as Clemson University’s new drivetrain facility and the Massachusetts blade testing facility, will enhance the innovation and know-how required to continue developing high-value jobs for the supply chain.
Hamilton: The U.S. wind supply chain is strong in larger items, such as blades, towers and hubs. One example is Broadwind Energy’s recent announcement of $87 million in tower orders from a U.S. wind turbine manufacturer. Most U.S.-produced components have proven quality, as evidenced by their use in bankable projects.
Other U.S. supply-chain strengths include an excellent transportation system and a skilled labor force for onshore wind.
Anthony: [U.S. supply-chain] companies have shown their ability to innovate – designing turbine towers with hub heights upward of 100 meters and rotor diameters stretching up to 117 meters. These advances allow wind project developers to access better wind energy resources in states not traditionally known for their wind power potential. Consequently, projects closer to demand centers, such as those in Michigan, Ohio and Pennsylvania, have become economically viable. Accompanying these technological advances is a complementing reduction in the cost per kilowatt for wind turbines. w
U.S. Supply Chain Soldiers On Amid Market Constraints
By Mark Del Franco
Domestic wind turbine component manufacturers keep fighting despite pricing and policy pressures.
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