As the dust settles on the financial downturn of 2009, the US wind industry is facing lean times and diminished demand for electricity. At the same time it is nurturing a growing manufacturing sector tasked with lowering overall costs through turbine innovation and supply-chain localisation — and a market that is likely to be half the anticipated size.
Although the price of equipment has fallen 25%, original equipment manufacturers (OEMs) are itching to make more and bigger machines. GE Energy claimed half of US turbine installations in 2010 but some 20 other companies installed machines in the country last year.
Yet the perennial 10GW bonanza projected before the downturn is likely to be closer to 5GW, at least for the next few years. While a cogent national energy policy could open those 10GW floodgates, ongoing political chaos leaves state renewable energy standards to create a relatively modest 20-year base market as OEMs and developers tighten their belts and move forward.
Patchy supply chain
To a large degree, the US supply chain has evolved haphazardly, with manufacturing hubs built around pockets of wind development in states that embraced renewable targets early on. OEMs that chose those regions for turbine-making shops spun webs of component-making facilities in close proximity.
As of last year, more than 400 domestic companies were producing many of the 8,000 turbine components. But the expected expansion of global suppliers into the US market has largely failed to materialise, leaving a supply chain with plenty of basic components and well-fed blade and tower makers, but lacking the gearboxes, generators and large casting parts that are key elements of the inevitable parade of ever-larger machines.
"A lot of the biggest investments have already been made in tower and blade production facilities and nacelle assembly operations," says Dan Radomski, co-founder of Kinetik Partners, a clean-energy market consultancy. Many of the established suppliers of major components that have not committed to building a facility in the US are now reluctant to do so, he says. With those major components often arrive from Europe and China, plans for US facilities stay on the drawing board. American foundries that can churn out the massive castings for bedplates, hubs, and generator and gearbox housings may eventually be increased, but for now remain few and far between.
"The downturn really hurt, because a lot of suppliers were on the fence and just about ready to make those investments," says Dan McDevitt, vice president of supply management for German turbine maker Nordex. Now, with many more turbine manufacturers producing in the US, customers want to know what is being done to increase local content and localise components.
Nordex has been building 2.5MW turbines for the US market at its Arkansas factory since last October, with plans to produce 114 machines this year and up to 300 in each of the next few years. But, despite adding local suppliers every month, the company has yet to find a domestic gearbox solution, so increasing its US-built content from nearly 70% at present is unlikely in the short term. "It could take two to three years to do a design with a local gearbox supplier and go through the prototype and field-testing stage and everything else involved," McDevitt says. "That’s the reality of it."
Siemens, another German OEM, opened a nacelle facility in windy Kansas late last year. Second only to GE, Siemens captured more than 16% of the US turbine market in 2010 and produces blades domestically. "That does mean more supply chain," says Kevin Hazel, the company’s vice-president of supply chain management. "And we’ve localised more and more of it."
The quest for local suppliers will play an increasing role as Siemens moves to its 3MW direct-drive turbine, launched last year. Some components are the same as those in its geared turbines but others require significant variations. The generator is a major departure from geared machinery. "I need a different supply chain for that," says Hazel.
Some cost-saving solutions come from engineering. "Our 3MW direct drive is lighter than our 2.3MW geared machine," Hazel says. "For the nacelle, we’ve actually done a good thing in terms of needing trucks with fewer axels than we need for the geared machine."
New localisation strategies
Spain’s Gamesa established its US turbine and blade manufacturing presence in the mid-2000s by bringing a handful of Spanish component supply companies to the Pennsylvania locations where they all opened factories. "They agreed to follow us here," says Jim Buddelmeyer, the company’s North American vice-president of purchasing. "Subsequently, they followed us into China and they’re following us into India and Brazil as we go there. It’s one of the strategies that Gamesa has used very successfully to develop the supply chain."
Unlike the US, where the tendency is for suppliers to diversify into several industries, Buddelmeyer says some markets have developed economies of scale through dedication to a single industry. "The people who have been most competitive are the ones focusing 100% on wind," he says. "The Spanish and Chinese supply bases have been pretty successful doing that."
A recent success for Gamesa has been domesticating services such as operations and maintenance, inspections and environmental studies. "We’ve developed a number of very good suppliers around the United States," says Buddelmeyer.
The modular design and innovative two-piece blades of Gamesa’s new 4MW turbine will simplify transport and installation. "We identified key suppliers when we started on it over seven years ago, and they have worked solely on that design," Buddelmeyer says. "Some major components are smaller than on our 2MW machine and the nacelle goes up in pieces instead of in one whole unit."
Acciona, another Spanish OEM, has manufactured 1.5MW turbines at its Iowa factory since 2007. The company sources 77% of its supplies domestically, which adds flexibility in planning and insulates from foreign-exchange risk. "Once you have a bunch of components on ships you’re kind of locked in," says Tom Waggoner, the company’s US director of strategic procurement and logistics. "If there’s a change in production, you’ve got a whole lot of money that you’ve got to try to manage."
Benefits of flexibility
But US suppliers could benefit from greater flexibility, says Waggoner. "The most significant gains can be made as lean manufacturing concepts are brought further into the supply chain. A lot of people are talking about it but there aren’t really a lot of effective lean operations that I’ve seen. It’s something that will have to happen to reach that long-term goal of being commercially viable."
Chinese manufacturer Goldwind entered the US in 2009, installing three 1.5MW demonstration turbines in Minnesota. The company, which has roughly 4,000 machines worldwide, won a deal late last year to develop 109.5MW in Illinois and added small deals in Ohio and Rhode Island this spring, putting it at the forefront of what may become a Chinese equipment invasion.
Yet supplies for the Minnesota project are 62% domestic and, as its US supply chain expands, Goldwind expects that to increase. Generators for the permanent-magnet direct-drive 1.5MW machines come from China, but more than 20% of their components are sourced from other countries, including the US. Blades will come from LM Wind Power, in a deal Goldwind says allowed LM to rehire upwards of 50 workers at its North Dakota factory. The towers will come from Texas and Wisconsin.
It’s a cost-effective way of supplying a wind farm," says Kate Dusett, Goldwind vice-president of planning, procurement and logistics. "We’ll reduce transportation costs pretty significantly. You have to craft your supply strategy project by project."
Goldwind, with about 20 US employees, has its eye on domestic manufacturing. "We’re focusing on our first projects and having them be very successful but as we build a sales pipeline here, we’ll look at bringing some of those activities over to North America," Dusett says.
Of course, an annual market of 5GW cannot support capacity based on 10GW projections so not every company will survive. "There’s literally twice the amount of assembly capacity for wind turbines that are required, based on current demand," says Gamesa’s Buddelmeyer. "You’ll see some mergers and some people will fall. There will be rationalisation — not just at the OEM level, but at the supply-chain level as well. We’ll see how that all plays out."