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Question of the week: local content requirements - help or hinder?

When last week's wind energy auction in Russia flopped dramatically, the finger was pointed at the country's stringent local content requirements. At the same time, other markets, such as Brazil, are flourishing while demanding that turbines feature local components.

We spoke to Soren Hoffer LM Wind Power VP Sales & Marketing, Feng Zhao BTM research director and Pierre Tardieu EWEA senior political affairs advisor about their take on the upsides and downsides of such regulations.

Question: Do local content requirements harm or benefit the wind industry?

Soren Hoffer, VP Sales & Marketing, LM Wind Power

We acknowledge local content regulations as a premise for us and our customers to do business in some existing and emerging markets around the world. Since wind in certain markets is still dependent on favourable incentives, political support is crucial, and this tends to depend on certain conditions and expectations e.g. in terms of creating local growth and employment.

It's a well-known structure, which is probably here to stay. It can benefit the wind industry overall by helping to make sure there's local support to invest in the introduction or further development of wind energy in the energy mix, and the logistical advantages are obvious, not least for blades.

LM Wind Power has operated successfully in markets with local content requirements for years. It is certainly possible [to operate under local sourcing conditions]. It is crucial, however, that the policy framework is in place for the long term and that there's sufficient volume to enable scale and industrialisation, which are the most important prerequisites for driving down cost of energy.

Feng Zhao, research director, BTM Navigant

Local content requirements prohibited under World Trade Organisation treaties, prove a controversial topic. Those in the wind industry are no exception.

The big cahllenge for the industry is to foster the domestic supply chain while also providing a cost effective solution. In theory, local content requirements prevent the customers from being free to source cheaper and higher quality foreign components, but the reality shows that they could have positive impact on the growth of the wind industry.

The Chinese market with its 70% local content requirement is a good example, although this requirement was removed in the end of 2009. Without the requirement, I don't believe China would have established such a strong local wind industry and supply chain within just five years (2004-2009) to become the largest wind turbine manufacturing base and the largest wind turbine market in the world.

Also, evidence in Canada, India and Brazil has proven that local content requirements not only help establish the local wind industry, but boost the development of the wind industry in new territories as well.

It is the same in the offshore sector. Without creating a domestic supply chain and local jobs it is going to be difficult for the offshore wind industry to win the political and community support in the UK, the world's largest offshore wind market.

Pierre Tardieu, senior political affairs advisor, EWEA

Local content requirements have surged in different countries across the world in recent years in countries such as Ukraine, Brazil, Turkey and South Africa, and present a serious challenge to the development of the industry.

Creating local value is important, not least to help with public acceptance of renewable energy projects. But this is in fact inherent to wind energy deployment. Part of the value chain, such as civil engineering works and operations and maintenance is by definition local.

At the same time, the industry has a political imperative to reduce costs of wind energy as incentive levels decline. In order to keep driving costs down, the industry needs to draw on a lean and efficient global supply chain. Local content requirements are at odds with this logic, forcing turbine manufacturers to invest in production facilities that are not economically viable over the long term.

Ultimately, local content requirements do not have a positive impact on employment either. They may help create local employment in the short term but these jobs are not sustainable because the markets in which they are created do not have the necessary critical mass of demand. Fundamentally, this contributes to higher costs for end-consumers and hinders the potential of wind power to compete with conventional technologies.

Policy-wise, getting the most economic benefit out of wind power requires an ambitious and stable long-term framework. At EU level that means a 2030 Climate and Energy package with a binding and enforceable renewable energy target of at least 30%.

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