Local sourcing - handle with care

One would think the industry would be happy about a country with a 20GW pipeline. However, it's nearly impossible to cover the Brazilian market without mentioning its restrictive local-content requirements.

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Everyone can bid, but without building three major turbine components in Brazil there is no access to a crucial cost-saving loan from the country's development bank.

Essentially anti-competitive, local content rules can be a difficult line to tread. Ontario discovered this when it tried to apply a 50% local-build quota. This resulted in the World Trade Organisation upholding complaints from other countries that it is discriminatory, and Ontario was forced to rescind. Still, it does not appear to have stopped local factories being built. Other countries with local-content rules include South Africa and Ukraine. Elsewhere it's more implied.

Of course there is no guarantee it will work. Last month, Russia, which has a local content policy that is as overt as its wind capacity is small (10MW), had only 56MW out of 1.6GW in its latest tender taken up by developers. One scapegoat for the failure was its 50% local-sourcing quota. Compare this to Uruguay, which is planning to bring 1.4GW online by 2016 and has openly said there is little point in making manufacturers set up when the capacity is so small.

But the rules of the game appear to be tricky. UK junior energy minister Michael Fallon last month repeated the government's mantra that companies will need to demonstrate how they "contribute to the UK supply chain". Recently MHI Vestas CEO Jens Tommerup begrudgingly hinted it would have to build a factory in the UK because "some countries have local-sourcing rules". It also appears to have played a part in the recent negotiations between the French government and GE over Alstom and its projected French offshore wind factories.

However, many, such as EWEA, believe such arrangements are wrong. It claims that local sourcing damages the proliferation of wind power forcing companies to build unviable factories. Just look at China. It had a 70% local-sourcing requirement and a large number of western companies opened up there, only to have to close down when the government hit the brakes. Undeniably, EWEA has a point. When everyone is talking about lowering the cost of energy, having an open and competitive market is going to help.

Other issues include secondand third-tier suppliers, which can introduce quality issues or worse into a project. Even companies such as Alstom, which has been in Brazil for decades, said it was a potential challenge bringing in component suppliers that can deliver both quality and quantity.

It is easy to understand why local content is important. But beyond protectionism, maybe local-content rules can enable the building of a localised and more sustainable wind-power industry that will ultimately engender more competition not less.

Also, the spotlight is on wind power and the public money needed to fund it. Yes, it would be simpler to supply everything from, say, Denmark. Yes, there is an additional cost added on to the setting up of new manufacturing. But perhaps the global expansion of the industry could lead to its long-term viability - more competition and more capacity. Maybe local sourcing is here to stay. Just do it carefully and in the right place, at the right time, and be careful what you call it.

James Quilter is associate editor of Windpower Monthly

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