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Daring to bet big on US manufacturing

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The political will in America to support renewable energy is at last deemed strong enough for a range of wind power companies to risk investment in manufacturing in the United States. Blades are taking the lead, but turbines are not far behind

Global wind turbine vendors and their component suppliers are showing a new-found confidence in the long term stability and promise of the US market. Optimism over the domino effect of ever stronger state mandates for renewables has replaced boom and bust fears and shifting political winds in America are stoking expectations of a long term extension of wind's federal production tax credit (PTC) to beyond 2008. The extension may even be accompanied by some form of carbon dioxide regulation or a national green power mandate.

While the frenetic wind project developer acquisitions seen of late have been the most visible sign of the new times, it is the steady growth of industry manufacturing capacity in North America that offers the most tangible demonstration that companies are beginning to bet big on the US wind market. Recent months have been punctuated by announcements of new and expanded production lines -- mostly for turbine blades but also for turbines and sub-components.

More US manufacturing could tip the global business balance in the wind industry towards more competition and presumably lower costs, comments Josh Magee of Emerging Energy Research in Massachusetts. "There is increasing certainty that if a vendor invests in the US, that investment will pay off there. Manufacturing is on the rise and increasing. It will have a favourable effect to bring a shift in the market away from the seller to the buyer," says Magee. "Developers, independent power producers, and utilities will have greater options in terms of vendors they are able to negotiate with. When that happens and who emerges as a winner is being decided."

Blades from Mexico

Mitsubishi is the latest company to join the trend. It is tripling production at its wind blade manufacturing operation in Mexico, from producing blades for 400 MW of installed capacity a year to 1200 MW. The focus is on the company's new 2.4 MW turbine, produced with two rotor diameters, 92 metres and 95 metres. The effort is lead by VienTek, a joint venture between Mitsubishi and TPI Composites (TPI), based in Rhode Island.

The blade facility is in Juarez, across from El Paso, Texas, a major gateway into the booming Texas wind market. TPI's Steve Lockhard, who leads the VienTek venture, says the blades will go wherever Mitsubishi turbines are sold in the world, but operations will be most profitable when shipped to the western states like Texas and California.

"The output goes exclusively to Mitsubishi turbines so it gives you a sense of their confidence if they think they can sell 1200 MW a year -- that's a pretty confident statement for the North American market," says Lockhard. According to Mitsubishi, production of nacelles at two Japanese facilities will "top 1200 MW" a year (page 30). Identifying the reasons for Mitsubishi's optimism, Lockhard pinpoints state renewable energy mandates, the overall growth and emphasis on renewable energy, the increasing calls in the US for energy independence, and the new recognition that carbon dioxide may be capped by US lawmakers and regulators. "The question now is how big can wind become -- what percentage of power can we create from wind?" he says.

Manitoba Mitsubishi

Mitsubishi's Chris Lambert says the company produced wind turbines for an installed capacity of 600-700 MW in 2006. To match the growing blade output from the VienTek venture, Mitsubishi may expand nacelle manufacture out of Japan and into North America. It is "looking at" establishing some facilities in Manitoba, Canada, for blades, towers and is "considering nacelle production" there as well, says Lambert. Momentum in the North American market is such that it outweighs the risk of increasing manufacturing, he adds. "I think the situation has changed now, with strong policies and a change in government. The risk has been considerably mitigated. There is more of a comfort level."

Nonetheless, supply constraints on sub-components are a major limitation on growth. "We're in the same position as other manufacturers who are dealing with constraints in gearboxes, castings and in some minor cases, bearings," says Lambert. Blades have managed to keep pace, however. In some cases, Mitsubishi has taken an equity position in subcomponent suppliers but generally has opted not to move towards vertical integration. "We will continue to work with vendors and try to help them understand the market," says Lambert, adding that it takes "a lot of badgering to convince the sub vendors."

GE blades from China

TPI Composite's blade production is not limited to the VienTek plan with Mitsubishi. Last month it reached a long term supply agreement with GE Energy to produce wind turbine blades for GE in Taicang, China. TPI's Lockhard does not specify the yearly output but says the plant will employ 450 at full production. For the US market, GE sources its blades from Brazil and from the US facility of Denmark's LM Glasfiber. According to Brazil's financial newspaper Vaor Econômico, GE signed a $1 billion deal with blade manufacturer Tecsis. But like Lockhard, Guilherme Piereck of Tecsis declines to confirm the report as does GE's Matt Guyette. Tecsis already makes blades for Germany's Enercon.

In general, GE is coy about its manufacturing capacity. Guyette will only say it has seven global facilities for turbine assembly, three of them in the US at Pensacola, Florida, Greenville, South Carolina and Tehachapi, California. It sells just one model into the US market, its old 1.5 MW workhorse. GE says customer demand dictates that its next generation of 2.5 MW units now being tested in Europe will also be built and sold there. The company's Kristin Schwarz acknowledges that GE has registered some customer interest in North America for the bigger machine, "But the vast majority are still interested in ordering our 1.5 MW product." The 1.5 MW unit is based on technology acquired from Enron in 2002 and which Enron acquired from German Tacke and American Zond back in 1997. Zond was sold to Enron by Jim Dehlsen, who later developed the Clipper turbine technology.

GE's manufacturing growth in North America is chiefly measured by its new production in the Gaspé region of Quebec, says Guyette. The company invested $50 million in 2006 to increase manufacturing around the world in addition to the expansion by its component suppliers, he says. "I think you can still see some short term supply bottlenecks but what we see is wind is still growing," Guyette says. "We're working with our key global suppliers on long term agreements to make sure they are going at the rate they need to be going to meet the wind industry's demands."

Even so, GE, which has previously said it would make more turbines if it could get the parts, was the only major turbine supplier to lose market share last year, globally and in America. "GE has been the domestic hegemon for several years and Vestas has been the market leader," says Magee. "The key story is these vendors will have to position themselves quite aggressively to protect market share from the aggressive entry of several manufacturers including Gamesa, Suzlon, Mitsubishi -- and Clipper may also be a threat."

Suzlon in Minnesota

Part of this aggressive strategy for Suzlon has been its move towards vertical integration. Its aim is to be the most vertically integrated wind turbine manufacturer in the world. "We have major investments on the anvil for a foundry, a forging plant, a new gearbox factory among others in India and Belgium," says the company's Vivek Kher. Suzlon makes generators in India in a joint venture with Austrian Elin EBG Motoren and owns wind turbine gearbox maker Hansen Transmissions in Belgium. For the US market, Suzlon's new blade and nose cone production facility is ramping up to capacity in Pipestone, Minnesota, a state aiming for 25% renewables electricity by 2020. "Suzlon was one of the first wind turbine suppliers to invest in manufacturing in the US after years of no one building wind manufacturing facilities," says CEO Andris Cukurs. When running at full capacity, the Pipestone factory will produce 300 blades a year. "At this moment, the US market is extremely hot so Suzlon is focusing its efforts here," says Cukurs.

Producing blades in the US was also a priority for the wind turbine division of Siemens -- which for the first time overtook Vestas in 2006 as the number two turbine supplier to the US market behind GE. Its new facility in Fort Madison, Iowa, is nearly complete. At capacity, it is expected to employ 250 and produce blades for 500 MW of wind turbines a year. A grand opening is scheduled for August. "Our decision to open a wind blade manufacturing facility in the US was a direct result of our desire to increase capacity and support the fast increasing demand in the US," says the company's Monika Wood. "Transportation costs greatly impact the economics of a wind project. We look forward to be able to demonstrate that shipping costs could be reduced when goods are produced and then shipped to nearby wind farms, rather than imported from another country."

Clipper's challenges

Clipper's Bob Gates has a more nuanced view on transportation and local manufacture. "Local content can accelerate local production, at times at some added cost," he says. "In some cases US manufacturing is more cost effective. In particular where transport costs are high, such as for towers, blades, and the nacelle. The analysis can vary with the volume. The larger the volume the more efficient transport can become. Like much of the global economy, the wind turbine industry is moving more and more toward global sourcing, including sourcing from the US." Clipper is currently ramping up its first manufacturing facility in Iowa, which Gates says is a clear signal his company is betting on the US market.

Serial production began in 2006 and Clipper targets producing between 200 to 250 units this year. All announced turbine sales have so far been for the US market. Gearboxes are produced and assembled at that facility also. Blades and towers, however, are produced at several locations, varying with the time, location of the wind project site, and the backlog, says Gates, who acknowledges supply chain concerns. "There are challenges in growing the supply of components at the same rate as the demand for wind energy. In general, the component suppliers are keeping pace with the growth, with some short term shortfalls attributable to several factors including bringing added manufacturing capability on line."

The Europeans

Domestic companies like Clipper and GE are not the only outfits producing turbines in the US. As Europe has projected itself strongly into the market with developer acquisitions, it is also moving slowly towards turbine manufacturing in the US. Spain's Acciona, which as well as being a turbine manufacturer is also the world's third largest wind power owner, confirmed late last month its anticipated decision to locate a wind turbine and blade facility in centrally located West Branch, Iowa (Windpower Monthly, March 2007). "We believe that growth in the US and Canada is accelerating and we believe we can be a large player in the market. Controlling the supply of locally produced wind turbine generators fits into that strategy," says Peter Duprey, who leads Acciona's North American efforts.

Unlike Suzlon, Acciona's manufacturing strategy is not to vertically integrate the supply chain for components. "There are very capable component suppliers who can supply us components for the assembly of wind turbines," Duprey says. "We source from local suppliers and would also hope to bring some of our European suppliers to North America."

One European company is on its way to producing complete wind turbines in America. California's Composite Technology Corp (CTC) -- which owns the Dewind line of wind turbines originally from Germany -- and TECO-Westinghouse Motor Company will begin production of the Dewind 2 MW unit in the fall in an existing TECO-Westinghouse manufacturing facility in Round Rock, Texas.

TECO had expected production to begin this summer with as many as 57 units to roll off the production line by the end of the year (Windpower Monthly, January 2007), but Dewind's Andy Lockhart says the number will be closer to 20 units by the fall, with 18 going to XRG Energy, a small US developer. Here, too, supply of components plays a role -- Lockhart says they are waiting to start production pending the delivery of parts.

Production of Dewind turbines in Texas next year is expected to remain at the previously announced level of 200 units. Lockhart says CTC's strategy for the US market hinges on manufacturing. In a spin-off to the way GE and Siemens bought smaller wind companies and then applied their manufacturing prowess, CTC and EU Energy took the Dewind turbine expertise and combined it with TECO-Westinghouse, a large power industry engineering company that they hope can move production along at a quicker and more efficient pace than seen in pure-play wind companies.

Spain's Gamesa -- largely a vertically integrated company -- was one of the first foreign companies to establish big time US manufacturing. The company started producing blades late last year at its new Ebensburg, and Fairless Hills facilities in Pennsylvania, producing 360 blades so far according to plant manager Alberto Gros, quoted by the local Tribune Democrat paper. Gamesa's Mike Peck confirms both facilities are fully operational, but declines to give details on product output. The facility also assembles nacelles. Close to 700 people are employed there, with as many as 1000 expected in coming years.

Meantime, Denmark's Vestas, by far the dominant supplier of wind turbines globally, recently announced its first US manufacturing facility is headed for Colorado. The $60 million factory destined for the town of Windsor in Weld County, Colorado, will produce 1200 blades a year after ramping up to a staff of over 400 by spring 2008 (Windpower Monthly, April 2007).

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