Earlier this year, Denmark's LM Glasfiber announced it would open a factory in January 2006 in Gaspé, a city at the tip of Quebec's Gaspé Peninsula, to supply GE with rotor blades for 2400 MW of capacity over the next ten years. Most recently, GE contracted one of its long time suppliers, Marmen Inc, to make wind turbine towers and assemble nacelles at two new factories on the peninsula. Marmen Inc, a Quebec company specialising in machining and mechanical assembly, is in the process of constructing the facilities in the port city of Matane on the south shore of the St Lawrence River. Once operational in November, the factories will employ 160 people.
Started with Enron
Marmen, based in Trois-Rivières, has been supplying GE Energy with machined components for steam, gas and hydraulic turbines since 1992, says GE's Sylvain Bulota. The Quebec company expanded into the wind sector in 2003, he says, and has since been manufacturing turbine towers for GE at its Trois-Rivières plant. "As a matter of fact, the first negotiations were with Enron, just before GE bought the company," he says. "They knew GE was buying Enron and they were one step ahead of everybody else to establish a business relationship."
The new tower plant, running two shifts, will have a capacity of 150 units a year, while the nacelle facility will produce close to 100 units a year. "That is under one shift. In other words, if there is any need for additional nacelles, the capacity will be there," says Bulota.
GE plans to use the Quebec plants to supply projects beyond the Gaspé region. Hydro Quebec's request for proposals (RFP) for the wind capacity allows GE to claim local content credit for components exported to other markets in Canada and the US, which it will need to do to reach its targets, says Bulota. "The towers themselves are less than 20% of the cost of a windmill and blade manufacturing is 17-18%, so those two by themselves are not enough. There is assembly and there is the balance of plant, but all in all we have to export."
Beyond that, however, the need for new manufacturing capacity in North America to meet the demands of a growing market is becoming increasingly apparent. "We are unable to keep up with market growth in 2005 due to short term capacity constraints in North America and because of the weak US dollar, which is rendering our blades produced in Europe uncompetitive in the North American market," LM Glasfiber points out in its 2004 financial statement.
The increasing size of turbine components is another factor, says Bulota. "Even though you could perhaps produce these things at a cheaper cost in places like Brazil or elsewhere, the cost of transporting them to project sites is a major cost and does, perhaps, offset the higher costs of labour here."
Whether or not the new manufacturing plants become permanent suppliers to the GE supply chain once the Quebec projects are done, however, will depend on their competitiveness. "Both Marmen and LM Glasfiber are setting up plants to maximize efficiency and be a low-cost supplier," says Bulota. "I cannot guarantee what is going to happen in seven or eight years, but they are starting with the right tools to produce components at competitive levels."
Can they make enough?
Developments in area markets could play a role. Hydro-Quebec is planning a second 1000 MW RFP this year and GE hopes "to get a fair share" of those orders. "Those plants are well located to meet some of that demand. Also there is a 1000 MW RFP out of Ontario and somebody has to supply those towers and those blades. So they will have a shot at it. Again, it may be a matter of, can they produce as much as is required?"
Access to potential markets is one advantage the facilities may also be able to offer. "The Gaspé Peninsula is connected to a good road system, it has a railway and it has a year-round open sea port to transport those large components to the north-east coast of New England or the Maritimes or to Ontario through the St Lawrence Seaway. It is not any worse -- and perhaps better -- than some other locations," says Bulota.