April 23, 2010 Newsletter

2010: A Pivotal Year for the Component Supply Chain

Part One of a Series:

Market Update

By the end of this year, three new wind turbine assembly plants (Vestas, Nordex, Siemens) will have begun operations in the U.S. Combined with last year's additions (DeWind, Nordic Windpower), this should be great news for manufacturers looking to diversify and take advantage of regional opportunities. But a temporary drop in turbine demand, extra inventory in the system, and policy uncertainty are making this a pivotal year for the U.S. supply chain.

Since the fall of 2008, several factors have chilled the rate of manufacturing orders to supply chain companies. New orders for turbines dried up until the U.S. federal government's economic stimulus package took effect last summer. World turbine prices dropped, and when combined with extra inventory stockpiled from undelivered orders, excess capacity now available offshore, plus a falling euro, the result has been a return to the wrong side of the boom-and-bust cycle for domestic wind component manufacturers.

But signs of market recovery are in place. "We're seeing financing coming back, which puts additional burden on getting deals done," says Dan McDevitt, VP of Supply Chain for Nordex USA, the German wind turbine manufacturer currently constructing a factory in Arkansas to build its turbines. Siemens, which plans to open its new Hutchinson Kansas assembly plant in December, reported in February that its entire capacity for new turbines was sold out worldwide through the end of the year. Meanwhile, a number of wind turbine manufacturers, or original equipment manufacturers (OEMs), and specialized suppliers from Europe continue to operate in a holding pattern, awaiting a stronger market before ramping up new North American operations.

U.S. manufacturers remained logistically advantaged within the world's leading wind market for the past four years until finally overtaken by China last winter, and there's a desire by domestic wind turbine plants to capitalize on the proximity of available suppliers. "I deal with the majority of the large OEMs operating here in the U.S.," added John Purcell, VP of Wind Energy for Leeco Steel, "and all have told me their preference is to buy locally in each of their markets. They much prefer this over an extended international supply chain." For large components, the savings from buying American currently translates into 10-20%, plus avoiding weeks on a boat. Most turbine OEMs prefer to assemble turbines and source parts in a chosen market because it protects against currency fluctuations between countries.

There's a real interest in investing, too. Top notch machining capacity has been added across the Midwest, and European supply chain veterans are bringing their technology to U.S. facilities. ThyssenKrupp's Rotek, for instance, invested $80 million last year in an Ohio ring mill as part of an expansion to eliminate a former industry bottleneck for slewing rings. These are the giant diameter rings coupling the top of a turbine tower to the moving nacelle base and the blades to the rotor hub. In February the U.S. Department of Energy announced the awarding of economic stimulus grants to 29 component manufacturers for additional capital projects totalling $160 million.

Looking forward, the best opportunities on the manufacturing side will include large castings, bearings, generators, composites for blades and nacelle housings, and turbine control systems. On the services side, demand will be robust in operations and maintenance, turn-key contractors that cover engineering, procurement, and construction (EPC), and logistics companies (trucking, rail, barges for onshore and offshore) as well as suppliers to these industries.

Many components for wind are industry-specific, and joint ventures with experienced off-shore suppliers can provide a jumpstart for U.S. manufacturers wanting faster results. Another source of competitive advantage will be to offer an entire ready-to-assemble component or system rather than individual parts. For example, a company could sell castings as a final package that takes the product from raw casting, machining, and finish coating instead of the business being broken up as it often is in today's domestic wind supply chain.

Coming in the May Newsletter...What's Needed to Grow Domestic Content

Put Your GLWN Membership to Work at WINDPOWER^®

Are you serious about wind?
Are you an "active player" in the wind industry?
Are you on the Map?
Do you use GLWN services?
Do you respond to GLWN WIND ALERTs?
Do you attend workshops and policy forums?
Do you read our GLWNewsletter?

If you answered yes to one or more of these questions, you'll quickly discover that GLWN's new Membership Program will further your efforts to build connections the global wind market.

Each month the GLWN team responds to hundreds of requests for supply chain assistance and referrals from OEMs, developers, component manufacturers and suppliers, and service providers; and many more are tapping into GLWN's extensive database and GIS map to make connections to increase domestic content and fuel the growth of North America's wind industry.

To continue to benefit from GLWN's specialized technical expertise and assistance many of the leading suppliers to the wind industry are becoming Gigawatt Members.

In addition to having access on an on-going basis to GLWN's valuable technical support and assistance with supply chain connections, marketing, and referrals, during WINDPOWER our Gigawatt Members will be featured in the GLWN Booth to benefit from the chance to:

• Demonstrate company capabilities on a 20 second slide presentation broadcast on a continuous loop, and displayed on a 42" LCD monitor in the GLWN Booth
• Provide (another) distribution point for company literature at WINDPOWER
• Promote capabilities through GLWN's Pre-Show WINDPOWER ALERT
• Seek onsite technical assistance
• Meet customers and suppliers at the GLWN booth
• Establish new relationships with the leaders of other GLWN Gigawatt Member firms

If you are a player in the wind market, register to become Gigawatt Member at www.glwn.org. For more information on our booth at WINDPOWER, contact Pamela Holmes at 216.588.1440 ext. 104.

Message to Ohio Suppliers

State Tax Code May Limit New Investment

Applications have been made to build new wind farms in Ohio that will produce major construction projects, factory jobs, and thousands of kilowatts of renewable power for Ohio residents. An issue has arisen, however, that threatens to cripple this new industry in the Buckeye State.

The problem is this—Ohio's personal property tax code as currently written will tax new wind farms at a rate that marginalizes their profitability. As a result, these investments may be delayed or cancelled. The same is true for new solar projects. Compared with other states, Ohio's tax structure for new renewable energy investments is potentially cost prohibitive and when compared with other states is significantly higher.

In his recent State of the State Address, Ohio Governor Ted Strickland identified this issue and a need to "catch up" with our neighbors. Today, the Ohio House and Senate are currently discussing two bills aimed at making Ohio's tangible personal property tax on generation for wind and solar projects competitive with other states. If adopted, these bills can bring wind farms into production in Ohio by the end of 2012. Passage will reinforce renewable energy job creation and secure Ohio's role in the advanced manufacturing economy.

Both Senate Bill 232 and House Bill 464 offer somewhat different solutions, but both address the problem in ways that will make ours an attractive state to provide wind projects and jobs. There is an urgency to get legislation in place to create jobs starting later this year. Time is critical. Contact Ohio House Speaker Armond Budish, Senate President Bill Harris, and your legislator in Columbus to support this important next step for Ohio. For more information and to find out how to contact your legislator, visit http://www.legislature.state.oh.us/.

Avtron Exploring Wind Frontier

Avtron Industrial Automation, Inc. of Independence Ohio applied for and won a grant from Ohio's Third Frontier Advanced Energy Program. Avtron was one of just six chosen for funding in December 2009. The Avtron proposal addresses the development of an absolute magnetic encoder primarily for use on utility-grade wind turbines. The new encoders will be used to control wind turbine blade pitch position. The University of Akron and MAGNET will be working in collaboration with Avtron on this project, assisting in research and development efforts. The total project is scheduled to run three years and the expectation is that an encoder will be ready for the market place in 2012.

Founded in 1953, Avtron designs and manufactures Electrical Control and Test Equipment for several niche markets, including Aerospace and Industrial Automation.

Deutsch Wind

by John Colm, President and Executive Director, WIRE-Net

For the second year in a row, WIRE-Net's Great Lakes WIND Network was invited to present at the German American Chamber of Commerce's Energy Conference, held in Berlin Germany, March 22-23. The conference is aimed at helping German companies identify business opportunities in the U.S. energy sector. My task was to present an updated overview of how the U.S. wind supply chain is evolving.

Germany is a leader in clean energy, and has aggressive policies in place to support what is now a much more mature industry there than it is in the U.S. For example, the German government has had a Feed In Tariff since 1990, currently valued at between $0.07-$0.12 per kilowatt hour (kwh) for onshore, and over $0.20 per kwh for offshore (comparable to what the Ontario government has put in place for offshore projects in Lake Erie and Lake Ontario). This tariff has been reduced each year, but it has helped establish a strong solar, wind, and now biomass renewable energy industry in Germany, particularly in the north. Still, the German wind market was about $120 billion USD in 2008. The U.S. market in 2010, by comparison, is projected at $137 billion just for manufacturing. This is part of the reason why the Germans see economic opportunity in the U.S. market. We're much bigger, and our wind markets are growing faster. The German wind market is dominated by Enercon with 52% of the market, and Vestas, with 32%. Six other firms make up the remaining 16% of the industry.

I had an opportunity prior to the Berlin conference to travel from Frankfurt, to Essen, and Cuxhaven (a new staging area for German offshore wind) prior to going to Berlin. Travelling by train was easy, and allowed me to talk with Germans, survey the countryside, and get some reading done. It is no exaggeration to say that in Lower Saxony (the German state that stretches from Gottingen to Hannover, Bremen, and Bremerhaven), nearly every cluster of homes, farm out buildings and other structures had solar panels installed. Additionally, clusters of large turbines could be spotted every 15 minutes or so. Clean energy is taken seriously in Germany, and nowhere more so than in Lower Saxony (Niedersachsen)...much of the state is at or below sea level and concerns about sea levels are very real. 25% of Germany's installed wind capacity is located in Lower Saxony.

Cuxhaven

Cuxhaven is home to a green-field offshore wind staging area, and it is impressive. The facility includes deepwater terminal of about 3,200 feet in length, a heavy lift platform for loading offshore foundations and turbines that can handle 90 tons per square meter. The facility is getting prepared to be almost doubled in size, a project that will entail moving four massive turbines (two 6-MW and two 5-MW in size, see picture) off the waterfront to open up another 280,000 SF (over 6 acres).

The facility will have the capability to vertically load a turbine on its platform fully assembled. And these will be huge turbines of 5 MW and up. In addition to the shipping and loading capabilities, Cuxhaven has excellent highway and rail access to the complex.

Finally, the site is currently home to two major wind industry manufacturers: CSC-Bard, which makes the 500 ton tripod foundations, and AMBAU, which makes both components for the foundations and tower sections. AMBAU also runs a fabrication and welding engineering training program, right at their manufacturing facility (pictured below).

Berlin

Several hundred people attended the two- day Energy Conference. Top German officials restated their commitment to the wind industry, and the U.S. Ambassador Phillip Murphy encouraged attendees to make connections with potential American partners. The conference occurred the day after President Obama signed the Health Care Reform legislation, and there was relief expressed that space would be opened up for other issues now to get attention, including the economy, European relations, energy, and climate change. It was interesting to see what sort of U.S. presence there was at the Berlin conference. Represented were Sweetwater Texas, the City of Dubuque Iowa, Virginia, Pennsylvania, and the Buffalo/Niagara Enterprise. I was privileged to represent the 1,400 manufacturers of the Great Lakes WIND Network, and to encourage my hosts to connect with us to explore possible joint ventures to help the U.S. meet its clean energy targets, attract investment, and create jobs in the U.S.

Midsize Turbines for the U.S. Community Wind Market

In the past month, GLWN has teamed up with the Department of Energy's National Renewable Energy Laboratory (NREL) to present two Midsize Wind Turbine Development Workshops.

Now the U.S. Department of Energy (DOE) Technical Assistance Project (TAP) for state and local officials is offering an online seminar about a DOE project to develop midsize wind turbines rated at 100 kilowatts to 1 megawatt.

The presentation will take place Wednesday, April 28, from 3:00 to 4:15 PM Eastern Daylight Time, and is titled "Midsize Wind Turbines for the U.S. Community Wind Market." The speaker will be Trudy Forsyth, senior project leader at NREL.

The online seminar is free of charge, but you must register in advance to obtain a URL for the presentation and call-in phone number. You can register online, find information about the presenters, and read background materials and reports on the Webinar section of the DOE website.

In Memory of Matt Garran

In early April, Matt Garran, a former member of our Great Lakes WIND Network team, passed away. In his capacity as Technical Director for GLWN, Matt helped hundreds of manufacturing firms understand the intricacies of the global wind market, its players, and how their companies could build the capacity to serve North America's expanding wind supply chain needs.

Last September, Matt left GLWN to become the Supply Chain Manager for the American Wind Energy Association (AWEA). In his capacity at AWEA, we continued to work closely with Matt. He fielded requests from AWEA members for services and technical support to GLWN and together with our team we developed and executed a strategy to increase the domestic content in North American-installed wind turbines.

GLWN and WIRE-Net will join with AWEA to honor Matt's memory and show support for his family. We will publish more information as it becomes available.