Green Wind Energy

In the southwest Minnesota city of Pipestone, the last of 110 workers laid off from the Suzlon wind-turbine blade factory walk out the door this week, all but shuttering the plant.

Just 200 miles to the northwest, in Aberdeen, wind-turbine blade maker MFG South Dakota has a completely different problem: It needs up to 40 more workers and managers to boost its workforce to about 400.

And at the Siemens turbine-blade factory in Fort Madison, Iowa, employment has grown to 700, up by 100 workers since President Obama visited the plant in April to promote renewable energy.

The stark differences among the three Midwestern manufacturers show how business can blow hot and cold in what is still a young and growing wind-power industry.

“We are actually ramping up to production,” said Dave Giovannini, general manger of the MFG Aberdeen plant, which employs 361 workers and has been operating for three years. “We will be moving to a new blade version early next year, and we have our year pretty much booked at this point.”

MFG South Dakota, a unit of the privately held, Ohio-based Molded Fiber Glass Cos., builds blades for GE Energy’s 1.5- and 1.6-megawatt wind turbines, which this year outsold Suzlon models more than 2-to-1 in the United States, according to American Wind Energy Association data.

On Tuesday, Siemens announced its largest onshore wind-turbine order ever — for 248 2.3-megawatt units to be installed at three MidAmerican Energy Co. projects in Iowa. The blades — three per unit — will be manufactured at the Fort Madison plant in southeast Iowa, the company said in a statement.

Meanwhile, Suzlon Energy Ltd. isn’t profitable. Brad Wiggins, the India-based company’s regional manager in Minnesota, informed Pipestone city officials last month that the Suzlon Rotor Corp. plant would scale back to 33 workers because it had booked no orders for blades. Wiggins has declined to comment, but Pipestone officials say Suzlon is developing new blade technology and seeking orders.

No one’s moving — yet

One consequence of the layoff is that a Minnesota-funded assistance program has been placed in the unusual position of offering information to the 110 laid-off Suzlon employees about job opportunities in South Dakota. The two states have long competed to attract employers.

So far, none of the recently laid-off Suzlon workers has been hired by MFG South Dakota. The Aberdeen company, at its own expense, plans to hold a job fair in Pipestone early next year, hoping to attract experienced Suzlon workers.

Yet it may be hard to persuade former Suzlon workers to move from the Pipestone area because many own homes and have spouses with jobs.

“If you have one person working and one not working, they are not going to put all their eggs in one basket and leave to go to work up in Aberdeen,” said Linda McCorquodale, who works for a nonprofit organization that manages the Minnesota worker assistance program.

Giovannini, the manager of the MFG plant, said it has 25 to 30 production job openings and seven to 10 engineering and supervisory openings. The production worker pay scale is $12.50 to $22 an hour, he said. The company currently does not pay relocation costs for non-supervisory jobs, he added.

The unemployment rate in Aberdeen is 3.6 percent, far below the national rate of 9.8 percent and Minnesota’s rate of 7.1 percent.

“I wouldn’t describe it as a worker shortage, but we have created more jobs, and it does require us to do some recruitment,” said Julie Johnson, former South Dakota secretary of labor who now heads the Absolutely! Aberdeen economic development group.

GE’s successful turbine

One reason for the success of the Aberdeen plant is that it builds blades for GE’s most popular wind turbine.

“With more than 14,500 installed globally, GE’s 1.5-megawatt series wind turbines are the most widely deployed wind turbines in the world,” said company spokeswoman Milissa Rocker in an e-mail.

In Minnesota, for example, 147 GE 1.5-megawatt wind turbines were being installed this year, most of them at a large wind farm in Nobles County that owner Xcel Energy announced Tuesday is fully operational. By comparison, just 10 Suzlon turbines were installed this year.

Unlike Suzlon, which built its Pipestone blade factory in 2006, GE relies on outside firms to build its blades. Moulded Fiber Glass Cos. is a major supplier of fiberglass components. In 1953, the company built the original Corvette fiberglass bodies, and now has nine North American plants making composite products for a range of uses.

Earlier this year, GE and Suzlon reported major declines in their U.S. wind businesses, though GE said its was still profitable. Now, Rocker said, GE is “seeing new orders, due in large part to supportive policies and renewable energy goals,” including the one-year extension of a federal program that offers upfront cash grants in lieu of tax credits.

Siemens, based in Germany but with an expanding U.S. presence, said Tuesday that the outlook is positive. Siemens manufactures its own blades, using a patented, seamless technology with no glue joints that can become weak points, the company said.

Suzlon, whose sole business is wind power, reported a 2009 loss of $207 million and another $276 million in losses during the first three quarters of this year. During that period, Suzlon spent an estimated $100 million repairing blades under warranty after some of them developed cracks.

In the past three months, nine of 17 stock analysts that track Suzlon recommended that investors sell its stock, according to Bloomberg. Religare Institutional Research, based in Mumbai, India, said in a November report that the break-even point for Suzlon is “a distant dream.”

TIANJIN, CHINA – Judging by the din at its factory here one recent day, the Spanish company Gamesa might seem to be a thriving player in the Chinese wind energy industry it helped create.

But Gamesa has learned the hard way, as other foreign manufacturers have, that competing for China’s lucrative business means playing by house rules that are often stacked in Beijing’s favor.

Nearly all the components that Gamesa assembles into million-dollar turbines here, for example, are made by local suppliers — companies Gamesa trained to meet onerous local content requirements. And these same suppliers undermine Gamesa by selling parts to its Chinese competitors — wind turbine makers that barely existed in 2005, when Gamesa controlled more than one-third of the Chinese market.

But in the five years since, the upstarts have grabbed more than 85 percent of the wind turbine market, aided by low-interest loans and cheap land from the government, as well as preferential contracts from the state-owned power companies that are the main buyers of the equipment. Gamesa’s market share now is only 3 percent.

With their government-bestowed blessings, Chinese companies have flourished and now control almost half of the $45 billion global market for wind turbines. The biggest of those players are now taking aim at foreign markets, particularly the United States, where General Electric has long been the leader.

The story of Gamesa in China follows an industrial arc traced in other businesses, like desktop computers and solar panels. Chinese companies acquire the latest Western technology by various means and then take advantage of government policies to become the world’s dominant, low-cost suppliers. It is a pattern that many economists say could be repeated in other fields, like high-speed trains and nuclear reactors, unless China changes the way it plays the technology development game — or is forced to by its global trading partners.

Companies like Gamesa have been so eager to enter the Chinese market that they not only bow to Beijing’s dictates but have declined to complain to their own governments, even when they see China violating international trade agreements.

Even now, Gamesa is not crying foul — for reasons that are also part of the China story. Although the company’s market share in China has atrophied, the country’s wind turbine market has grown so big, so fast that Gamesa now sells more than twice as many turbines in China as it did when it was the market leader five years ago.

“If we would not have done it, someone else would have done it,” said Jorge Calvet, Gamesa’s chairman and chief executive.

Gamesa, an old-line machinery company that entered the wind turbine business in 1994, is a modern Spanish success story. With sales of $4.4 billion last year, it is the world’s third-largest turbine maker, after Vestas of Denmark, the longtime global leader, and GE.

With its relatively low Spanish labor costs, Gamesa became an early favorite a decade ago when China began buying significant numbers of imported wind turbines, as Beijing started moving toward clean energy.

But Chinese officials had begun to slip new provisions into the bidding requirements for some state-run wind farms, requiring more and more of the content of turbines to be equipment produced within China — not imported. Those piecemeal requirements soon led to a blanket requirement. On July 4, 2005, China’s top economic policy agency passed Notice 1204 that declared wind farms had to buy equipment in which at least 70 percent of the value was domestically manufactured.

Trade lawyers say that setting any local content requirement — let alone one stipulating such a high domestic share — was a violation of the rules of the World Trade Organization, the international body that China had joined just four years earlier.

It was not until the summer of 2009, when senior Obama administration officials started looking at barriers to U.S. clean energy exports, that the United States pressed China hard about Notice 1204. The Chinese government revoked it two months later.

But by then, the policy was no longer needed. Some Gamesa wind turbines exceeded 95 percent local content.

Ready to export

The Chinese government is now slowing the approval of new wind farms as it gives its national electricity system time to absorb thousands of new turbines that have already been erected and not yet connected to the grid.

The government policy means that Chinese turbine makers must now look beyond their captive national market for further growth.

Sinovel, China’s biggest wind turbine maker, has said it wants to become the world’s largest by 2015. Sinovel is among the Chinese companies now opening U.S. sales offices in preparation for a big export push next year. They are backed by more than $13 billion in low-interest loans from Chinese government-owned banks and billions more are being raised in initial public offerings.

Multinationals are alarmed. Vestas, for example, is closing four factories in Denmark and one in Sweden, and laying off one-eighth of its 24,000-person labor force, in an effort to push its costs down closer to Asian levels.

The provincial government of Ontario in Canada now wants to take a page from China’s playbook by trying to require 25 percent local content for wind energy projects and 50 percent for solar power projects in the province. The Japanese government responded by filing a WTO complaint against Canada in September, asserting that Ontario was violating the WTO prohibition on local content requirements. By contrast, Japan has never filed a WTO complaint on any issue against China, for fear of harming diplomatic relations with its large neighbor.

As a result, some of the tax breaks and other incentives that spurred massive wind power development in 2009 will expire at the end of this year. That uncertainty has many firms reluctant to commit to new projects.

Juhl Wind Inc. of Woodstock, Minn., has four projects under construction but only one contracted for next year. Eden Prairie-based Wind Energy America Inc. has 15 projects under development, but is actively pushing only three at the moment. “Unless you break ground this year, you don’t qualify for the tax credit,” said Wind Energy CEO Mel Wentz.

The free marketers out there will say that industries should be able to breathe on their own rather than rely on the iron lung of government incentives and tax credits.

Fair enough, but let’s apply that same rationale to the oil and natural gas industries. According to a Treasury Department estimate, just a handful of tax credits for those industries cost the U.S. Treasury about $3 billion in lost tax revenue annually.

Or how about the ethanol industry, which has been able to command a trifecta of mandates, trade tariffs and producer price credits — all in the names of jobs and energy independence? The tax credit alone was worth an estimated $4.7 billion last year. Extending the tariff, which is set to expire at the end of 2010, has drawn the support of a broad swath of legislators, some of whom have opposed incentives for the solar and wind industries.

“Let’s make it a totally free market for everyone and then see what happens,” said Dan Juhl, CEO of Juhl Wind.

Wind and solar certainly aren’t the answers to all our energy needs. Transmission remains a tricky and potentially expensive proposition, and neither technology will reduce our dependence on foreign oil, since very little oil is used in the production of electricity.

“I’m not as die-hard as some wind advocates, who believe it is the answer to all our problems,” said Wentz, who was an executive with a Texas utility before he joined Wind Energy. “Its like your 401(k) or investment portfolio. You want to make sure you’re diversified.”

Twenty-eight states, including Minnesota, now have a renewable electric standard. This patchwork arrangement will not spur the innovation that will, ultimately, lead to lower prices for these emerging technologies. It’s time for Congress to stop huffing and puffing and invest in our future.