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Sunday, 09 November 2014 22:00

Growth in wind energy manufacturing remains elusive for West Michigan companies

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While experts continue to tout wind energy as a diversification target for many West Michigan manufacturers, companies that supply the industry say they’ve faced a period of stagnant demand, especially now that a key federal incentive no longer exists.

Take for example Grand Rapids-based Burke E. Porter Machinery Co.

In 2008, the manufacturer of customized industrial machinery diversified into the wind energy industry by adapting the design of its automotive testing components to work with wind turbine gearboxes.

After an initial burst of orders, the market for turbine gearbox dynamometers flattened out considerably, said Sales Manager Scott Bohr.  

“There was a pent-up demand and we had a good rush of four years, and then it tapered off,” Bohr told MiBiz.

While demand for Burke E. Porter’s wind turbine gearbox testing products will most likely continue to build over the long term, Bohr doesn’t see it ever comprising more than 10 percent of the company’s overall business in the future. The company expects to generate about $3.5 million in sales this year.

As many West Michigan manufacturers come to terms with the challenges of working in the alternative energy sector, a new report from the Pew Charitable Trust outlines the opportunities for companies in clean energy manufacturing, particularly those serving wind energy OEMs.

The “Clean Economy Rising” report issued in October found Michigan is home to 38 facilities that produce wind energy-related products and that the state ranks seventh in the nation with more than 2,000 people employed by the wind energy industry.

Clean energy manufacturing in Michigan – led primarily by wind – has contributed $4.9 billion in economic activity per year in the state and “energy efficiency manufacturing” is expected to contribute an additional $2.3 billion by 2015, according to the Pew report.

While the wind energy supply chain continues to percolate across the state, the sector has not always lived up to expectations, sources said.

“The biggest challenge is certainty,” said Dan Scripps, president of the Michigan Energy Innovation Business Council.

Loss of incentive kills momentum

Most industry sources trace uncertainty over wind energy manufacturing to the expiration at the end of 2013 of the 2.3-cent per kilowatt-hour production tax credit. Originally enacted in 1992, the production tax credit provided some wind energy projects with the needed savings to make them feasible, which in turn drove the manufacturing of wind turbines and their components, sources said.

“There’s been talk of it being extended,” Scripps said, “but that uncertainty really chills investment.”

Jeff Metts, the president of Eaton Rapids-based Dowding Industries Inc., is all too familiar with the chilling effect uncertainty has cast on the wind energy supply chain.

In 2010, Dowding partnered with MAG Industrial Automation to create Astraeus Wind Energy Inc. to develop new technologies for wind turbine components. While the company experienced initial success, the first lapse of the wind energy production tax credit at the end of 2012 caused production to slow, according to a prior MiBiz report.

Even though the production tax credit was eventually extended into 2013, many manufacturers, Dowding Industries included, were unable to translate that extension into additional business, sources said.

The American Wind Energy Association estimated the loss of some 30,000 wind energy jobs can be attributed to the expiration of the production tax credit.

Dowding Industries also manufactured machined hubs for wind turbines, but demand dwindled after the first few orders, Metts said. Today, Dowding Industries is focusing instead on diversifying into the gas and oil market rather than the wind energy industry, he said.

“This market could be really good, but I’m just kind of looking, watching and waiting,” Metts said of the wind energy sector. “On the other hand, you have the gas and oil industry that’s booming and is not going to slow down. I would look at wind (again) as an addition to what I’m doing. But in order to do so, I’d have to know that it’s not just a year-to-year deal.”

Uncertainty tamps down expectations

The Pew report helps reinforce the notion that the wind energy production tax credit drove manufacturing activity for wind turbine OEMs and their suppliers. Investment in wind energy reached approximately $1.1 billion in 2012, up from nearly $400 million the year before, according to the report. But as uncertainty about the tax credit’s eventual extension kicked in, new investment dropped to $300 million in 2013, despite the surge in the previous year.

“As long as federal tax extenders remain in limbo, renewable technologies will remain stuck in a boom-bust cycle dictated by the whims of Washington and investors will likely be cautious to direct capital to new projects in the U.S.,” states a 2014 first quarter report on clean energy jobs issued by Environmental Entrepreneurs, a Washington, D.C.-based non-partisan nonprofit geared to businesses and investors.

A lack of certainty about the production tax credit also caused developments like the Ithaca, Mich.-based Beebe Community Windfarm LLC to accelerate construction, said Bruce Goodman, an energy and environmental attorney with Varnum LLP in Grand Rapids.

While the project could have proven ideal for Michigan-made components, developers opted for imports since domestic turbine production had all but ground to a halt and they needed to meet a tight construction deadline to be able to qualify for the credit, he said.

The uneven cycle of demand in the wind energy industry forced companies to stop production or look to other industries outside of wind energy for diversification, Goodman said. When demand picked up after the 2013 extension of the production tax credit, the major OEMs had already established a supply base, leaving little room for companies to break back into the industry, he added.

Part of the boom and bust felt by Michigan’s wind energy manufacturers can also be attributed to the state’s inability to attract an original equipment manufacturer like GE Corp. or Vestas Wind Systems to locate a production facility here, Goodman said.

“Certainly, that would have made a huge difference to have an OEM in the state and then manufacturing along the supply chain would have logically followed,” Goodman said.

Opportunities ahead?

Investment in the state’s wind energy sector is predicted to drop below $400 million in 2016 and hover between $200 million and $400 million through 2023, according to the Pew report.

But Goodman noted that technology could prove to be a disruptor for the industry, particularly if new advancements can help drive down the cost of wind energy and help increase efficiencies such that the alternative energy source is competitive with traditional sources even without subsidies.

Additionally, substantial gains in technology could also offer the next big growth market for West Michigan’s manufacturers, sources said.

As OEMs look to develop wind turbines for offshore applications, manufacturers may see production demands for longer towers, larger blades and more powerful drivetrain components, Goodman said. Turbines have also increasingly been integrated with internal energy storage capacity to modulate power for steady energy flow during times of intermittent output. West Michigan’s experience in battery manufacturing with companies such as LG Chem America Inc. in Holland could prove to be an important piece for the industry moving forward, sources said.

“[Energy storage] has long been noted as the next technology innovation that is going to spur the further use of renewables which is going to advance opportunities for clean energy manufacturing,” said Rick Chapla, vice president for business development at The Right Place Inc.

Sidebar: Report details available opportunities to service wind energy developments

While the state’s wind energy manufacturing sector has faced substantial headwinds, positions for turbine maintenance and support technicians have continued to post growth.

Michigan added 569 jobs – including positions in the wind generation sector – and ranked sixth in the country for renewable energy job growth in the third quarter of 2014, according to a new jobs report by Environmental Entrepreneurs, a Washington, D.C.-based advocacy group.

The report highlights the opportunities beyond manufacturing for professionals and companies to service and maintain wind turbines, for example.

“There’s never been a problem finding work in the wind industry,” said Cindy Buckley, executive director of training at Kalamazoo Valley Community College’s Wind Turbine Technician Academy, citing available opportunities for the program’s graduates.

The academy – which graduates around 32 students per year with a 96 percent placement rate – has seen a large number of its graduates find jobs at Michigan wind farms such as the Beebe and Breckenridge facilities in Gratiot County, Buckley said.

“Michigan has tremendous wind energy resources, and more wind energy means more jobs,” said Jeff Benzak, press secretary at Environmental Entrepreneurs. “Congress should do all it can to ensure clean, renewable energy puts people to work in Michigan and all across the Midwest.”

The number of maintenance and technician jobs should continue to grow, Buckley said.

“When we started, there were so few wind farms in the state,” Buckley said. “One of our goals was to show companies the benefits of building a farm in Michigan by training high-quality talent to help facilitate that growth.”


Read 6600 times Last modified on Sunday, 09 November 2014 09:10

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