Wausaukee Composites President Dave Lisle must feel like he has a warm wind at his back these days, which is a long way away from what it felt like in January when he had to lay off 61 workers at his Cuba City plant after the wind power industry suddenly went slack. The Cuba City plant, which manufactures fiberglass housings and other components for wind turbines, shut down after the company’s primary customer cancelled its orders. After a flurry of activity in 2007 and most of 2008, the wind industry ground to a halt at the end of 2008 as wind farm developers stopped construction, in part because of a lack of capital and also because Congress allowed the production tax credit to expire.
“Most wind projects have been financed by investment banks and others, so when that capital became incredibly scarce, incredibly quickly, the stand-down in wind farm development and the manufacturing to support it was virtually immediate,” says Lisle, “to the point that even wind farms that were already under development lost their capital and had to halt production. We actually had a delivery truck turned away at the factory gates.”
It was in many ways a perfect storm battering the wind energy industry.
“The third element was really lack of confidence,” says Lisle. “The loss of capital and the loss of regulatory and fiscal support from the federal government eroded confidence to the point that virtually no company was willing to plow ahead at their own risk in that sort of uncertain environment.”
By last month, after capital investment loosened somewhat and the production tax credit was reinstated, plans for wind farm construction were back on track and orders for wind turbine components began flowing in. On May 18, Lisle was back in Cuba City to reopen the plant and welcome back 25 of the laid-off workers – the first wave of what Lisle hopes will be a sustained ramp-up.
“It’s going to take the industry about one year to recover to production levels that we saw in the fourth quarter of 2008, which were records for the industry in terms of installation of wind farms,” says Lisle, “but we do believe we should see installations in 2010 and 2011 in the 8,000-megawatt to 10,000- megawatt-per-year rate, which is about what we saw in 2008.”
Lisle is not alone in his new-found optimism. More than a dozen companies in the New North are involved in the wind energy industry, including Aarrowcast, Badger Transport, Bassett Mechanical, Boldt Construction, Giddings & Lewis Machine Tools, Lindquist Machine Corp., Machine Building Specialists, Manitowoc Crane, Michels Wind Energy, Mid-States Aluminum Corp., Miron Construction, Shuttlelift Inc., Tower Tech and Wausaukee Composites. The Wisconsin Wind Works Supply Chain Directory lists nearly 200 state companies involved in the wind energy industry.
Jerry Murphy, executive director of New North, Inc., says it’s not surprising that wind energy, which had shown explosive growth over the past three years, came to a virtual halt late in 2008.
“The wind energy industry has been closely tied to the financial markets, so with all that happened last year, investment for wind farms was incredibly conservative,” says Murphy.
It also didn’t help that the productive tax credit, which provides incentives for wind farm developers, was allowed to expire in October 2008 – the third time since 1992 that Congress allowed that to happen, creating a boom-bust cycle for the wind industry. In March, the tax credit was reinstated through 2012, giving wind farm developers and their suppliers at least three years of certainty.
“Reinstating the tax credit has provided a tremendous injection of confidence in the industry,” says Lisle.
“Almost everyone in the industry is anticipating a phenomenal 2010,” says Murphy, “in part because of the production tax credit and the investment tax credit available, but also because of the environmental, social and political macro-drivers that are now in place.”
Follow the money
If you want to know what technologies and trends have the best chance of succeeding in the market, you could do a lot worse than watch where smart venture capitalists put their money. John Doerr, a partner at Kleiner Perkins Caulfield and Byers, a venture capital firm based in Menlo Park, Calif., is putting his money on alternative energy. He has a good track record, backing the launch of tech companies like Amazon, Google, Intuit and Sun Systems. Now Doerr and his firm’s Greentech Innovation Network have gotten behind alternative energy, putting $200 million of investment behind companies like Altarock Energy, Altra Biofuels and Bloom Energy.
As long ago as 2006, Doerr was saying that “green tech” was the next growth area for venture capitalists, adding that energy conservation and generation breakthroughs are likely to occur in both solar power and wind power. Doerr says he is no less optimistic today that alternative energy will be the biggest driver of economic innovation and growth in the next decades.
Worldwide investment in renewable energy in general and wind energy in particular has been growing over the past few years, though the recession and tightened credit markets slowed investment in the latter part of 2008. Still, renewable energy projects attracted $155 billion worth of investment in 2008 – a 5 percent increase over 2007, according to a report released this month by the United Nations Environment Program. Wind energy projects received $51.8 billion in 2008 investment, according to the UNEP study.
Billionaire oilman T. Boone Pickens is among the most outspoken proponents of wind energy and he’s generally put his money behind the talk, with plans for a $10 billion wind farm project in Texas. Pickens put his plans on hold late last year when the credit markets collapsed, but says he plans to have the project underway by 2011, if not sooner.
The American Wind Energy Association notes that new wind projects in the United States in 2008 accounted for more than $17 billion of investment, producing more than 8,500 megawatts of new generating capacity – about 42 percent of all new generating capacity added last year. The number of companies producing wind turbines in the U.S. has almost tripled in the past four years, according to AWEA, with 14 major producers now, compared to five in 2005.
New North Winds Blowing
New North, Inc. recognized the potential for growth in the wind energy industry more than two years ago when it established the New North Wind Advisory Group, which brought together representatives from companies that were already connected to or saw potential in the wind energy industry.
In 2008, New North organized a Wisconsin Wind Works pavilion at the AWEA Wind Power Conference in Houston, with 15 companies and organizations participating. In May, the Wind Works pavilion at AWEA’s Chicago conference also attracted 15 Wisconsin companies. Along with AWEA, New North co-sponsored the first Wisconsin Wind Energy Supply Chain Seminar earlier this year in Appleton. The event attracted more than 600 participants – about 50 percent more than organizers expected.
Murphy says there’s still more potential for growth, with nearly 200 companies now listed in the Wisconsin Wind Works Supply Chain Directory and top-tier wind turbine and wind tower producers looking for more component suppliers.
“All the OEMs are still looking to find a qualified stable of vendors and suppliers, and the New North’s selling proposition is a strong and timely one,” says Murphy.
Chris Linn, vice president of marketing and business development at Bassett Mechanical in Kaukauna, says the growth potential is enormous. Bassett has been in the wind energy business for about four years, producing embedment rings for wind tower foundations, as well as other components.
“Wind energy components probably represent 2 to 3 percent of our overall business, so they’re a long way from being a huge part of what we do,” says Linn, “but we’re in this segment because it’s growing so fast. We just picked up some new business this spring and we expect to see that continue.”
How fast the wind energy sector grows will depend a lot on how well the financial markets do in the coming months, says Linn, but there are other forces driving wind energy forward. Besides tax incentives and grants, Linn says the growing list of states with renewable energy requirements will create increasing demand for wind power and other alternative energy sources. According to the Pew Center on Global Climate Change, 31 states have mandatory renewable portfolio standards (RPS), which require that those states produce a percentage of their electricity from renewable sources. Wisconsin’s RPS, for example, requires that state utilities produce at least 10 percent of their electricity from renewable sources – including wind – by 2015. California’s RPS is the most demanding, with a requirement that 20 percent of its electricity come from renewable sources by 2010. Five other states have goals but not requirements for renewable energy.
“As those requirements increase, there will be increased demand for renewable energy and wind has the most viability at this point,” says Linn.
Small wind could be huge
Linn also notes that while much of the focus has been on large wind farms, what some are calling “small wind” might have as much or more potential for growth. AWEA agrees, reporting that the U.S. market for small wind turbines – those producing 100 kilowatts or less – grew by 78 percent in 2008.
Maybe the best news about “small wind” is that while European companies dominate the production of large wind turbines, U.S. manufacturers produced about half the world’s small wind turbines last year.
Compared to manufacturers of large wind turbines, producers of small wind turbines are also more likely to rely on a regional cluster of suppliers. An Oshkosh firm, Renewegy LLC, expects to develop a supply chain that is as local as possible. Renewegy plans to build 20-kilowatt wind turbines for the light commercial, agricultural and institutional markets and expects to roll out its first turbines in 2010. The company, founded in 2008, received a $250,000 technology grant from the state Department of Commerce as part of a $2.6 million project that will help the company ramp up to produce high-efficiency hybrid propulsion systems, as well as wind turbines.
“Some of the components we purchase will be off-the-shelf products, such as electronics and control systems, but for most of the custom components we’ll require, we expect to source as much of that as possible locally,” says Renewegy President Jeff Ehlers.
While the primary motivator for most small-turbine customers will be energy savings, federal and state grants and tax incentives will play a role in encouraging installation of the turbines, according to Ehlers, offsetting installation costs by 55 to 90 percent.
“For most customers, Wisconsin Focus on Energy incentives will be able to reduce the cost of installation by 25 to 35 percent and U.S. Department of Energy grants can offset another 30 percent of installation costs,” says Ehlers. “If you’re a farmer, you may be eligible for incentives from the U.S. Department of Agriculture and other sources that will get 70 to 90 percent of your installation costs paid for.”
Higher-than-expected attendance at the AWEA national conference and the Wind Energy Supply Chain Seminar earlier this year in Appleton suggests that a lot of companies – perhaps feeling the effects of the recession – are exploring the wind market to see if there’s anything there for them. Lisle notes that at the Supply Chain Seminar that “it was kind of like we threw a rodeo and only the cattle showed up. Attendance was very heavy on the supply side, with only a few potential buyers.”
Lisle and Murphy agree that while it’s encouraging to see so many companies interested in wind energy, companies need to do a reality check to determine whether they have a good fit with the wind industry.
“On the practical side, this is a market that not everyone can play in,” says Murphy. “It’s a very complex market and it’s one that is very European in culture, so it’s not going to be everyone’s cup of tea. It’s a great market for manufacturers to diversify into and quite often there is not a huge capital commitment, but it would be naive to think that there is no entry cost. Companies have to do their due diligence and they may have to reposition themselves, and all that comes with a cost.”