Wind Energy in Michigan 'On the Edge of a Cliff'

Story first reported from freep.com


With the auto industry on the verge of collapse in 2008, former Michigan Gov. Jennifer Granholm and other state officials were eager to diversify the economy and create thousands of jobs by making a big push into alternative energy.

To capitalize on the state's strengths, they focused in particular on the manufacturing of parts for wind turbines.

But four years later, the drive to grow a new sector built on clean energy has lost momentum with little to show, the victim of turbulent industry conditions, Washington politics and what some critics would call misguided government policies.

Several high-profile projects have encountered significant delays and have yet to launch full-scale production. They include a manufacturing plant for large wind turbines in Saginaw, a new foundry in Eaton Rapids to make iron parts for wind turbines and an innovative ethanol plant in the Upper Peninsula.

In late June, one of the state's major solar industry players, United Solar Ovonic, was liquidated.

Even some of the wind turbine parts suppliers that have successfully launched production have seen a sharp drop in orders because of uncertainty over whether a production tax credit that expires at the end of December will be renewed. Ventower Industries in Monroe started building giant wind turbine towers late last year in a new factory, but its business would be three times larger if the tax-credit situation was resolved, said Scott Viciana, the company's vice president.

"The wind industry is on the edge of a cliff," said Matt Kaplan, associate director of IHS Emerging Energy Research, a consulting firm in Cambridge, Mass. Although, wind turbine repair companies are doing well compared to manufacturing companies, because repair is less costly than replacement.

He and other experts predict that 2012 will be a record year for the installation of wind turbines as companies rush to take advantage of the tax credit before it ends. On the flip side, however, the number of installations could plummet to record lows next year, Kaplan said.

The tax credit isn't the only headwind facing wind turbine parts manufacturers. Just like in the solar industry, the wind industry has too much production capacity, which is driving turbine prices lower. That's good for the growth of wind energy but puts pricing pressure on turbine parts suppliers. Kaplan forecasts that the industry is on the verge of consolidation.

In Michigan, the alternative energy industry lost a key proponent when Granholm left office at the end of 2010. She tried to transform the state into a manufacturing hub for wind and other renewable-energy industries, providing millions in grants, tax credits and other incentives to entice companies to the state. A team of economic development officials worked to grow green jobs.

Today, Michigan has 35 wind-related manufacturing plants, according to the American Wind Energy Association. In 2010, the state had nearly 80,000 green jobs, which accounted for 2.1% of its total employment, a U.S. Bureau of Labor Statistics study found.

The growth of the alternative energy industry has always been dependent on government subsidies. Critics, such as the Mackinac Center in Midland, have long opposed this assistance, arguing that these business ventures should be based on market forces.

Under Gov. Rick Snyder, programs specifically designed to spur the growth of the alternative energy industry no longer exist. The state revamped its economic development strategy with the goal of treating all industries equally.

"We're doing what we can to help all industries in Michigan be competitive," said Steve Bakkal, director of the state's Energy Office. He contends that successful companies will be those that are supplying products for multiple industries, not just wind or solar.

But at the moment, several projects that are trying to break new ground in the alternative energy field have run into difficulties.

Two years ago, Northern Power Systems announced plans to manufacture large wind turbines, something that had never been done in the state. So far, the Vermont-based company has made and sold only two prototypes of its next-generation turbines to a wind farm in the Upper Peninsula.

The uncertainty over the future of the production tax credit has caused customers to delay placing new orders, said Douglas Prince, Northern Power's chief financial officer.

The company's leased facility in Saginaw is "kind of in standby mode right now," Prince said. "We're hopeful the market will recover."

In central Michigan, a plan to make iron parts, which are called castings, for wind turbines at a new foundry in Eaton Rapids has also been delayed. The foundry was supposed to open at the end of 2011, promising lower-cost and higher-quality castings. But it ran into management, financing and other problems.

Eaton Rapids Castings hopes to start production this fall but still needs to find additional investors, said Lennart Johansson, the company's CEO and one of its owners.

To offset the uncertainty in the wind business, the foundry plans to make castings for other industries. It has scaled back its initial production volumes.

To be sure, the outlook isn't completely bleak. A few ventures are making progress, most notably Energetx Composites in Holland. The company, which has nearly 80 employees, won an order to build more than 200 large wind turbine blades for a customer it cannot name, said David Slikkers, Energetx's chairman.

He and other family members saw blade manufacturing as a natural fit because they have been building boats for decades as the owners of S2 Yachts. "We have been composite fabricators for 50 years," Slikkers said.

And near the Port of Monroe, Ventower expects to have built 15 towers for large wind turbines by this fall. It occupies a new factory on a former industrial landfill and has hired 53 employees. But the industry slowdown caused by the tax credit situation is holding back its growth.

"I would have orders booked through the bulk of next year if the tax credit was not an issue," Viciana said.

More Details: Hitting a Green Wall

Here are some of the high-profile alternative-energy business ventures in the state that have shut down or run into significant delays:

* Northern Power Systems' large wind turbine plant: The Saginaw plant has yet to launch production and is operating with a skeleton crew.

* Eaton Rapids Castings: Foundry to make iron parts for large wind turbines in Eaton Rapids has been delayed. It is still trying to get financing.

* United Solar Ovonic: The maker of solar roofing materials filed for bankruptcy in February and sold its assets at the end of June.

* Mascoma's cellulosic ethanol plant near Kinross in the Upper Peninsula: Groundbreaking was supposed to occur this summer. The company says construction will start at year's end after engineering design work is completed, contracts are awarded and financing is finalized.

* Astraeus Wind Energy: In 2010, company announced plans to make spar caps for wind turbine blades in Port Huron. It is still in the testing phase.

* Danotek Motion Technologies: Was supposed to start making generators for large wind turbines last year. The company says production will begin this fall in Canton. It has 28 employees, down from 45 at the end of 2010.

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Michigan Economy on the Rebound

Story first appeared in the Bloomberg News.


Michigan’s sink-or-swim automotive economy is swimming again and taking Toby McGowan with it.

McGowan makes $15.78 an hour as one of 280 production workers hired in the past two months at General Motors Co.’s Lake Orion assembly plant as the state’s carmakers increase sales and add personnel. He lost his last job at a print shop thanks to slow business.


Michigan lost 860,000 jobs from 2000 to 2009, almost half in the final two years. One of every five residents receives Medicaid assistance, and Detroit is in peril of state takeover. Since 2008, however, its economy fared better than that of any other state, except for oil- booming North Dakota, according to the Bloomberg Economic Evaluation of States. The index calculates growth by examining job creation, personal income, tax revenue, housing prices, mortgage delinquencies and the stock performance of state-based companies.

Republican Governor Rick Snyder, 53, said in an interview in Ann Arbor that the index confirms that Michigan is the value place to be.

Snyder, who cut $1.5 billion in spending, said finances are more stable and a slimmed-down auto industry can better withstand downturns.


Hinging on Building

The question is whether the surge, enabled by the Obama administration’s auto-industry bailout, will return Michigan to its prerecession state.


Dearborn’s Ford Motor Co. reported a third-quarter profit of $1.65 billion Oct. 26. The next day, Chrysler Group LLC, the Auburn Hills carmaker majority owned by Fiat SpA, raised its forecast for its first annual profit to $600 million.

GM’s U.S. sales climbed 15 percent this year through October from the same period a year earlier, according to Autodata Corp. Deliveries rose 11 percent at Ford and 23 percent at Chrysler, the Woodcliff Lake, New Jersey, researcher reported.

Newer and Cheaper

GM, Ford and Chrysler will hire or retain 42,300 employees nationwide over four years thanks in part to a new United Auto Workers contract that continues to pay rookies such as McGowan less than the $28 per hour that senior workers make, according to the Center for Automotive Research. Also, those higher-paid employees receive no raises under the four-year contract.

Such hiring helped Michigan’s October unemployment rate drop to 10.6 percent from 11.1 percent in September, according to the Bureau of Labor Statistics. That’s one percentage point lower than a year ago, though higher than the 9 percent national rate.


Tough Search

Jeffrey Hickmott, 26, graduated with a mechanical engineering degree from the University of Michigan-Dearborn in 2009. He’s still hunting for a job and lives with his parents in Taylor, a Detroit suburb. Last year he had two interviews. This year he has had 20 or 30 contacts over the phone. They said they were impressed, but they wanted someone with more experience.

His prospects may improve: A University of Michigan report last week predicted 0.8 percent job growth in the state next year and 1.4 percent in 2013.

Michigan’s rebound from the 18-month recession that ended in June
2009 gives it a higher BEES ranking -- in part because it fell so far.
Compared with a decade ago, the state’s economic health has fallen
25.4 percent, ninth-worst among states.

During 2010 and the first quarter of 2011, though, Michigan’s economic health improved by 8.8 percent, second to North Dakota.

The state still suffers from free-falling property values, which have starved its municipalities of property-tax revenue. Statewide real and personal property values declined about 20 percent from 2007 to 2011, according to the state Treasury Department.

Detroit in Danger

Oakland County, with Michigan’s second-highest median household income of $62,626 in 2009, lost almost one-third of its overall property value in that time, according to Robert Daddow, deputy county executive.

Last week, Detroit Mayor Dave Bing said the city faces a $45 million shortfall by June, on top of a $155 million long- term deficit, and he said he would eliminate 1,000 city jobs in February. He warned that without union concessions, the city may face state takeover.

Snyder said economic growth needs a stable political and tax environment. The state this year cut business taxes by $1.7 billion and balanced its budget without temporary fixes.

In July, Fitch Ratings revised Michigan’s credit outlook to positive from stable, citing a balanced budget and improved economy. Moody’s rates Michigan’s general-obligation bonds Aa2, third highest, and both Fitch and Standard & Poor’s rate the state AA-, fourth highest.

‘Ready to Explode’

Doug Rothwell, president and chief executive of Business Leaders for Michigan, which includes 80 executives of the state’s largest companies, said most are more optimistic about Michigan’s economy than they are about the U.S. as a whole. Rothwell said there is pent- up demand for cars and services.


Doug Gaylor, 53, a New York-based municipal fixed-income portfolio manager for Principal Global Investors LLC, said he’s delayed replacing his 2001 Oldsmobile Silhouette minivan, which has 133,000 miles. He said he’ll look to buy a U.S. car first, when the next minivan repair costs too much.

Gaylor, who once oversaw a Michigan bond portfolio, said he’s impressed by the state’s handling of its finances and its positioning for more high-tech jobs in the future.

Ten Paths to a 'Double-Dip' Recession

Kalamazoo Gazette

The recession is over and the U.S. economy is recovering, right?

Or, are we headed for another period of contraction, the so-called double-dip?

Well, according to Grand Valley State University economist Brian Long, the answer is still up in the air.

"Most everyone agrees that our current recovery is still somewhat fragile, and that it would not take very much to push us back into a recession," Long wrote today in a paper released with his monthly survey of West Michigan's industrial economy.

Long said if several of the 10 factors he identifies below were to converge, there would be a good chance of a new recession gripping the country.

"There is a possibility that several negative factors could converge to cause trouble," he said. "Hence, there is still about a 1-in-3 chance that our current recovery could be stopped. With each passing month of good statistics, these odds decline."

Below are Long's 10 factors that could cause a double-dip recession:

It's all in your mind
"First and foremost, the biggest cause for a double dip, if it occurs, may be that we have talked ourselves into it," Long said. "Given that all spending at both the consumer and industrial level is somewhat psychological, and with enough pessimism, it is possible to talk our way back into a recession."

Consumers lack confidence
Long says the major consumer confidence indexes remain low as many people still haven't seen full recovery of their 401(k) plans and home values. "It may take years before home prices return to their 2006 valuations. Many people who took out second mortgages and home equity loans just a few years ago are now seeing the error of their ways, and have been forced to reduced their spending."


Show me the jobs
It may take about four or five years for the nation's unemployment rate, currently around 10 percent, to return to the 5 percent range, Long said. "In every post-war recession up until now, the unemployed eventually found new employment within a matter of a few months, especially in the industrial sector." But that's definitely not the case today. "In the case of unskilled industrial jobs in 2010 — they are simply gone, never to return."


What's your home worth?
The housing market is going to be screwed up for some time, Long said. "Even though there is considerable evidence that home prices have now stabilized, it may take as many as 20 or 30 years before home prices return to their 2005 levels in many parts of the country," Long said. That affects construction workers, banks and borrowers.


As certain as death
Long said he's not sure what impact "the expiration of the tax cuts at the end of this year" will have on companies' ability to hire, buy new equipment or expand. "The threat of higher taxes has put business executives in a pessimistic and cautious mood," he said.


New regulations?
New regulations on the financial industry and uncertainty surrounding the healthcare reform measures passed earlier this year also "dampens the enthusiasm for business expansion," Long said.


Trouble, over there
"Most of Western Europe, as well as the United States, have promised generous health care and pension provisions to retirees. These programs are not funded, except by current revenues. As the baby boom generation retires around the world, the smaller work force that remains will have to support them," Long said. This strain on government revenue — which recently played out in Greece — could trigger a new wave of panic over government defaults.


The BP effect
"The oil spill cannot be forgotten," Long said. The Gulf Coast states of Louisiana, Mississippi and Alabama "will feel the direct impact as oil workers are sent to the unemployment line" and tourism in the region takes a hit. If the disaster widens and regulations tighten on the oil industry, there could be an impact on the national economy.


Balancing the state budget
"Many states have chosen to balance their budget shortfalls by raising business taxes," Long said. "A significant increase in business taxes almost always has an adverse impact on the economy where the tax is levied."


Terrorism
Will we really ever be rid of it? "There is the ever-present fear of another terrorist attack," Long said. "Depending on the shape and form of this attack, it could result in a huge wave of fear that would shut down part of the economy. If the attack is serious enough, it could throw us into a recession by itself."

---
As depressing as that list is, remember that it's not all doom and gloom. Long is saying that one of these factors on its own isn't enough to take the economy back into recession. But several of these factors, worsening at the same time, could.

"If we were to get hit with several of these problems at the same time, it would make the situation even worse," Long said. "At this time the economy is sailing into a lot of headwind. However, with the strong numbers we are now reporting, it appears that we may very well be able to buck the tide."