13 August 2012

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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