[Editor note: Mike Riley, editor of Fabricating & Metalworking magazine (bio at end), took a neutral look at a new major manufacturing project and offers his opinions here.]
The total government subsidy given to industrial windpower rivals the price of natural gas paid by power generators– yet wind still cannot compete without mandates. With our nation being challenged to reduce its debt and shrink the federal budget, realistic business economics is confounding the hype about this once darling of renewable energy.
New Wind Plant for Port of Muskogee?
Muskogee is an economic center in eastern Oklahoma that country singer Merle Haggard commemorated in the old country song “Okie from Muskogee,” a hit back in 1969. Now the city is better known for operating the Port of Muskogee that is located at the edge of North America’s wind corridor. This strip of land is often referred to as the “Saudi Arabia of Wind” and is one of the primary reasons why Eagle Claw Fabrication LLC chose the Port in June 2010 to build a 150,000 sq ft facility on 47 acres that will manufacture 220 to 250 wind turbines per year.
Targeting the $2 billion domestic wind farm market, Tom Word, the founder of Eagle Claw, told the daily newspaper Tulsa World that he decided on Muskogee because of its access to international inbound and outbound barge traffic through the Port, the railcar marshaling yard at the Port that connects to the Union Pacific Railroad, and interstate roads heading to wind farm sites.
That’s not all. Eagle Claw will have access to markets not otherwise accessible from an inland location. “This provides us with unique and substantive competitive advantages over other turbine tower manufacturers. We can greatly reduce the cost of transporting our product to the point of usage, including towers to be built in the Gulf of Mexico. These are substantial transportation cost savings that can be passed along to our clients,” explained Word.
$28 Million Project Delayed
The $28 million facility represents the first stage of an overall project planned for over 100 acres on the McClellan-Kerr Arkansas River Navigation System. “Phase Two, which should begin after the first year of operation, will double the size of the new plant. Then Phase 3, which will follow after another year of operation, will increase it to a total of 450,000 sq ft,” noted Word.
Phase One of the new Eagle Claw Fabrication Wind Tower Division complex will create approximately 175 jobs and was originally scheduled to begin operations as early as this spring. According to the Indian Capital Technology Center, which will coordinate a training program for Eagle Claw employees, plate operators will draw wages up to $23 per hour. There will also be openings for plate cutters, welders, fitters, painters, blasting equipment operators, and material handlers.
The new fabrication facility will utilize a “Straight-Thru-Flo” lean shop layout and use cutting edge equipment and technology. According to Word, Eagle Claw expects to devote 100 percent of its capacity to wind turbine tower construction, selling to wind turbine system manufacturers and engineering, procurement and construction firms. The plant will also have capabilities to fabricate offshore wind towers and numerous other heavy tubular structures for geothermal, tidal, solar, hydrokinetics, biomass and carbon capture industries.
All of this big news about these grand plans from a start-up fabricator in a green industry is exciting, except for one thing: Big Wind is unable to make it in the marketplace.
A Bubble Industry?
According to “The Wind Subsidy Bubble” (Wall Street Journal, December 20, 1910), the wind industry continues to struggle despite more than $30 billion in subsidies for “clean energy” in the 2009 stimulus bill. In fact, Denise Bode, the CEO of the American Wind Energy Association (AWEA), had warned earlier that without the $2.3 billion Section 1603 Investment Tax Credit for renewable energy that was passed in December by the lame-duck Honorables, the wind industry would be “flatline or down” in 2011.
This is one reason that ground breaking for the Eagle Claw facility, which was originally targeted for the third quarter of last year, was pushed back to January. The company first waited to receive its $4.4 million federal tax credit as a stimulus to actually build the plant, which was initially scheduled to come online as early as this spring and move to full capacity late in 2011.
The slowed pace of launching the Eagle Claw operation reflects the worsening situation for the wind industry overall. AWEA reported that wind power installations in the third quarter of 2010 were the slowest since 2007. New wind installations were down 72 percent from the previous – their lowest level since 2006 – as the reality of business economics caught up to the hype about this one-time darling of renewable energy.
“The wind energy business isn’t a very good one,” admitted T. Boone Pickens to Robert Bryce in “A Wind Power Boonedoggle” (WSJ, December 22). Bryce reported that the Dallas-based billionaire entrepreneur “has been stuck holding a slew of turbines he can’t use because low natural gas prices have made wind energy uneconomic in the U.S., despite subsidies that amount to $6.44 for every million BTUs produced by wind turbines.”
Boone lamented that the wind energy industry “just isn’t gonna happen” if natural gas prices remained depressed. Two years ago, he originally explained that “for wind energy to be competitive, natural gas prices must be at least $9 per million BTUs.” But he lowered that price threshold to $7 in March 2010 as “the place where natural gas works best.”
Even that lower price still isn’t low enough, not by a long shot. Bryce reported that at the start of the year, natural gas sold for about $4 per million BTUs. “In other words,” he explained, “the free market price for natural gas is about two-thirds of the subsidy given to wind. Yet wind still isn’t competitive in the open market.” Talk about lousy economics. And it doesn’t stop there. Fatih Birol, the chief economist of the International Energy Agency, announced that “the world is oversupplied with gas and the gas glut will be with us for 10 more years.” The market for natural gas futures is predicting that gas prices will stay below $6 until 2017.
The WSJ simplified the economics in a different way:
“The wind industry employs 85,000 Americans and accounts for little more than 1 percent of electricity generation. The coal industry employs 140,000 miners and others and generates almost 50 percent. So it takes 25 times more workers to produce a kilowatt of electricity from wind as from coal.”
AWEA in Denial
That is the free market reality, but AWEA will have nothing to do with this sensibility. Instead, they warn that “the absence of a clear federal policy to support long-term wind development is a stumbling block preventing increased investment in U.S. production facilities and manufacturing jobs.” AWEA claims the result of this is an unstable business environment, with utilities less eager to enter wind energy power purchase agreements.
But the fact of the matter is this: in a tough economic climate where millions of people across the country are still unemployed and trying to find ways to make ends meet, consumers pay less for conventional electricity. It simply makes no business sense to lobby Congress, as AWEA does, to pass laws similar to the mandates in Canada that require consumers who are hurting to buy more expensive renewable electricity rather than cheaper conventional power.
End All Energy Subsidies!
The wind industry complains about federal subsidies to the oil and gas industries, and other traditional energy sectors, but that argument no longer holds water with our nation on the verge of another financial crisis unless it reduces its debt and shrinks the federal government. All forms of corporate welfare have got to come to an end. You and I simply cannot foot the bill any longer. And according to the WSJ, “a very good target would be green pork, starting with wind.”
What does all of this mean to fabricators competing in the wind turbine markets? To adapt, suppliers of blades, gearboxes, towers, bearings, generators, power converters and the rest of the 8,000 components used in a wind turbine must trim their production capacity and retool their strategies to compete in a more technically complex, larger-scale and globalized supply chain.
According to AWEA, they must “recognize the market’ s steady march toward larger machines and new technologies such as direct drive, which will require them to extend their manufacturing reach globally, increase their product size, and lower their costs for wind energy to remain competitive.”
I want more fabricators to enjoy more business in the wind turbine industry. But not if it’s going to increase my personal electricity bill so that I have to pay for them to do it. No thanks.
Mike Riley (firstname.lastname@example.org) is editor of Fabricating & Metalworking magazine and the author of Backfield In Motion (Derek Press, 2007). This piece was originally published in the March 2011 issue of & Metalworking , pp. 8, 10.