Renewable energy – can the USA lead the pack now?

The USA is seeing a shift in attitudes to renewable energy at Federal level. Bush-era oil-dominated policies are giving way to positive encouragement of sustainable energy. But, to what extent can the US capitalize on the ensuing manufacturing opportunities, enhanced by recession-induced stimulus funding? George Marsh reports.

He can talk the talk but can he deliver a Federal mandate for renewables? Many in the US Senate are standing in his way. Luckily many individual US States have already got renewable energy plans underway.
He can talk the talk but can he deliver a Federal mandate for renewables? Many in the US Senate are standing in his way. Luckily many individual US States have already got renewable energy plans underway.
China may pose the greatest competitive threat. US legislators fear that their own country, second only to China in CO2 emissions, may end up behind China also in terms of renewable energy manufacturing infrastructure (image courtesy of American Superconductor Corporation – AMSC).
China may pose the greatest competitive threat. US legislators fear that their own country, second only to China in CO2 emissions, may end up behind China also in terms of renewable energy manufacturing infrastructure (image courtesy of American Superconductor Corporation – AMSC).
Solar PV panels in Joshua Tree National Park – Mojave Desert, USA
Solar PV panels in Joshua Tree National Park – Mojave Desert, USA

A symbol of President Barack Obama's aspirations for a new green economy and US manufacturing participation therein was the location chosen for a speech he gave in 2009 about clean energy and climate change.

He was at a plant in Newton, Iowa, that had gone out of business making washing machines, but that has been reconstituted as a wind turbine component production unit. This creation of new green jobs epitomizes what the President called “a new age of energy exploration in America.” In his speech, given on Earth Day, 22 April 2009, he said the USA faced a choice between prosperity and decline.

“We can remain the world's leading importer of oil, or we can become the world's leading exporter of clean energy. We can allow climate change to wreak unnatural havoc across the landscape, or we can create jobs working to prevent its worst effects. We can hand over the jobs of the 21st century to our competitors, or we can confront what countries in Europe and Asia have already recognized as both a challenge and an opportunity. The nation that leads the world in creating new energy sources will be the nation that leads the 21st Century global economy,” he said.

Obama, determined that the USA should win this race, has a strategy to both lead America out of recession and wean the country away from its fossil fuel dependence towards clean, sustainable energy solutions.

After pledging during his election campaign to double installed ‘alternative energy’ capacity in the USA in three years, Obama moved quickly to bring appropriate depth to his administration by appointing Dr Stephen Chu as his Secretary for Energy.

Chu, a physics professor and Nobel Prize winner who was Director of the Lawrence Berkeley National Laboratory before his governmental appointment, is a vocal advocate of more research into alternative energy, arguing that a shift from fossil fuels is essential to combat global warming. In a subsequent move, Secretary of State Hillary Clinton appointed Todd Stern, a former White House assistant and Chief US negotiator at the Kyoto Protocol talks, as special envoy for climate change.

The recession - bringing opportunities

The White House recognizes that the recession which followed 2008's near-collapse of the world economic order has brought opportunities as well as threats. One such opportunity is to direct serious money to the sustainable energy sector.

Thus, the huge 2009 American Recovery and Reinvestment Act (ARRA) stimulus package, worth US$787 billion nominally, includes over US$70bn earmarked for renewable energy, advanced transportation and energy conservation activities.

Of this, US$6.3bn is allocated for state and local renewable energy and energy efficiency efforts, US$600 million is for green job training programs and as much as US$11bn is for an expanded and smarter grid that will move renewable energy from mid-west wind farms to the coastal population centers where it is mostly used.

Announcing stimulus packages amid fanfare is one thing; ensuring that the money is disbursed and spent effectively is another.

A leading means for achieving this under ARRA is the allowance of a 30% tax credit for investment in new, revamped or expanded renewable energy manufacturing facilities. The US Treasury and Department of Energy (DoE) are now accepting applications for payments in lieu of tax credits from companies that put such plants into service.

The two departments expect that the ‘advanced energy manufacturing tax credit’ will result in more than US$3bn of stimulus spread over hundreds of wind, solar, biomass and other renewable energy plants. At the same time, US$37bn of ARRA funding is being made available to qualified small businesses through the DoE's Small Business Innovation Research and Small Business Technology Transfer programs.

Another ARRA-associated financial instrument is the Build America Bond (BAB) program. BABs are a form of municipal bond which, given the drying up of traditional credit sources, provide an alternative way for state and local governments to raise money for capital expenditure and operations.

"The'historic' [ARRA] bill gives the US "a great chance to be the growth engine for our industry over the next several years"."
- Michael Leibreich, CEO, New Energy Finance

The bonds, available to investors until 2011 and sweetened by Federal tax incentives, should help improve liquidity, enabling states to maintain forward looking programs that might otherwise founder. There are also Renewable Energy Bonds, Energy Conservation Bonds and other targeted instruments.

DoE has asked the American Council on Renewable Energy (ACORE), a Washington-based non-profit organization dedicated to bringing renewable energy into the US mainstream, to spread the word about these so-called 1603 cash grants and encourage its members to apply for them. Applications submitted by October 2011 will be considered and there is no cap on program funding.

Michael Leibreich, CEO of research firm New Energy Finance, describes the investment tax credit as more generous than the production tax credit on which developers previously had to rely, while the associated grant scheme may facilitate receipt of up to 30% of a project's cash cost.

His view is that the ‘historic’ bill gives the US “a great chance to be the growth engine for our industry over the next several years.” Previously, he declared, there was a lack of consistency compared to leading European countries in providing the necessary national support for wind, solar, geothermal and other new energy technologies.

Another sign of commitment at high political level was the passing last year of the American Clean Energy and Security (ACES) Act, also known as the Waxman-Markey Climate Bill after its main sponsors. Significantly, this bill promotes a Renewable Electricity Standard (RES) that lays down a target for a quarter of the nation's electricity to come from renewable sources by 2025, up from the current 2.4%, and also promotes a carbon cap and trading scheme.

Wide ranging provisions aimed at creating clean energy jobs, saving energy and cutting greenhouse gas emissions, include formation of a Clean Energy Deployment Administration which would oversee loan guarantees for new low-carbon energy projects and help mobilize private capital and debt financing. The bill also names carbon capture and storage, smart grid and electric cars as targets for Federal support.

States to the fore

The new presidential team does not start with an entirely clean sheet because, as despite the Bush administration's antipathy to anything that smacked of Kyoto, individual states have been proactive.

Witness, for example, the fast growth of wind power capacity in Texas and the implementation in Governor Schwarzenegger's California of the California Climate Action Plan, the California Solar Initiative, the Sunrise Powerlink transmission scheme and other programs.

The Regional Greenhouse Gas Initiative, involving 8 north-eastern states, dates back to January 2007 and has similar aims to the West Coast Governors' Global Warming Initiative. Several other states have likewise espoused the green energy cause. President Obama reportedly welcomes the continuation of many of these initiatives, saying they must be unimpeded by Washington.

Moreover, the USA already has a considerable presence in renewable energy development. Last year, renewable energy accounted for more than 10% of the country's domestically produced energy (including 300 GW of hydroelectric power).

In terms of wind energy, the sector in the vanguard of the renewable energy revolution, installed US capacity reached 29,440 MW by mid 2009, accounting for 1.26% of the nation's electricity. Over 100 companies across 40 states employ thousands of workers producing components for wind turbines, and plans for 30 new manufacturing facilities were announced in 2008.

US research facilities are highly renewable energy focused these days. Again in wind energy, the DoE is working with 6 leading turbine manufacturers over two years on R&D, under a Memorandum of Understanding (MoU) signed with GE Energy, Clipper Windpower, Siemens Power Generation, Vestas Wind Systems, Suzlon Energy and Gamesa Corporation.

Additionally, the DoE's National Renewable Energy Laboratory (NREL) is sponsoring several wind technology projects.

Nor will offshore potential be neglected. One of President Obama's new energy initiatives has been to issue five exploratory leases for wind power production on the country's outer continental shelf. Meanwhile, Deepwater Wind has been picked to build a US$1.5bn, 385 MW wind farm in Federal waters off Rhode Island.

The sunshine state of California has the world's largest solar plant, the 354 MW solar power plant, Mojave Solar Park, in the Californian Mojave Desert, and the state's substantial solar capacity will be expanded with the build, starting this year, of the US$1bn, 550 MW Topaz Solar Farm, followed by an intended 1.3 GW concentrated solar power (CSP) complex.

With 2957 MW of geothermal capacity and 120 new projects under way, the USA is a world leader in geothermal power. A large national biofuel effort includes, inter alia, 78 ethanol distilleries under construction.

US policymakers aim to build on these achievements to forge a world lead in renewable energy. The new commitment at Federal level clears the way for a joined-up national effort; and this, along with the current funding shot in the arm, gives these aspirations a fighting chance of success.

Competition from Asia and Europe

But in a global economy and in the absence (hopefully) of protectionism, the opportunities that face American manufacturers will be open to overseas competitors as well. Some of those are, like the USA, enjoying large-scale stimulus packages. Several economies including China, Japan, the Republic of Korea and a number of European countries, have earmarked multi-billion dollar instruments for clean and renewable energy, including smart grids.

"In 2008, renewables accounted for more than 10% of the country's domestically produced energy."

China may pose the greatest competitive threat. US legislators fear that their own country, second only to China in CO2 emissions, may end up behind China also in terms of renewable energy manufacturing infrastructure.

Within an economy characterized by a slowdown in growth rather than actual recession, investment in sustainable energy has continued to grow, by 18% last year to US$15.6bn, helped by timely policy interventions. In accomplishing this, the Chinese are building up their manufacturing base. This will further benefit from a portion of the large financial stimulus, reported as US$680bn, with which the country is boosting its domestic markets.

A sign of China's ambition is that, under its stimulus plan, it has named a new target of 20 GW of solar power by 2020, up from the 1.8 GW installed at present. Helping to meet the target will be a generous incentive of US$3/W given upfront for solar projects, enough to cover about half the capital cost in most cases.

Policy progress in the USA

In its January issue of Windletter, AWEA summarized the progress made in Federal policy and legislation for renewable energy in the USA.

The steps taken in 2009 towards a Federal Energy Bill include:

  • The House of Representatives' House Bill passed, which included RES and provisions for a cap-and-trade program;
  • The Senate Energy and National Resources Committee passed an energy bill with an RES, but it has not yet been taken up by the full Senate. It also left the climate change issue to other committees.

For 2010, AWEA hopes for progress on the following:

  • Senate action on the RES as Congress convened in January;
  • Looking at transmission, which was left over from 2009; and
  • Extending some of the 2009 incentives, and modify some of them.

In-country sources say that China has also raised its wind energy target for 2020, from 100 GW previously to 150 GW. Already the country has doubled its installed wind power base for four years running and will soon surpass the United States to become the world's largest wind power market.

Chinese manufacturers such a Goldwind Science and Technology Company (which had its origins in Germany) and Sinovel Wind Energy Company are now producing nearly all the wind turbines being erected in the country, albeit with elements of overseas origin. Goldwind uses turbine blades which, although produced in north-east China, are made at a factory owned by Denmark's LM Glasfiber [now called LM Wind Power, ed.].

India is similarly looking to renewable sources for energy salvation and saw investment in them expand in 2008 by 12% to US$3.7bn. The country aims to install 20 GW of solar power by 2020.

South Korea has announced plans to invest in environment-related and renewable energy industries to the tune of some US$84.5bn over the next five years. The government there has targeted an 8% increase in its market share of green technology products and is expanding R&D spending while strengthening its relevant industries.

These and other Asian countries not only have the familiar advantages of flexible workforces and low labor costs, they are also becoming more able and sophisticated in their sustainable energy technologies.

Germany, Denmark and Spain, leaders of the renewable energy revolution in Europe, have considerable infrastructure. Germany, for instance, has three of the world's top 10 wind turbine makers, against the USA's one (GE Energy), and is a leader in solar photovoltaic (PV).

The UK, though lagging in onshore development, could become a leader in offshore wind and has a chance of achieving the same in marine renewable energy. But none of these countries have the financial reserves that the Asians have, especially after the recession, or can achieve the same economies of scale. They will have to look to their laurels in the longer term.

Manufacturing presence is key

However, European companies, along with Japan, have had a head start in applying the hard-learned lesson that, to make headway in American markets, a manufacturing presence or partnership there is virtually mandatory.

By 2007, 6 of the top 10 global producers of utility-scale wind turbines – Vestas Wind Systems, Gamesa Corporation, Suzlon Energy, Siemens Power Generation, Acciona SA and Nordex AG – were manufacturing in America, competing with domestic incumbents GE Energy and Clipper Windpower.

Vestas (Denmark) and Germany's Nordex are currently strengthening their presence with new manufacturing facilities in Portland, Oregon, and Chicago respectively. Nordex foresees a fifth of its global revenue coming from the US wind market, according to Ralf Sigrist, Nordex USA President and CEO. Its new plant, due to start operating next year, is expected to manufacture every component of a wind turbine, with a target annual assembly capacity of 750 MW.

Producers in China, India and Korea will no doubt similarly seek US manufacturing presence. Interestingly, India's Suzlon Energy, ranked fifth among the world's wind energy companies, is using its acquisition of a European company to fortify its position in both the USA and Europe. When Suzlon increased its stake in REpower Systems AG to 75% in 2009, which included the German company's subsidiary REpower USA Corp.

Maintaining the edge

One way for the USA to meet the overseas challenge is to exploit American R&D excellence. For example, as Mark Levine, Director of the Environmental Energy Technologies Division at the Lawrence Berkeley National Laboratory, points out that US researchers can help develop improved materials for stronger wind turbine rotors.

Moreover, with manufacturers unable to produce rotor blades fast enough to meet rising global demand, the USA can help develop the automated mass production methods needed to increase the rate. Several indigenous organizations aired plans for automating composite blade production at the AWEA's Windpower 2009 show in May. In terms of solar, Levine has expressed the hope that the US can develop the next generation of solar PV systems, despite missing out on leadership with the present generation.

Another well practiced strategy is to send manufacturing work offshore to places like China and Taiwan where costs are lower. Finished components returned to the USA can then be integrated and marketed by the original equipment manufacturer (OEM,) with aftermarket services being cultivated as a longer-term revenue stream.

Off-shoring in this way can also release resources for developing new devices and technologies that can then be licensed abroad as well as used in the home market.

If you can't beat them…

Companies can collaborate actively with leaders overseas so that all make progress together within an increasingly global market. One company that appears to be thriving on this basis is American Superconductor Corporation.

AMSC's foundation technology is, as its name suggests, the exploitation of superconductivity, a phenomenon the company sees as key in developing the smart grid technologies that the USA and other countries will need as renewable energy grows its contribution to the future energy mix. Recently the DoE awarded some US$12 million in ARRA funding so that AMSC can take forward projects contributing to the Department's US$47m ‘smart grid demonstration package’.

AMSC believes that superconducting wire can transform the performance of electric motors and generators. Having demonstrated compact propulsion motors for warships, it is collaborating with the NREL to evaluate the cost of a full 10 MW-class superconductor wind turbine including a direct-drive superconductor generator expected to be less that half the weight of a conventional equivalent.

Determined to drive its technology forward in this fast-moving market, AMSC decided to enter the wind energy mainstream. In 2007 it acquired Windtec GmbH, a German company that was providing complete technology transfer packages to OEMs wishing to build their own wind turbines. Although most transfers by AMSC Windtec have not so far involved superconductivity, the potential is there for the future.

Windtec was seen as valuable both because of its established designs in the 1.65 MW and 2 MW classes and because it already had significant presence in several countries including in Asia. The acquisition enabled AMSC to step straight into a dynamic business sector while providing a ready-made platform for projecting its own technology worldwide. Currently, Windtec™ technology packages are offered for wind turbines of up to 5 MW.

An example of how the business model can work is provided by Hyundai Heavy Industries (HHI), which has licensed AMSC Windtec technology so that it can enter the market with 1.65 and 2 MW wind turbines without delay. Part of the deal was that HHI will have marketing and sales rights for both turbines in most countries around the world, including North America. Following Germanischer Lloyd certification of an initial reference 1.65 MW machine erected in June, HHI plans to begin shipping turbines to customers in shortly.

Greg Yurek, Founder and CEO of AMSC, commented in 2009: “As expected, HHI has moved swiftly through the prototype phase and into volume production. We are confident that the company's aggressive business plan and reputation for manufacturing excellence will enable it to be a key player in the wind energy market. With production set to begin in a new wind turbine factory in Gunsan, South Korea, this fall [2009], we look forward to receiving additional orders as HHI ramps up its production.”

AMSC Windtec is also licensing its technology to other countries. In China, the Zhuzhou Electric Locomotive Research Institute Co Ltd (CSR-ZELRI) is producing the 1.65 MW design, including within it core electrical components from AMSC.

As Du Jinsong, general manager of CSR-ZELRI's wind power business unit has declared, “AMSC Windtec's wind turbine designs, supply chain support and proven power electronics allowed us to enter this rapid-growth market quickly and help in meeting China's objective to increase electricity supply while reducing carbon emissions.”

"The new commitment at Federal level clears the way for a joined-up national effort."

Another Chinese beneficiary of licensed technology is Shenyang Blower Works Group Co Ltd, which similarly has its sight set on the wind turbine market and plans to begin series production of a 2 MW machine next year.

In Taiwan, TECO Electric and Machinery Company, a world-scale manufacturer of electric motors, has licensed AMSC Windtec's 2 MW technology. AMSC receives royalty payments on each turbine and has first right of refusal to provide full electrical systems for all TECO wind turbines.

AMSC also works with producers who have their own established designs. Under a multi-year contract with Beijing-based Sinovel Wind Energy Company, China's largest wind turbine manufacturer and 7th in the world, it is supplying core electrical components for Sinovel's 1.5 MW turbine series. AMSC is currently having to accelerate shipments of components due to the scale of China's wind farm construction and Sinovel's part in it.

Some observers may regard AMSC's strategy as akin to ‘sleeping with the enemy’, but the company is just as keen to collaborate with home producers. Juergen Jesenko, AMSC Windtec Director of Business Development, has expressed to Renewable Energy Focus his dismay that US companies are not so far taking advantage of present opportunities, saying.

“There has never been a better time from cost, quantity and quality perspectives to enter the market and kick off volume production within a matter of months. Unfortunately, we have not seen a single US-based [complete wind turbine] company take advantage of this opportunity yet.”

He adds that billions of dollars are being spent in what is now the world's largest wind power market, and the two incumbent manufacturers, GE and Clipper, cannot hope to meet the demand by themselves.

“Asian [and European] companies, with strong government backing and aggressive business plans, are gaining traction locally and will soon be looking to export their turbines. The US market is an obvious target for them.”

Jesenko sees no tension between his regret about the situation in the USA and AMSC's strategic stance. As he states, “We want our customers to be a success in the wind market, no matter what their country of origin. This is our business. We do not view China or any other country as competition. China presents us with a tremendous business opportunity.”

He hopes that, as the US Energy Bill, which is still debated in Washington D.C., the Obama administration's proposed renewable energy standards are not excessively watered down.

Nationally, the situation in wind is paralleled in other sectors. But, although redirecting a whole section of United States policy can be likened to turning a supertanker laden with oil (the analogy is apt on two counts), when America's momentum does move in a new direction, the entire world will feel the difference. Perhaps the most likely outcome is that President Obama's vision of a single nation having leadership of the renewable energy future will be diluted as the business is shared through trans-national partnerships and alliances.