Thoughts on Wind Turbines and Manufacturing

Sep. 8.10 | About: First Trust (FAN)

by Martin Lariviere

My son is nine and for reasons I can’t completely explain he started lobbying early this summer for a family road trip. He didn’t want to fly to a destination; he wanted the old-school American experience of a long car ride. I guess that scrapping with his sister at home just doesn’t match up with scrapping in the back seat as cornfields roll past the window. In any event, that is the background to why a couple of weekends ago we were cruising through central Illinois on our way to St. Louis. The trip produced two related but unexpected sights. The first was a huge wind farm; I hadn’t realized that one of the largest wind farms east of the Mississippi is located outside of Bloomington. The other wonder to behold was a caravan of three oversized trucks each carrying a single wind turbine blade. It’s impressive to see a functioning wind turbine miles in the distance. It is really mind-blowing to see how big these things are at ground level.

That got me thinking: Where do they make these beasts?

Fortunately, Wired has the answer: A lot of this stuff is made in the Midwest and there is a case to be made for why this manufacturing will stay in the US (The Birth of a U.S. Wind Power Manufacturing Industry, Aug 15).

At least three factors, according to the manufacturing report, are driving the growth of domestic manufacturing. First, eliminating the expense of transporting very large turbine parts offsets the higher cost of domestic labor. Second, imports that require dealing with currency fluctuations can often disadvantage the U.S. dollar. Third, the high cost of inventory and rapidly developing technology makes just-in-time manufacturing necessary — and proximity preferences domestic manufacturer.

On the whole, this makes a compelling argument. I am not sure that the currency fluctuations matter all that much because they cut both ways. Producing everything domestically may shelter the manufacturer from unfavorable swings in the cost of components but it also means that it cannot benefit when the dollar is strong. Looking at the auto industry, foreign firms have built assembly plants in the US but often remain reliant on overseas suppliers for significant components. I do not see why wind-turbine manufacturers can’t follow the same strategy.

The other points, however, are really valid. These things are really huge, highly engineered and difficult to move. Getting them from Iowa to Illinois is non-trivial and that should shelter the Iowa manufacturers (and there are several of them). The point about evolving technology is also relevant. It is easy to imagine that the wind farms of Bloomington will be soon be viewed as quaint even though they have only been open a few years. Pending obsolescence favors short flow times and thus local manufacturing.

There is one downside to these arguments, of course. If its good to make turbines for the US market in the US, it will also be good to build turbines for the European or Brazilian markets locally as well. That is, unless there is a significant shift in the technology, wind turbine manufacturing will never be the export powerhouse that, say, airframe manufacturing is. Thus this business will only be growing as long as Americans want to keep installing them. Once the cornfields of Illinois and Iowa are filled in, I am not sure how much more growth there will be.