There has been a lot of concern in the media (see Green Inc. and Washington Post articles) and in the U.S. Senate recently about stimulus grants for wind energy projects going to China and other foreign countries. On March 3rd, a group of Senators called for the suspension of the renewables grant program until rules had been passed that made sure projects used American components and labor. But there is more to that story than meets the eye.
Empirical evidence demonstrates that predictable support for wind power improves local manufacturing capacity and creates local jobs. Consistent support in the form of the stimulus and long term programs such as a Renewable Energy Standard will give investors the certainty they need to plan and create jobs in the United States.
Predictable Support for Wind Power Creates Local Jobs
The Department of Energy reports that $10 billion in foreign investment in the U.S. wind industry have been attracted by the stimulus program. In 2008 alone, 55 new facilities producing wind turbines and components opened and the there are now a total of 85,000 jobs in the American wind industry, according to the American Wind Energy Association. Almost all leading global wind turbine producers are present in the U.S.: of the 15 leading manufacturers, 11 operate production facilities in the U.S. or planned to begin operating this year, as my colleagues and I have found in a working paper recently published by the World Resources Institute and the Peterson Institute for International Economics.
All of these figures confirm a global trend analyzed in our paper: every country that has put in place sufficiently large and predictable mechanisms to create demand for wind power has seen the expansion of its domestic manufacturing capacity and thus domestic jobs. That is mainly because regional production hubs close to installations sites are the most efficient way for the wind industry to organize its supply chain.
These are reassuring findings for those concerned over whether stimulus funding for renewable energy projects is creating jobs in the U.S. Recent concerns are often linked to two stories that have gotten a lot of attention lately: the example of a wind project in Texas, where parts of the turbines are sourced from China and a study by the Investigative Reporting Workshop at American University suggesting that the large majority of the money from the renewable grant program went to foreign companies. Both deserve a closer look.
Chinese Turbines in Texas?
In West Texas, American and Chinese companies are jointly developing a 600 megawatt wind farm with turbines supplied by a Chinese company. There has been a lot of confusion around the project’s actual job impact. The most frequently cited estimate is that 2,000 or even 3,000 manufacturing jobs will be created in China and only 330 installation, operations and maintenance jobs in the U.S. However, Cappy McGarr, a spokesperson for one of the American project partners who has been quoted as the source of this often repeated 3,000 jobs number, has recently stated that he has been misquoted and most jobs will in fact be in the U.S..
The project developers also clarified that 70 percent of the turbines used in the Texas project, including the blades and towers, will be manufactured in the U.S. Furthermore, they plan to build a new turbine plant in the U.S., creating 1,000 American manufacturing jobs. While their long term objective is a 100 percent American turbine, it will take time to ramp up manufacturing.
All of this is evidence that the Texas project follows the trends our working paper identified for the industry in general. While some components are sourced globally, companies have an interest in building local supply chains and the share of local content will increase over time. What is unique about the Texas project is the origin of the foreign components. It is the only project announced so far that sources turbines from a Chinese company. Contrary to the concerns voiced in the recent controversy, China is not an important exporter of wind turbines. In 2008, Denmark, Spain, Japan and Germany accounted for almost 85 percent of U.S. wind turbine imports. The Chinese share was 0.5 percent.
Foreign Turbines Everywhere?
In considering the future of the grant program, policy makers need to look beyond one project to assess overall developments in the wind sector. After all, the Texas wind farm would only be one in several dozens of projects to be supported under that program, accounting for about 5 percent of total disbursements. While the American University study attempts to give that broader perspective, it jumps to conclusions too quickly. The study suggests there is a larger problem, as 73 percent of the money allocated to wind projects is going to foreign companies.
However, we should be careful not to confuse foreign ownership of a company with job creation abroad. First of all, the grant goes to a project developer, not a turbine manufacturer. The developer will use part of that money – our working paper estimates around three quarters of it – to buy the equipment, including the turbine. But the rest of it is spent on other upfront costs: paying the project developer’s own staff, construction workers and engineers. In other words, a minimum of a quarter of it goes to directly creating American jobs. The other 75 percent may create some manufacturing jobs abroad, but very likely most of these will also be in the U.S.
We need to ask where the turbine was produced to properly assess where manufacturing jobs are being supported. Trying to account for this, the American University study took a look at the country of origin of the turbine manufacturer. As the study author explains: “Of the 1,807 turbines erected […], foreign-owned manufacturers built 1,219. […]The 1,219 turbines built by foreign-owned manufacturers have a potential capacity of 2,279.5 megawatts. Using the REPP estimate [of 3 manufacturing jobs per megawatt], the installation of these turbines may have created as many as 6,838 manufacturing jobs overseas.”
But again, we need to be careful not to confuse foreign ownership with job creation abroad. To determine where jobs are being created, we need to look beyond who owns the company. For example, a wind turbine manufacturer in Pennsylvania can be cited as a positive example of a company that was able to rehire workers because of stimulus funding after it had to lay off some of them last year. This Pennsylvania plant is actually owned by the Spanish company Gamesa, and the turbines it produces are most likely included in the 1,219 “foreign” turbines in the American University study. On the flip side, the controversial wind project in Texas sources its gearboxes from a Chinese manufacturer majority-owned by American wind giant GE.
One of the reasons why the wind industry tends to produce locally is that towers and blades are very heavy and expensive to transport. The American University report attempts to show this assumption to be unfounded by citing individual examples of imported towers and blades. Of course, given supply constraints and tight deadlines, companies will occasionally import any component if they cannot source it locally. But the larger industry trend is a different one; my colleagues and I calculated that the domestic content of turbines installed in the U.S. has risen from an average of less than 20 percent in the period 2001-06 to over 50 percent in 2008.
A closer look reveals how the recent development of the U.S. wind market has been good for local job creation. The single most important factor in creating a domestic wind industry and the related jobs is ambitious and predictable support for wind power projects. Compared to the countries like Germany that have been most successful in developing a wind industry, support programs in the U.S., such as tax credits, have been more intermittent, inhibiting the development of a domestic manufacturing base in the U.S. With the new grant program, the U.S. is beginning to catch up, attracting foreign investment and building domestic manufacturing capacity. To continue on this path, long-term programs, such as Renewable Energy Standard, would provide investors the certainty they need to plan.
However, it takes time to build local manufacturing and companies will continue to source components globally to overcome supply constraints and meet deadlines. That’s why the American Wind Energy Association and leading executives from the industry have come out with strong statements against Buy American provisions, saying they could slow down wind power deployment and job creation in the U.S. – which of course is the goal of the stimulus.
And what’s China doing?
It is also worth noting that at the same time U.S. policy-makers are considering policies that would require the vast majority of components to be manufactured in the U.S., the U.S. has successfully urged China to open its wind market to more foreign competition. One of the major outcomes of Secretary Locke’s visit to China in the context of the U.S.-China Joint Commission on Commerce and Trade in October 2009 was the announcement by the Chinese government to lift its 70 percent local content requirement for wind turbines.
Lutz Weischer is a Research Analyst with the World Resources Institute’s Climate and Energy Program. As part of the International Technology Policy team, his work focuses on international trade and climate change. Currently, he analyzes global trade and investment flows in clean technologies and also contributes to WRI’s work on leakage and competitiveness concerns related to climate policy.
Photo by Reset Reboot, courtesy of a Attribution-Noncommercial-Share Alike 2.0 Generic License.