Monday, February 8th, 2010
One of the major selling points of President Barack Obama’s $787 billion stimulus plan was that it would put the economy back on track partly by investing in renewable energy industries, like wind and solar.
The president and many other advocates of alternative energy argue that an investment in green energy would lessen the nation’s reliance on foreign oil, cut greenhouse gases, and most importantly, create thousands of new jobs for out-of-work Americans.
But of the $1.05 billion in clean-energy grants handed out by the government since Sept. 1, 84 percent – a total of $849 million – has gone to foreign wind companies. Spanish utility company, Iberdrola S.A., alone has collected $545 million through its American subsidiary.
Even more striking is the fact that there are few restrictions on the how the grants can be used, according to a transcript of a Treasury Department briefing. In fact, more than $800 million has been given to firms for wind farms that were already producing electricity before they received the grants, according to a review of the records by the Investigative Reporting Workshop at American University.
"There are no restrictions on the use of the funds," Dan Tangherlini, an assistant secretary for management at the Department of Treasury, said, during a Sept. 1 conference call to announce the grants.
Could the money be used to pay shareholders?
"You know, that's possible," Tangherlini said, when a reporter asked that question during the call.
Foreign wind companies, however, say that their U.S. subsidiaries are creating jobs.
“This is a company that employs people all over the United States that builds projects all over the United States and is employing American companies to create American jobs,” said Paul Copleman, communications manager for Iberdrola Renewables, the American subsidiary of Iberdrola S.A..
On Oct. 20, Iberdrola Renewables, announced a $247.4 million profit through the first nine months of 2009 and said the company, which employs 800 people in the U.S., understands it will receive at least $30 million more from the U.S. government. The money received from the government will be reinvested in this country, the company’s press release said.
European companies see a 'gold rush'
Money distributed through the stimulus needs to have oversight and accountability to make sure the dollars are actually returned to the American economy in a way that creates American jobs, said Stephen Ellis, vice-president of Taxpayers for Common Sense , a non-partisan budget watchdog group.
“Funds under this program have virtually no strings attached,” he told the Investigative Reporting Workshop. “These stimulus dollars could just pad the bottom line of companies and the majority of the funding is going to the subsidiaries of foreign firms. Simply paying shareholders is not going to bring the multiple benefit bang-for-the-buck that sold the stimulus. And overseas firms raking in precious taxpayer cash is not going to have the big returns domestically that we were promised.”
The reliance on foreign companies for development of wind energy appears to be at least partially tied to the U.S. government’s resistance to subsidize a home-grown wind energy industry until now. With so few U.S. companies in the business, the door was open for foreign companies to walk away with the bulk of the grants. European companies, in particular, are well positioned to collect stimulus benefits for clean energy.
Photo by Joel Page
A crane loads a section of tower for a wind turbine onto a truck in Searsport, Maine. The turbine parts, which were transported this past summer, were bound for the Kirby Mountain Wind Farm in western Maine. The farm is being developed by TransCanada, a utility company based in Calgary, Alberta, in Canada.
“Europe was light years ahead of us, in terms of developing these alternative resources,” said Gregory Jenner, a tax attorney and former acting and deputy assistant secretary of the treasury for tax policy, who co-authored a guide for energy companies hoping to collect stimulus money. “The fact that a lot of the European companies are coming over to the U.S., they just see this as an untapped market. Now that the incentives are starting to work out ... it's going to be just like a gold rush for them.”
While the U.S. has dithered with temporary tax incentives for producers, European governments have awarded permanent tax breaks and large subsidies to wind energy companies and poured vast sums into research and technology.
Even as billions in stimulus dollars for clean energy are starting to flow, Congress is still hammering out an agreement to mandate that up to 20 percent of the nation’s energy come from renewable sources by 2020 (a Senate proposal currently calls for 15 percent.) Denmark, by comparison, has already achieved that goal – and in the process became the most dominant wind turbine manufacturer in the world.
The U.S. currently has the most installed wind power capacity (25,369 MW at the end of 2008, less than 2 percent of the nation’s energy supply, passing Germany with 23,902 MW), but is far from a leader in the manufacturing of turbines and other components worldwide. European turbine-manufacturers have dominated the world market and continue to do so in the U.S. Indian-manufactured turbines are swiftly moving into the U.S. market as well, complementing Japanese manufacturers who have long been here.
A promise of American jobs
Obama has consistently made the creation of green jobs a priority for his administration.
At a gathering of the AFL-CIO on Sept. 15, he pledged to create a “clean energy economy that will free America from the grip of foreign oil and create millions of new green jobs that can't be outsourced.” The president pledged to make ‘made in America’ not just a slogan but “a reality.” (Transcript .)
Obama is well aware of America’s role as an energy innovator slipping while foreign competitors have taken the lead. At a campaign event in Portsmouth, N.H. in October 2007, the president noted that technologies invented in America – like wind turbines, solar panels, and compact fluorescent bulbs – are being developed overseas and sold back to American consumers.
“This will change when I am president,” he said .
The U.S. has supported the wind industry in the past by offering a small tax credit for each kilowatt hour (kw/h) of energy produced. The most recent iteration offers a credit of 2.1 cents per kw/h, which in effect makes generating wind power under optimal conditions competitive with coal and other carbon-based fuel sources.
The tax credit, however, has only been approved for short periods and every time Congress allows it to lapse the industry takes a nose dive. The stimulus package included a long-term extension of the production tax credit – through 2012, but at a tough time. Many wind companies lacked the income that made a tax credit worthwhile, and after last year’s financial collapse, many of the financial firms who traditionally invested in wind projects to collect the tax credit were no longer looking for places to put their money..
The stimulus package does offer more help for domestic production. It will allow wind companies to collect a tax credit on actual investment, not just production. The credit can be taken in the form of a cash grant – up to 30 percent of a facility’s development cost if it is brought online in 2009 or 2010.
"Particularly when you only had the (production tax credit), people used to go through all sorts of gyrations to get investors with tax liability to come in," Jenner said. "But what happened at the end of 2008, as the recession hit in full force -- that pool of capital, those investors just went away, for the most part. So there was a real shortage of tax equity, investors who had tax lliabliity and were willing to invest in these projects.
"And so, what the grant in lieu of the ITC does is it eliminates the need for tax liability," Jenner told the Workshop. "It just gives you cash."
The White House referred inquiries on the program to the Department of Treasury. A spokesperson did not return multiple phone calls and emails on the subject.
Spanish company dominates
Companies began applying for the grants, outlined in Section 1603 of the stimulus bill, at the end of July. The Energy Department and the Treasury Department, who are jointly administering the program, began announcing grant winners on Sept. 1.
In the first round , $502 million was awarded with $499.9 million going to wind developers. Of that, $342.6 million went to two foreign companies – the renewable energy subsidiary of Spanish utility Iberdrola ($294.8 million) and the American subsidiary of Portugese utility EDP Renováveis ($47.7 million). On Aug. 26, six days before the first grants were given, British private equity firm Terra Firma bought Everpower Wind Holdings, one of two American companies that would receive grants on Sept. 1. The newly British-owned company received $42.2 million in cash.
In the second round , announced Sept. 22, an additional $550 million was awarded with $464.2 million dedicated to wind. All of it went to the subsidiaries of foreign companies – Iberdrola ($250.9 million), Japanese utility Eurus Energy's American subsidiary ($91.3 million) and German utility E.on Climate and Renewables ' American subsidiary ($121.9 million).
The government says $3 billion has been set aside for the program, but there is no cap – if it is deemed a success, more money can be allocated.
All told, the 11 wind farms that received grants have the capacity to generate 1.5 gigawatts of electricity – theoretically enough to power roughly 450,000 American homes. As required by the law, all started operating after Jan. 1, 2009 but before the grants were made.
The most important figure, however, may be the number of turbines that were installed by these four companies. According to Iberdrola Renewables, the company only employs 800 people in all of their U.S. operations. It’s the production of turbines that matters most economically. In fact, as much as 70 percent of the economic activity generated by investing in wind comes from the manufacture of the modern, highly sophisticated turbines – but this is where foreign companies actually have their strongest grip on the market.
In the case of these 11 wind farms, according to data provided by the companies themselves in regulatory filings and collected by the American Wind Energy Association, 982 turbines were installed – 695 of them were manufactured by a foreign company.
A study by the Renewable Energy Policy Project , a think-tank that advocates renewable energy technology research, estimates that for every 1,000 megawatts of wind energy that is developed, 4,300 jobs are created: 600 for operation and maintenance of the wind farms; 700 for the installation of new turbines; and 3,000 for manufacturing.
The cash grants were given for the installation of 1,763 megawatts of capacity – 1,566 installed by foreign companies. Using the Renewable Energy Policy Project’s own numbers, as many as 4,500 manufacturing jobs may have been created overseas
Turbine Manufacturing Dominated by Foreign Competitors
It is hoped the Recovery Act will encourage investment in the U.S. wind industry and develop a new carbon-neutral energy source. But even some of the strongest supporters of American renewable energy have pointed out that unless U.S. manufacturing is supported more specifically, the country might cede the good, permanent jobs to foreign competitors.
The manufacturing market is thoroughly dominated by foreign companies – mainly European, but more recently Asian manufacturers as well. The U.S. market for wind turbines and components is growing rapidly, but the import/export numbers offer a grim picture of who is winning the battle.
According to U.S. Customs data for 2008 and the U.S. Trade Commission, the U.S. imported $2.5 billion worth of wind turbines last year – up from $365 million in 2003.
According to information compiled by the American Wind Energy Association, 2008 was actually a banner year for American turbine manufacturers. They accounted for an all-time high of 49.6 percent of installed capacity.
GE and Clipper’s market share of installed capacity so far this year has slipped to a combined 44 percent. The prospects for the market share improving, at least this year, are not good. There is at least 5,200 megawatts of wind power capacity currently under development – only 32.6 percent is currently planned to be American made.
Photo by Joel Page
A truck carrying a turbine blade manufactured by Danish company Vestas, weaves its way through the town of Searsport, Maine this summer. Part of a 3-megawatt turbine unit sold by Vestas, the blade is 132 feet long.
The complex nature and sheer size of turbine components encourages manufacturers to try and build near where the turbines will be installed, which would seem to give the American companies an advantage, but foreign owned manufacturers are making the strongest inroads.
Vestas Americas , a unit of a Danish company, is the largest foreign-owned competitor to U.S. manufacturers, responsible for roughly 16.3 percent of the turbines under construction.
Company spokesman Roby Roberts, estimates the company has invested $1 billion in developing U.S. facilities over the past two years. This includes opening several plants in Colorado to build wind blades and plans to open more plants that will manufacture towers and the nacelles which house thousands of components that control the generation.
By the end of 2010, the company hopes to employ 4,000 people in America – including sales, service and manufacturing. A smaller Danish company that supplies Vestas recently announced plans to open shop near the turbine maker’s Colorado facilities and eventually employ 100 to 150 American workers.
“Our idea is by 2011 to have the ability to manufacture a complete North American-manufactured turbine,” Roberts said.
For now, Vestas continues to import all of the nacelles for its turbines and many of the blades.
The cash grants that were handed out in September theoretically will trickle down to American workers when the market demands locally built turbines – but that’s not guaranteed to happen.
“There is a larger concern that turbines might be coming from China,” said Xizhou Zhou, an analyst at IHS CERA, a global energy advisory firm, pointing to other industries where cheaper costs have allowed Chinese manufactured goods to replace American-made products.
Although Vestas Americas said it plans to establish an American supply chain, other manufacturers, even American-owned ones, have begun building supply chains in countries with cheaper labor costs to provide the thousands of parts that may finally be assembled in the United States. Zhou cited three facilities GE owns in China to produce turbine components, and the company recently began work on a wind turbine components factory in Vietnam that will employ 500 local workers and export 10,000 tons of components to GE Energy assembly plants around the world.
Job creation will be major factor in debate over climate and energy bill
In the coming weeks the discussion of how to best support a domestic wind industry – as a carbon-free alternative to foreign oil and an economic engine – returns to Capitol Hill as the Senate takes up a climate and energy bill. Once again, the administration and wind backers are chiming in with a familiar refrain
In a speech Tuesday, President Obama once again acknowledged the United States is not the global leader in clean energy that it once was. But, he said, a comprehensive climate and energy bill will restore America to its rightful place.
“That's going to finally make clean energy the profitable kind of energy in America,” he said noting that the Senate’s Environment and Public Works committee began hearings on a bill (S. 1733 Clean Energy Jobs and American Power Act ). “The creation of a clean energy economy has to be made as swiftly and carefully as possible, to ensure that what it takes to grow this economy in the short, medium, and long term is no longer delayed.”
Testifying in support of a climate bill before the Senate committee, Energy Secretary Steven Chu was more direct.
“When the starting gun sounded on the clean energy race, the United States stumbled,” he said in his written testimony (pdf ), urging the passage of the bill. “But I remain confident that we can make up the ground. When we gear up our research and production of clean energy technologies, we can still surpass any other country.”