This article appears in the Summer 2017 issue of The American Prospect magazine. Subscribe here.
Cleveland has been trying to develop offshore wind turbines on Lake Erie since 2004. After many false starts, construction on a pilot program will start in 2018, helped along by Project Icebreaker, which will allow year-round production in the partly frozen lake. Should this six-turbine wind farm on Lake Erie be successful, a new wind-powered energy grid could be developed along the southern shores of all the Great Lakes.
The government’s National Renewable Energy Lab estimates that more than 100,000 megawatts of wind energy could be generated on the Great Lakes. That, in turn, offers the potential for thousands of good jobs in the manufacturing supply chain for turbines, their components, and maintenance. The American Wind Energy Association estimates that wind power has already stimulated 3,000 jobs and $900 million in wind investment in Ohio.
But a closer look suggests how offshore wind epitomizes the unrealized promise of economic redevelopment policies for America’s heartland based on renewable energy. For starters, China has a serious industrial and targeted trade policy for capturing global markets and supply chains in wind (and solar), and the United States doesn’t. China subsidizes production of turbines, plays hardball with parts suppliers, and does whatever it takes to capture market share. European government policy is more consistent than ours in creating a market both for wind energy and for wind-turbine producers.
By contrast, the United States government shuns national industrial policies, uses renewable energy subsidies intermittently, does not coordinate national energy policy with local and regional economic development efforts, and is reluctant to press China hard even when the Chinese violate basic trade norms. As a consequence, regional development policies such as the Lake Erie wind turbine effort are left to local and state governments and their industry partners, who often get steamrolled by the Chinese. Thus, the fantasy of combining a green energy transition with creation of new domestic industries and jobs has not been fully realized. Wages in former industrial powerhouse states like Ohio continue to languish, leaving their workforce as Trump-bait. This is a pity, economically as well as politically, because the potential is immense.
The Long and Winding Road from Idea to Turbines in the Lake
Soon after arriving as president of the Cleveland Foundation in 2003, Ronn Richard began exploring offshore wind on Lake Erie as an economic development engine for this declining manufacturing city. The foundation funded feasibility studies that were encouraging enough for it to underwrite an initiative to create an advanced energy cluster in northeast Ohio. The effort started with a $200,000 grant to the Cuyahoga Regional Energy Development Task Force to examine the legal, technical, environmental, and financial issues involved in developing offshore wind farms. The foundation supported wind more broadly by granting $3.6 million to Case Western Reserve University’s Great Lakes Institute for Energy Innovation to research energy storage, and $250,000 to the Lake Erie Energy Development Corporation (LEEDCo) to coordinate a demonstration project.
LEEDCo, established by Cuyahoga and Lorain Counties, the City of Cleveland, and NorTech Energy Enterprise, also aimed to promote the development of offshore wind energy along the Ohio coastline of Lake Erie. Lake and Ashtabula Counties later joined, as did Erie County in Pennsylvania in 2015. Dave Karpinski, vice president of operations at LEEDCo, cites a long-term goal of generating 20 percent of Ohio’s electricity from offshore wind—which would only be 10 percent of the capacity that could be produced. The first step would be the proof-of-concept pilot program to demonstrate that a turbine could function in the lake.
While offshore wind is well established, development on Lake Erie presents a challenge because the lake freezes. If you think of a wind turbine as a big sail on a mast, the problem is that it wants to bend in the wind. So, it needs a strong foundation. On land, turbines usually are embedded in a huge concrete block. The towers of offshore turbines in the ocean are anchored into heavy steel tubes driven as much as 100 feet into the seabed and fixed with concrete. But Lake Erie is not very deep and has a shallow bedrock floor with clay underneath, which could not support a turbine adequately. There would be several false starts before solving this problem.
In 2010, LEEDCo selected a partner, Freshwater Wind, and partnered with some 20 companies internationally to continue developing the pilot. By this time, however, the political winds were shifting. Several state economic development programs that promoted renewable energy during Democrat Ted Strickland’s tenure as governor were eliminated when Republican John Kasich was elected governor in 2010.
Under Obama, the federal Department of Energy (DOE) kept the project alive. At the end of 2014, DOE gave LEEDCo $3 million to continue its engineering work. In May 2016, LEEDCo received $40 million from DOE, to be delivered in three smaller grants as engineering, permitting, and construction goals are met. The total cost for the pilot project, including $1.7 million from the Cleveland Foundation, is between $120 million and $128 million, about a third of which will be from private investors.
With first-mover advantage, Ohio’s manufacturers could supply wind production as it expands across the Great Lakes, notes Lorry Wagner, LEEDCo’s president. “This is about building an industry from the science and engineering to production,” he says. The state and the Cleveland Foundation gave several hundred thousands to WIRE-Net, an economic development organization, to work with manufacturers in retooling to build a wind-energy supply chain. And it seemed to be working—General Electric and Siemens signed contracts for parts including lighting, castings, gears, and fasteners.
But the expected bonanza evaporated quickly due to four forces that interacted to undermine Ohio’s manufacturers: China entering the wind market and violating World Trade Organization agreements; falling prices for natural gas due to fracking, making wind less price-competitive; ongoing subsidies to gas for fracking and intermittent tax breaks for wind and other renewables; and a recession. Given the shifting political support at various levels of government and the threat from rival producers that benefit from more consistent government policy, it’s a small miracle that the Cleveland project is still alive.
The China Complication
China entering the wind market was a major blow to Ohio manufacturers who had invested heavily in retooling to become suppliers to turbine manufacturers. Beijing’s policy of heavily subsidizing manufacturers that moved to China and requiring them to source parts locally caused turbine producers based in the United States to source parts in China. In June 2006, GE opened an assembly plant in China to assemble its 1.5-megawatt turbines. By September 2006, GE entered into agreements with Chinese producers such as Nanjing High Speed & Accurate Gear Company (NGC) to jointly develop gearboxes for GE’s 1.5-megawatt wind turbines. This kind of coercive partnership violates WTO rules, but the U.S. government generally does not resist, and GE, as a partner, does not complain.
Then the 2008 recession reduced electricity demand. And while the market was in a lull, the big three Western wind-turbine producers in the United States—America’s GE, Germany’s Siemens, Denmark’s Vestas—and other turbine manufacturers producing in the US moved their global supply chain to take advantage of capacity coming online in China. Meanwhile, unconcerned by recession, China continued its massive purchases of wind turbines and partners for its network of new foundries, forges, and machine shops. “Original equipment manufacturers, starting with GE, began pulling out of their U.S. supply chain at the end of 2008 and transferring the components business to China,” says Ed Weston of WIRE-Net. GE did not respond to requests for comments. In June 2009, GE agreed to produce 900 2.7-megawatt wind-power gearboxes for China’s A-Power Energy Generation Systems in a plant that would become GE’s manufacturing center for wind-turbine gearboxes in Southeast Asia.
This wasn’t just an Ohio story, nor was it a story limited to parts suppliers. Several European turbine producers, such as Gamesa (Spain), Vestas, and Siemens set up plants in the United States in 2007 and 2008 when natural gas prices were high. Although there were no domestic content laws in place, there were hopes that these turbine producers would locally source many of the approximately 8,000 parts that go into a turbine. But global overcapacity, fed by Chinese producers, crushed many of them.
In 2006, Pennsylvania invested heavily in three Gamesa turbine plants. Only one is still open, employing about a tenth of its peak total, and mostly in maintenance of existing turbines. Nordex ended U.S. production in Arkansas in July 2013 after only two years and since then has been supplying the U.S. and Latin American market from its home base in Germany. Vestas, Siemens, and GE are all that’s left in U.S. turbine production, and more than 80 percent of the total value of parts they use are imported, according to Weston.
China’s coherent energy and industrial goals offer a depressing contrast to America’s mash-up of policies that seem as unpredictable as the wind. Once China decided to move away from coal, the government moved fast, leading to unprecedented growth in wind production and manufacturing. Beijing’s goal is to generate 15 percent of the country’s energy from renewable sources by 2020. In 2015, China moved past the United States in wind installations, adding almost 29 gigawatts compared with the United States’ 8.6. Cumulative capacity has increased from 1.26 gigawatts in 2005 to 169 gigawatts, compared with 82 gigawatts in the United States at the end of 2016.
China invested in its leading producer, Goldwind, and quickly developed a domestic supply chain, aided by policies including 70 percent local-content requirements, a feed-in tariff requiring power companies to buy the electricity produced, reductions in the value-added tax, and a Renewable Energy Fund financed by a surcharge on utility bills. By the end of 2015, China’s Goldwind became the world’s largest wind turbine manufacturer, in front of number two Vestas and number three GE. While Goldwind turbines have been used in several U.S. wind farms, its move to number one is fueled by rapid growth in the Chinese market. China’s policies have worked well—five Chinese companies were among the top ten wind-turbine producers in 2016.
In September 2010, the United Steelworkers union filed a petition with the Obama administration asking the United States to bring a case against China for violating WTO rules by subsidizing wind turbines and other clean energy equipment with free land and low-interest loans. The complaint found that these practices cost U.S. jobs in steel production for turbine towers, turbine assembly, gears, and other components. The complaint also challenged China’s practice of requiring U.S. clean energy equipment producers to license their technology to Chinese partners as a condition of entering the Chinese market and its export restrictions on rare earth elements used in the production of wind turbines. Because trade law requires government-to-government negotiation, an administration must balance pursuit of such complaints against other diplomatic objectives. The United States did press Beijing for some concessions. In June 2011, China closed its Special Fund for Wind Power Equipment Manufacturing program, which provided grants to Chinese wind turbine manufacturers that used Chinese-produced parts and had granted several hundred million dollars to Chinese companies since 2008. But China’s coercive partnerships requiring local content continued, as did the rest of its extensive system for industrial targeting and offering cheap government land and capital.
Tilting Toward Fossil Fuels
It’s instructive to compare government subsidies for fossil fuels, which are permanent and immense, with subsidies for wind energy, which are modest and intermittent. Federal energy subsidies for domestic gas and oil production began in 1916 and continued through the 1970s. The oil industry begins with a huge tax subsidy, known as the depletion allowance. The Department of Energy began funding research into fracking in 1978 and maintained it for at least 14 years, totaling $137 million. In 1980, Congress passed a generous tax break to stimulate unconventional natural gas drilling, providing drillers $10 billion between then and 2002. These subsidies have continued to the present, totaling $470 billion in tax breaks over a century. Despite record-breaking profits, the subsidies continue. And if that’s not enough, the 2003 Bush-era energy bill exempted fracking from EPA drinking-water regulations, and in 2005 exempted it from parts of the Clean Water Act.
Despite the huge advantage fossil fuels have had in federal subsidies, wind energy has become cost-competitive. But while oil and gas subsidies were permanent, federal renewable subsidies for wind and solar have been intermittent. The production tax credit, first enacted in 1992, was authorized for one or two years at a time, with frequent renewals. Each time its renewal was in doubt, investment in wind and other renewables dropped dramatically (see figure above).
The production tax credits will be phased out gradually by 2019. Renewables received about one-fifth of the support of oil and gas during the early years of development, when strong investment can make a big difference. Currently, wind energy, at $32 per megawatt hour, is competitive with natural gas at $48 per megawatt hour. What this tells us is that wind energy is economically viable as a source of energy. But if wind is to create additional manufacturing jobs, what is needed is more coherent policy to make sure the United States becomes a major manufacturer of wind turbines and components. Unfortunately, this goal also runs into politics.
In 2014, Governor John Kasich signed legislation that put a three-year freeze on the state’s push toward renewable energy adoption. A second Kasich-approved law increased the distance turbines must be located from abutting properties, which stopped the construction of 11 previously approved wind farms. Fortunately, in December 2016, Kasich vetoed a bill to maintain the freeze, citing the jobs and advanced technology being created in both the wind and solar industries.
So, the state policy environment has improved. It is likely that the offshore towers will be produced domestically, says Wagner. And offshore foundations will require lots of steel, fabricating, and welding. Assembly has to occur locally and time will tell how much of the supply chain is in Ohio and the Midwest.
In Search of a National Policy for Wind
Currently, there are 88,000 wind jobs, with about 21,000 in the manufacturing supply chain, about 38,000 in construction, development, and transportation, and 19,000 in operation and maintenance. The potential is many times that, especially if the United States remains competitive globally. The DOE estimates high levels of domestic content in the three largest components of a turbine: more than 85 percent for nacelles (the housing for the gearbox and other generating components); between 80 percent and 85 percent for towers; and between 50 percent and 70 percent for blades and hubs. But it is difficult to track the rest of the vast supply chain. The DOE estimates less is made in America than the American Wind Energy Association (AWEA) does. The difference, as someone from the Lawrence Berkeley National Laboratory told me, is that “the AWEA is permissive in how they define a supplier.”
The bottom line is that the United States is a net importer of wind-turbine equipment. With only three major manufacturers—GE, Vestas, and Siemens—competition has become fierce and imported components, outside the three mentioned above, are cheaper.
Nationally, the biggest growth potential for wind is in the 16 gigawatts of electricity in development in 23 East Coast offshore wind projects. The DOE estimates that wind energy off the Atlantic coast could supply about 35 percent of the country’s electricity. As for jobs, a lot is riding on the assumption that offshore turbines and parts will be produced in the United States.
For a contrast with Ohio, consider Maryland, which is aggressively seeking to develop clean energy and to capture the jobs associated with it. In January 2017, the state legislature overrode Republican Governor Larry Hogan’s veto of legislation to raise the renewable portfolio standard from 20 percent to 25 percent by 2020. The bill also sets aside $10 million to assist small businesses in retooling to participate in the supply chain.
As part of the state’s 2013 Offshore Wind Energy Act, Maryland offers developers 20-year offshore renewable energy credits that are worth about $130 per megawatt hour generated to incentivize as much as 500 megawatts of offshore wind. The credits give the state leverage in extracting job benefits.
Maryland’s Public Service Commission is requiring that the developers of two offshore wind projects—Deepwater (proposing Skipjack, a 120-megawatt wind farm, up to 17 miles off the coast of Ocean City) and US Wind—build a supply chain in Maryland. US Wind and Skipjack have committed to investing $51 million and $25 million, respectively, in a steel fabrication plant. The companies also committed to use ports in Baltimore for marshaling and Ocean City for operations and maintenance. They are jointly investing $40 million into Tradepoint Atlantic, a 3,100-acre shipyard east of Baltimore, which can support the cranes that will load onto ships the towers, blades, and nacelles for the turbines. Finally, each developer is contributing $6 million to the Maryland Offshore Wind Business Development Fund. The projects will create 9,700 new direct and indirect jobs and contribute $74 million in state tax revenues over 20 years.
Maryland is a model for what a national industrial policy on renewable energy could look like. Like China, the United States needs to create systemic links with industrial, trade, and clean energy goals, and create policy to achieve them. And that needs to occur at the federal level. The wind is fickle. That’s a problem technology can solve. Fickle policy is far more disabling.
