All over the world, politicians see the opportunity for job growth in the renewable energy business. For example here in the US, the economy and job creation is one of the key themes in the ongoing primaries and the upcoming presidential election. The wind and solar power industries offer opportunities to create more good-paying jobs for the local manufacturing industry, particularly as in the past these type of jobs have largely moved to low-cost countries with inexpensive labor, such as China, India, Vietnam and others. In many cases, the job creation opportunity is of higher political interest than concerns about global warming or even the western world’s heavy dependence on imported oil.
In the US, a major part of renewable energy incentives come in the form of corporate tax credits, with the Federal PTC (Production Tax Credit) being one of the more important US subsidy programs. Politically, the US energy policy is a hot potato, with one extreme advocating merely a “drill baby, drill” approach (for oil and gas) and the other looking for a heavily subsidized renewable energy policy to help force a faster transition to renewables.
In reality, the US needs a comprehensive and balanced blend of all available energy technologies, with the main focus on the cost of energy, energy independence and conservation. Regardless of what energy approach is taken, job creation is almost always sited as a major important benefit of increased national energy production. And besides providing more job opportunities for individuals, an often-stated fact is the resulting increased tax base, and with it, higher tax revenue and a lower federal budget deficit.
Wind energy has become one of the fastest-growing sources of new American manufacturing jobs. But the US has to provide this industry with a stable long-term tax policy and a predictable business climate. The current PTC program is scheduled to expire by the end of 2012. Therefore, an extension of the PTC needs to be first on the list of priorities for the US government. To that effect, President Obama has included such an extension in his current budget proposal presented to the US congress. A recent US study concluded that a stable and long-term US tax policy would create and save 54,000 American jobs in the next four years, including growing the wind manufacturing sector by one third to 46,000 American manufacturing jobs. This will keep the wind sector on track toward supporting up to 500,000 jobs by 2030 projected in a report by the US Department of Energy.
These local job creation requirements are often reflected in our customer’s specifications, sometimes explicitly calling for the local manufacturing of our converters and generators. Sometimes these requirements play a more subtle role; but it is not unusual that a customer wants to maximize local content, sometimes even with a requirement to manufacture within the very same state.
In other cases, such as Ontario, Canada, the local manufacturing requirement is up to 50% for wind. As a result, we have also recently seen several announcements about factory openings in North America: Enercon in Ontario, SMA in Colorado, Ingeteam in Wisconsin, Danotek in Michigan, just to mention a few. All involve some kind of government or state grants or tax incentives. However, this trend is not unique to North America. Western Europe has the same or similar aspirations for job creation to support their local industries.
In a recent visit to Goldwind’s wind farm in Shady Oaks, Illinois, a Goldwind US executive was very proud to point out that he felt that Goldwind US has a larger degree of US content than some of its traditional “US” competitors. He mentioned that GE and Gamesa import larger turbine components, such as towers and blades, from plants outside of the US. For Shady Oaks, IL (2.5 MW ETL converter test site), both towers and blades are made in the US. Goldwind also recently announced that the tower for the Camelot project in Plymouth, MA (our 1.5 ETL site), would be built by a contractor in Massachusetts. Logistic costs just do not make it feasible to build in China. So even the Chinese wind turbine companies active in the US create a lot of US jobs, and they are proud of it. But the general public perception may still be that GE is “American” and Goldwind is “Chinese”, regardless of US content and maybe that will not change.
One of the many advantages with The Switch’s manufacturing concept is that local manufacturing support is a natural part of our business model. Our model factory concept allows us to develop and design our products. It addresses all the necessary expertise and resources not only from a product development perspective, but also from the point of view of design and building for manufacturability. We build our prototypes and low volume series in our modern, well-equipped model factories, primarily located in Finland. As volumes grow and the requirement not only for local content, but also for short and flexible delivery times becomes more significant, we have the ability to move the manufacturing or parts thereof to selected subcontracting partners, who are local to our customers. We do this by duplicating our model factory at different locations.
The Switch Model Factory is a well-proven production concept and our approach offers many advantages for the industry. This includes rapid deployment of local manufacturing, shorter delivery times, local sourcing or sourcing in low-cost countries as applicable, lower logistics costs, and less financial exposure, since less material is kept in the production and transportation pipelines.
From The Switch’s standpoint, we have to primarily focus on what is best for our company as a whole, rather than what’s best for individual branches, locations or factories. Where we manufacture may become secondary, as long as we keep growing the company profitably both over the short and long term. That approach will lead to more projects like our US Gateway converter project, where US content may increase over time, simply because the installation and application expertise is in the US.
In the same way, we hope to build our solar business with Solar Edge, where we expect to see a large number of solar inverters built in Finland for direct delivery to Israel and other countries around the world, while product management and support may still mainly reside with The Switch’s US team.
When we are successful in business, all our factories and operations stand to gain – a win-win situation for all of us.
So let’s hope for an extension of the PTC in the US. Let’s also support similar efforts and initiatives for renewable energies in Europe and the rest of the world. These programs support our businesses and help support energy independence. They create new jobs, reduce our carbon footprint and help limit climate change due to human activities.
After all, unlike nuclear, coal oil and gas, the energy from wind and solar is free. There is no risk or uncertainties associated with the cost of the raw energy. Renewable energy is good for all of us. So we need to actively support its use and deployment for everybody’s benefit.
Anders Troedson, VP Emerging Businesses
