Business380: Iowa wind energy industry expected to see slow recovery

After several years of rapid growth, Iowa's fledgling wind energy industry has run into some significant roadblocks.

Reduced demand for electricity, cheaper natural gas, tighter lending in the aftermath of the financial crisis and lack of a federal renewable energy portfolio standard slashed the amount of newly installed U.S. wind turbines in 2010. That rippled through Iowa's nascent wind energy industry as equipment producers saw orders evaporate and employees were furloughed.

“In 2008 and 2009, we saw huge years for wind-generated power with about 10 gigawatts of capacity installed each year,” said Amy Grace, wind industry analyst with Bloomberg New Energy Finance in New York. “In 2010, it probably won't reach 5 gigawatts. We will likely see about 4.8 or 4.9 gigawatts when all the figures are in. It was a terrible year for the wind industry.”

The health of the relatively new industry is an important component of Iowa's overall business climate. The wind energy industry supply chain supports 2,300 jobs and involves more than 80 Iowa businesses, including 23 in the Cedar Rapids-Iowa City Corridor, according to a recent report from the Environmental Law & Policy Center in Chicago.

Rosy predictions had Iowa poised to become a world leader in renewable energy after California-based Clipper Windpower chose Cedar Rapids in April 2005 for its wind turbine assembly plant and Acciona Energia of Spain chose West Branch in 2007 for a plant to assemble wind turbines. Local and state economic development representatives pursued domestic and global suppliers of blades, generators, towers and other components.

Also read: Wind industry offers opportunity for Iowa businesses

Clipper Windpower, at 4601 Bowling St. SW, ramped up employment, hiring about 390 people to assemble 2.5-megawatt Liberty wind turbines. But in January 2009, the Carpinteria, Calif.-based company furloughed 90 of its 830 global employees as wind turbine orders fell because of tight credit markets and a weakened world economy.

By the end of the third quarter of 2010, Clipper Windpower's consolidated cash position had fallen nearly 40 percent from the end of June, leaving it with $80 million to finish pending turbine orders and pay ongoing operating expenses.

Connecticut-based United Technologies Corp., which owned a 49.9 percent share of Clipper, bought all the remaining shares in December. Industry analysts believe the purchase will give Clipper Windpower needed financial stability for continued growth and will leverage United Technologies' blade, turbine and gearbox design technology.

“United Technologies wants to grow the company,” said Mary Gates, Clipper director of global communications. She said the wind turbine market has improved.

Acciona Windpower North America in West Branch employed about 150 people before it laid off roughly a third of its work force in March 2009, just over a year after it began assembling 1.5-megawatt turbines. The plant can produce eight to 10 machines per week but production dropped to one turbine per week as customers unable to access credit in the financial crisis postponed deliveries.

Joseph Baker, chief executive officer of Acciona Windpower, said the plant employs 119 and production likely will double to two turbines per week by midyear. Baker is optimistic about future growth of the wind energy industry and Acciona Windpower's prospects.

He said the firm has seen an increase in demand from developers and utilities interested in projects in 2012 and 2013. “In the next 30 days, we will be negotiating with two developers about projects for 2011 production for us and electrical completion in the first quarter of 2012,” Baker said.

Newton, reeling when Whirlpool bought Maytag and pulled its jobs from the community, was thrilled when TPI Composites of Scottsdale, Ariz., announced plans in November 2007 to hire 500 workers to make blades for General Electric wind turbines. By May of last year the company had laid off all but about 240 workers.

Trinity Structural Towers of Dallas invested $21.4 million to retrofit a former Maytag plant in Newton to manufacture towers that support wind turbines. The plant is expected to eventually employ about 140 when the wind energy industry recovers.

Siemens Energy Generation in 2007 opened a Fort Madison plant to manufacture blades for wind turbines. The plant, which formerly housed a semi-trailer manufacturing line, employed as many as 400 before the wind power market downturn.

Amid all this, the Great Recession has slashed demand for electricity. The federal Energy Information Agency reported that retail sales of electricity fell to 3,597 billion kilowatt hours in 2009, a 3.6 percent decline from the prior year and the lowest level since 2004. In Iowa, retail sales of electricity fell 4.1 percent in 2009 from 2008.

Industrial demand in the United States experienced the sharpest decline, falling 9.1 percent from 2008, to levels unseen since 1987.

Natural gas prices, which peaked in July 2008 at $13.06 per decatherm and fueled demand for wind-generated power, have fallen to $4.41 per decatherm, according to the Energy Information Administration. While crude oil, gasoline and diesel prices have risen in recent months, natural gas prices have remained fairly static.

“There's very little incentive for utilities to extend power purchase agreements with wind energy developers, and in the absence of an agreement, financial institutions are reluctant to extend credit for wind energy development,” Grace said.