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Is Green the New Gold?

May 18, 2010
Despite the recession, solar and wind energy markets continue to show compelling growth. Manufacturers have taken notice.

Like many manufacturers in recent years, Hydro Aluminum expanded its repertoire beyond just the automotive, construction and consumer goods markets and made the leap into the green future. But Hydro Aluminum's foray had nothing to do with strategic planning, guts, shrewdness or foresight.

To be honest, says Allan Bennett, the company's vice president for solar market development, Hydro Aluminum landed in the clean tech sector quite by accident.

Back in 2005, the aluminum component producer had taken on a modest job building support structures for a gun range in California. Pleased with the work, the company Hydro Aluminum had partnered with, Gossamer Space Frames, suggested they help out on another project: building massive support structures for concentrated solar panels at a Nevada site.

Over the next several months, Hydro Aluminum began producing 40,000 pounds of aluminum components each day out of its Phoenix facility, building structures to house the panels for Nevada Solar One, the world's third-largest solar-energy field.

Soon, more project requests followed from destinations such as Florida, Colorado, Spain, the Middle East, India and Australia. Hydro Aluminum, like many other companies that have made the shift, has found the clean tech industry to be a highly lucrative portion of their business and among the strongest areas of their portfolio for long term growth.

Siemens has been an active developer in the area of concentrated solar power. According to experts, the market for solar thermal power plants will show double-digit annual growth until 2020.

That growth comes in large part due to subtle shifts taking place in the price for clean energy. In several regions of the U.S., particularly in the Southwest and along the Atlantic coast, the price per kilowatt hour for solar and wind power has trended downward to the point where they are increasingly competitive with natural gas. The government, meanwhile, has offered production and investment incentives to spur renewable energy technologies in the U.S., creating a viable opportunity for manufacturers to produce an array of components needed to meet increased demand.

"There's a lot of growth and potential in these markets," says Bennett. "When you compare it with other markets, it's very different. So people are looking for new opportunities where they might leverage their technologies into another market. They want to diversify and this is one that has a lot of growth in it."

Natural Transition

Among its many product lines, United Technologies happens to be the world's largest manufacturer of elevators and air conditioners. So what would compel the diversified manufacturer to invest more than $270 million for a 49% share in Clipper Windpower, a small California-based producer of wind turbines?

For starters, it's a logical transition.

According to United Technologies CEO Louis Chnevert, the shift into clean energy is helped because the wind turbines draw on many of the same technologies the company has long used in its jet engines and helicopters. "The skill set that we've developed over decades because of our base of businesses applies to wind turbines," says Chnevert. "It's a high-growth segment and it allows us to leverage our expertise in blade technology, turbines and gearbox design."

United Technologies' approach follows similar footsteps other multinational corporations have taken, using financial might to acquire a smaller entity and thereby absorb their specialties and technologies in a new application. Siemens, for instance, made its first foray into the wind energy market in 2004 by acquiring Bonus Energy, which was at the time Denmark's second largest wind turbine manufacturer.

"It's not that easy to get started in the wind industry," says Jan Kjaersgaard, Siemens Energy's vice president and general manager for wind power in the Americas. "You see more companies trying. For Siemens, what we needed to figure out was whether we wanted to start in wind from scratch or just buy a company with a strong technology to get a head start."

The American wind power industry grew at a blistering pace in 2009, adding 39% more capacity. Above, a facility manufactures blades for Vestas wind turbines.

Since Siemens entered the wind market in 2004, the company has become one of the largest players in the sector with roughly 7% of the market. That number pales next to rivals such as GE Energy and Vestas, which control approximately 18% and 19% market shares, respectively. But Siemens has focused much of its investment in the Americas, citing its fertility for growth.

The company anticipates that over the next 20 years the percentage of global power generation arising from renewable sources will grow from less than 5% now to about 17% by 2030. And nearly half of that, Siemens says, will come from wind power.

Extra Incentive

Like many manufacturers in the clean tech sector, Merrill Technology Group has expanded its production for the alternative energy market with the help of government funding.

Once entirely focused on the automotive industry, the Saginaw, Mich.-based manufacturer does machining of components for small and large wind turbines, along with the development of solar energy process equipment, including fabrication, machining and complex assembly of vacuum chambers.

Merrill Technology Group earlier this year received $22 million in tax credits as part of the American Recovery and Reinvestment Act and is investing $73 million in advanced manufacturing equipment to support the production of nacelles for a series of new utility-scale wind turbines.

The 2009 economic stimulus package created two key programs, the clean energy manufacturing tax credit and Section 1603, which allows grants for renewable projects. According to Senator Jeff Bingaman, D-N.M., chairman of the committee on energy and natural resources, these programs were instrumental to spurring the solar and wind industry's growth.

"These credits for the first time [creates incentives for] companies to manufacture clean energy technologies in the United States by allowing them to write off 30% of the cost of creating, expanding or re-equipping their facilities," says Bingaman.

The clean energy manufacturing tax credit was funded at $2.3 billion last year and was exhausted within a matter of months, but it leveraged nearly $7.7 billion for 183 cleantech manufacturing projects in 43 states.

"That's a powerful demonstration of the potential for clean energy manufacturing in our country," says Bingaman. "I've proposed expanding this credit and President Obama has endorsed this expansion, calling for an additional $5 billion for the 2011 budget."

Is it Sustainable?

The question, then, is whether government funding is establishing an expensive, passing fad or whether cleantech has shifted from the idealistic to a truly lucrative opportunity for U.S. industry.

Despite a recession and crippling credit markets, the cleantech industry enjoyed banner years in 2008 and 2009. The American wind power industry, for instance, grew at a blistering pace in 2009, adding 39% more capacity. Much of that growth was helped last year by government grants, which helped circumvent a banking sector that had frozen tax equity lending. Today, the U.S. is close to the point where 2% of its electricity will come from wind turbines. While that is still a miniscule share, it is up from virtually nothing just a few years ago. Similarly, the U.S. solar power industry saw substantial gains, with the nation's generating capacity growing by 37% in 2009, pushing through the 2,000MW barrier for total output.

But perhaps the best signal comes from simply following the money. More than $5.6 billion in venture-capital investment went to clean-tech firms -- including solar, wind, energy efficiency, transportation and biofuels -- last year, according to data from market researcher Cleantech Group and accounting firm Deloitte.

"The industry is transitioning and the cost curve is coming down," says Brian Anderson, chief executive at Amonix, a solar technology firm based in Southern California. "Solar, for instance, has gone from being a subsidized industry that faced significant economic obstacles of cost to one that's now an attractive purchase on its own." Proof of that was seen earlier this year when Amonix landed one of the biggest green technology deals of 2010. Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers made a $129.4 million investment in Amonix, which produces concentrated photovoltaic power systems -- essentially gigantic solar panels that have a plastic lens which focuses the sun on tiny but highly efficient solar cells to generate more electricity than conventional photovoltaic panels.

A worker examines a completed hub for Vestas wind turbines. The U.S. currently gets only 2% of its electricity from wind, just a miniscule share, but up from virtually nothing just a few years ago.

To build this product, Amonix, like other large-scale solar providers, tap into a supply chain based around the locale of the solar field. To hold the panels, metal structures are necessary in volume, in complicated shapes, with exacting tolerances for correct alignment and assembly. Both aluminum and steel manufacturers, such as Hydro Aluminum, have taken advantage.

Hydro Aluminum's energy division has specialized in producing frames composed of 45 different parts, each requiring heavy amounts of fabrication. What the company didn't anticipate, says Bennett, Hydro Aluminum's vice president for solar market development, was the challenge of producing at such a large scale in a short span of time.

"If we're looking at 7.5 million pounds for an eight or nine month period, there's a ramp-up at the beginning and some very intense activity," says Bennett. "If you're coordinating this much metal, it means getting it all to the site in proper order, machined and manufactured correctly, and labeling all the parts so they can be assembled properly. It goes from extremely intense to a dramatic fall-off, then very intense again with new projects coming in."

A Question of Scale

Back in its heyday, the auto industry was producing about 17 million cars a year. Last year, the wind industry produced and assembled about 5,600 utility-scale turbines. For all the enthusiasm garnered by the cleantech market, it won't ever come close to sustaining U.S. manufacturing the way the auto industry did in generations past.

A finished wind generator is placed on a crane by turbine manufacturer North Power Systems. The company has begun adopting quality and supplier integration systems from other industries.

But that doesn't take away from the inherent opportunity, says Matthew Kaplan, a senior analyst for Emerging Energy Research.

"The wind industry, for example, has been scaling very, very rapidly and this growth isn't just for project developers, but also for the wind project supply chains," says Kaplan. "So you have OEMS, such as GE, Siemens, Mitsubishi and Exelon, to the suppliers of blades, towers and gear boxes. They've all had to scale their domestic manufacturing capabilities to keep up with the rapid rate of growth in the industry."

Northern Power Systems has been producing equipment for the wind industry for nearly three decades. Last year, the company manufactured just under 100 utility-scale wind turbines. But with orders slated to far surpass that number in 2010, the company hired Taylor Robinson to adopt many of the quality and supplier integration systems other industries have utilized.

Robinson says he hears the automotive comparison frequently against cleantech but says it inherently misses the point. A more appropriate comparison, he says, is to the aerospace sector.

"You're talking much lower volume, but very, very robust designs," he says. "It requires highly sophisticated manufacturing systems -- and that's something we have in the United States. Look, automotive margins are extremely tough to find, no matter what you do. But with its growth and potential, a lot of manufacturers see the wind and solar markets as a winner."

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