Something in the Wind

By Cameron Macht
March 2009

PDF of article (6 pages)

Minnesota’s wind-power industry is among the largest in the country and positioned to generate new jobs in the state.

In the rolling hills of southwestern Minnesota, Buffalo Ridge has become the epicenter of Minnesota’s nascent wind-energy industry. Wind speeds average 17 miles per hour in the region, powering hundreds of turbines that have made Minnesota a national leader in wind-power production and home to one of the most promising new industry clusters in the upper Midwest. Through the end of the third quarter of 2008 Minnesota ranked fourth in the nation with 1,377 megawatts of installed wind-power capacity, behind only Texas, California and Iowa, according to the American Wind Energy Association (AWEA).

But Buffalo Ridge is only part of the reason for Minnesota’s success in developing its wind-power sector. In recent years Minnesota officials have made a conscious effort to nurture the industry with energy legislation, economic development programs, and workforce education and training.  That combination is contributing to job growth and the emergence of a new sector in the state, particularly in southwestern Minnesota.

Wind Energy Overview

Although wind energy provides just one percent of the U.S. electricity supply, it has the potential to account for a much bigger share of the market in the future. A U.S. Department of Energy (DOE) study projected that wind power could supply 20 percent of U.S. energy within two decades. For that to happen, however, wind-power installations would need to increase by more than 16,000 megawatts per year by 2018 and continue at that rate through 2030. [1]

While that level of expansion is aggressive, increasingly it seems to be a possibility. A 2008 report by AWEA said the U.S. wind-power industry shattered all previous records in 2007 with 45 percent growth and more than 5,200 megawatts installed. [2] Data show that wind has been the second largest source of new electrical capacity in the nation for the past three years, behind natural gas.

A follow-up report by AWEA added, “The U.S. wind-energy industry continued new installations at a breakneck pace in the first quarter of 2008, putting 1,400 megawatts, or about $3 billion worth, of new generating capacity in place.” [3] Total installed U.S. wind-power capacity surpassed 16,800 megawatts in early 2008 or enough to serve 4.5 million average households.

Running With the Wind

Minnesota, which leads the United States in locally owned wind production and is home to the nation’s largest provider of wind-powered energy, has one of the most aggressive Renewable Portfolio Standards in the country. In the 1990s Minnesota introduced a popular incentive program for locally owned wind-energy projects that led to the development of at least 200 megawatts of locally owned wind power before becoming oversubscribed. In 2005 a new approach, known as the Community-Based Energy Development (C-BED) tariff, was developed to encourage more locally owned projects.

The C-BED incentive involves front-loaded contracts – higher payments for wind energy in the first 10 years and lower payments in the final years of the contract. This allows developers to make money and pay off their capital costs within the first 10 years of their contract without the need for a 10-year, state-level production payment. C-BED projects must be owned by Minnesota residents or entities. [4]

“Community-based wind-energy projects are good for the environment and good for Greater Minnesota. These C-BED projects can act as economic anchors for rural communities, and our entire state benefits from environmentally superior, renewable energy,” said Minnesota Gov. Tim Pawlenty.

Minneapolis-based Xcel Energy is the fifth largest power utility in the nation and the largest provider of wind-powered energy in the U.S. in 2005 and 2006, almost exclusively through contracts with independent wind-farm developers. Xcel Energy has also committed to 30 percent renewable energy in its portfolio by 2020, with a stated goal of 3,000 megawatts of wind energy. (The company had a capacity of 1,000 megawatts by Jan. 1, 2008.). Achieving its 2020 goal would require the addition of at least 100 wind turbines annually, based on current technology.

To meet those standards, Xcel Energy recently released a Request for Proposals (RFP) for a 500-megawatt wind farm, which followed an RFP for a 200-megawatt wind farm in the previous year. According to a January 2008 press release, Xcel Energy's first wind farm in Minnesota – the 100-megawatt Grand Meadow Wind Farm – will be in eastern Mower County, with the project expected to produce power by late 2008. Duluth-based Minnesota Power and other energy providers are also aggressively adding power from renewable sources including wind and biomass.

Part of what is driving the market in Minnesota is the Next Generation Energy Act, an initiative championed by Gov. Pawlenty that includes a provision requiring the state’s electric utilities to provide 25 percent renewable electricity by 2025. This “25 x 25” requirement is one of the most aggressive Renewable Portfolio Standards in the nation, behind states like California (20 percent by 2010 and 33 percent by 2020) and New York (24 percent by 2013) but ahead of North Dakota, South Dakota, and Wisconsin (10 percent by 2015).

Gov. Pawlenty and New Mexico Gov. Bill Richardson also spearheaded the formation of the “Governors Windpower Coalition” in December 2007 to promote the increased use of wind energy in America. The two governors said the objective of the group is to discuss interstate collaboration, exchange information on wind technology and policy, commission research on critical wind-policy issues, and seek recommendations on federal and regional policy.

Against the Wind

Issues with transmission and turbine supply pose a challenge in Minnesota. As more wind energy comes on line, several large utilities in the upper Midwest are working to upgrade the transmission infrastructure. For example, CapX2020 is a joint transmission planning effort among 11 utilities that own transmission lines in Minnesota and the surrounding region.

The CapX2020 Web site said “customer demand for electricity will increase by 4,000 to 6,000 megawatts by 2020 – more than today’s system has the capacity to deliver. The proposed new transmission lines would be built in phases designed to meet the growth in electricity demand, as well as to tap into vast wind-energy resources in the southern and western parts of Minnesota and the Dakotas.” [5]

A backlog for wind turbine parts is also hampering expansion of wind-power installation. Some energy consultants and power planners project a two-year wait for wind-project developers, and the need is more acute for developers of smaller projects because turbine makers are more interested in selling in large numbers.

Into the Great Wide Open

A wind turbine has some 8,000 components ranging from towers and blades to gearboxes, generators, castings, ball bearings, and electronic components. So the focus of wind energy goes above simply generating power to generating manufacturing employment and rural economic development. Beyond the construction and maintenance jobs that come with installing a wind turbine, manufacturing companies have opportunities to start producing wind-energy components.

But the race for manufacturing of components is a worldwide competition. In 2005 the American Wind Energy Association estimated that fewer than 30 percent of the components in a typical wind turbine were American made. In 2008 the U.S. contribution was nearly 50 percent as more companies began to open and operate facilities in the U.S. market.

Among the related companies operating in Minnesota are Columbia Gear Corp. (gear manufacturer), Remmele Engineering Inc. (machining), Zero-Max Inc. (high-strength forged shafts), SMI & Hydraulics Inc. (wind tower manufacturing), Eaton Hydraulics (hydraulics for towers), M.A. Mortenson Co. and D.H. Blattner & Sons (wind farm contractors), Wind Logics (modeler of wind currents), Anderson Trucking Service (turbine shipments), 3M (cable for transmission lines), and Siemens Energy and Automation Inc. (transmission and distribution services). In addition, the Duluth Seaway Port Authority has seen increased business because of foreign-built turbines coming through the port en route to U.S. wind farms. Wind turbine shipments climbed from 34,080 freight tons in 2005 to 307,000 freight tons last year.

The wind energy association said new facilities were opened or announced last year in Arkansas, Colorado, Illinois, Iowa, New York, North Carolina, Oklahoma, South Dakota, Texas, and Wisconsin. These facilities are expected to create more than 6,000 permanent, well-paying jobs. The Department of Energy said a 20 percent wind contribution by 2030 would support roughly 500,000 jobs in the United States, with an average of more than 150,000 workers directly employed by the wind industry.

Dentley Haugesag, DEED’s renewable energy specialist, has been promoting the growth of existing renewable energy businesses in Minnesota and working to attract new ones. Within the last year Minnesota officials have met face-to-face with nine turbine manufacturers. When asked what it would take to make them build a plant in Minnesota, every manufacturer gave the same reply: “Do you have a supply chain?” That is a critical question because wind turbine manufacturers typically are not vertically integrated. Instead, because they assemble components purchased from suppliers of sub-assemblies, much of the multimillion-dollar cost of a wind turbine ultimately goes into the pockets of suppliers and their workers – a huge opportunity for Minnesota manufacturers.

Proximity to Wind Farms

Randall Swisher, executive director of the American Wind Energy Association, noted that “more states are looking seriously at wind energy these days as an engine of economic development, and what they are seeing confirms a major study released ... by the Renewable Energy Policy Project (REPP). It reported that boosting wind energy from 6,000 megawatts to 50,000 megawatts nationwide would create 150,000 manufacturing jobs.” The REPP report added that an eightfold expansion of wind-energy installations (a capital investment of $50 billion), could mean up to 3,064 new manufacturing jobs in Minnesota, based on the state’s potential for wind-energy suppliers.

But a more aggressive approach in Minnesota could easily lead to even more jobs, according to the report. Minnesota has an advantage through proximity to wind farms, which reduces the enormous transportation costs to import parts from other areas of the county and world. The transportation costs of moving wind turbines can be as high as the turbine equipment itself, making local manufacturing even more attractive.

Table 1 provides a list of industries that are involved in the manufacture of wind turbines. This table makes clear that potential suppliers for the wind-energy industry in Minnesota are plentiful.

Suzlon Success Story

India's largest turbine manufacturer, Suzlon Rotor Corp., opened its first U.S.-based blade and nose-cone factory in November 2006 in the southwestern Minnesota community of Pipestone. The plant, which employs about 500 workers, is expected eventually to produce 300 sets of rotor blades a year. Demand is still greater than production, and Suzlon hopes to triple its output in three years, expanding the workforce and eventually adding more manufacturing plants—all a major economic boost to the area.

Pipestone was selected, in part, to capitalize on the growing southwestern Minnesota wind-farm industry and to serve the fast-growing North American wind-energy market. The plant in Pipestone will allow Suzlon to avoid the cost of transporting the large blades from another continent. The centralized location will also allow Suzlon to reach customer projects effectively and economically. The Suzlon site includes an operation and maintenance facility, which will serve as the centralized office for all turbine service and maintenance, including spare parts, and the company's 24/7 wind turbine remote surveillance program.

Other reasons for selecting Pipestone were JOBZ tax incentives offered by DEED and the availability of classes at Minnesota West Community & Technical College, which offers academic programs in wind energy technology and wind energy mechanics and certificates for windsmiths. Minnesota is one of only 20 states that offer wind energy educational programs.

Current Employment

The NAICS code for wind and solar power generation is 221119. In that category the state of Minnesota reports there are 14 firms and 134 jobs, with average weekly wages of $1,070 in 2007. The industry has expanded quickly, jumping 50.6 percent from 2005 to 2007 (from 89 to 134 jobs), and industry employment has nearly tripled since 2000, when there were 46 jobs in the state. Wind-powered turbine generator units manufacturing is classified as NAICS code 33361— Turbine and Power Transmission Equipment. In Minnesota there were 17 firms and 572 jobs with average weekly wages of $905 in 2007. These data do not include Moventas, a Finnish builder of gearboxes for wind turbines that announced plans in September to open a production facility in Faribault, about 40 miles south of the Twin Cities in Rice County. The facility is expected to employ 100 people initially.

Wind and solar power line construction is classified as NAICS code 237130. In Minnesota 179 firms provided 1,880 jobs with average weekly wages of $1,042 in 2007. The industry has grown 6.4 percent from 2005 to 2007. Wind-generated and solar-energy electrical power regulation is classified as NAICS code 926130—Utility Regulation and Administration. In Minnesota there were 21 firms and 588 jobs in 2007 with average weekly wages of $914 (see Table 2).

According to data from the Quarterly Workforce Indicators (QWI) program from the U.S. Census Bureau, the wind-energy industry has relatively low turnover rates in Minnesota. QWI provides insight into worker retention, but only as specific as the four-digit NAICS code level. According to annual data through the second quarter of 2007, turnover rates were lower in all but one of the wind-energy subsectors than in the total of all industries (see Table 3).

Long-term Strategy

DEED’s long-term strategy is to create a complete turbine industry in Minnesota, including nameplate manufacturers. Original equipment manufacturing is the prize. It provides a nearby market for component suppliers and a marketing vehicle for the state. When other European turbine manufacturers see competitors thrive in Minnesota, they are likely to follow them here, according to the agency.

Thanks to innovative entrepreneurs, aggressive industry leaders, and supportive state politicians and policies, Minnesota is well-positioned in the renewable energy industry in the United States.

 [1] www.20percentwind.org/default.aspx
[2] www.awea.org/pubs/documents/Outlook_2008.pdf
[3] www.awea.org/newsroom/releases/AWEA_Market_Release_Q108.html
[4] www.newrules.org/de/mnrenewable.html 
[5] www.capx2020.com/