Pa. to leverage a mighty wind 

If wind energy ever plays a big role in Pennsylvania’s economy, a little-noticed 2003 recycling conference in Bilbao, Spain, may merit some of the credit.

Bilbao is in Spain’s Basque region, home to Gamesa Corporacion Tecnologica S.A., Spain’s largest wind-turbine manufacturer and a worldwide leader in the burgeoning wind-energy business. One of the speakers at the recycling conference was Kathleen McGinty, Pennsylvania’s newly minted secretary of environmental protection.

McGinty had heard that Gamesa was scouting locations for a U.S. expansion, possibly in wind-rich Texas. So the Philadelphia native took an extra day and made a pitch for her home state, beginning a series of meetings between Gamesa and state and local officials.

Today, fruits of those visits are evident across Pennsylvania, where Gamesa expects to have 1,000 people on its payroll by year’s end. It runs factories in Bucks County and Ebensburg, near Altoona, and has its U.S. headquarters in Center City. This month, it named a Philadelphia lawyer, Julius Steiner, as its U.S. chief executive officer.

By the end of the year, wind farms Gamesa is developing along the Allegheny Mountains ridgeline are expected to generate up to 150 megawatts of power – a small fraction of the state’s electric needs, but enough to serve about 38,000 to 50,000 homes.

McGinty and other wind-energy proponents say Gamesa’s Pennsylvania investments – so far totaling $110 million, nearly six times the $19 million in incentives from state and local governments – are a sign of the economic potential of renewable energy in the U.S. Rust Belt.

But the company’s experiences here also reflect challenges facing Gamesa and other leaders in wind energy, a capital-intensive business subject to the volatility of energy markets and vicissitudes of governmental policies.

Interest in wind energy is soaring. Yesterday, Gov. Rendell helped dedicate Pennsylvania’s seventh multi-megawatt wind farm, in Schuylkill County. The new Locust Ridge Wind Farm, owned by Spain’s Iberdrola S.A. and developed by its Radnor affiliate, Community Energy Inc., is equipped with 13 two-megawatt turbines built by Gamesa.

In the last six months, new wind farms have been announced in places as diverse as China, Peru, Egypt, Morocco, Spain, Iowa, Minnesota and Montana. By one recent estimate, wind-energy investment will total $150 billion over the next five years in the United States, Europe and China.

One result of the wind boom has been slower delivery of wind turbines and a spike in prices by as much as 25 percent. Steiner, who takes over July 1 as Gamesa’s U.S. chief, said turbines ordered now would not be delivered until 2011.

The boom has even bitten into Gamesa’s profit, which dipped 14 percent in the first quarter after more than doubling in 2006. Vertical integration helps – unlike its main competitors, Gamesa develops wind farms with its own turbines – but it said it suffered from a shortage of supplies such as carbon fiber and resulting delays in getting projects under way.

Wind’s success is a result of its enviable status as a green power that has matured enough to bring green to investors.

No industrial product is entirely clean. But aside from the waste byproducts from building and installing wind equipment, wind energy generates no pollution, no carbon dioxide that contributes to global warming, and none of the radioactive waste that bedevils the nuclear industry.

“It’s the only commercially viable energy resource today that can claim zero emissions. And there are also no toxic byproducts,” said Gamesa spokesman Michael Peck.

To be sure, wind owes some of its rising commercial viability to government support, including the current federal-production tax credit of 2 cents per kilowatt-hour, which runs through the end of 2008.

Advocates such as Rob Gramlich, policy director of the American Wind Energy Association, an industry group, argue that all energy industries get subsidies, either directly or through the tax code. His group wants Congress to extend the tax credit for five years, arguing that investors have been scared away by the credit’s on-again, off-again history.

Also important to wind’s success are state targets such as those in Pennsylvania, which by 2020 will require utilities to obtain at least 8 percent of the electricity they sell from clean, renewable resources such as wind and solar power.

Gamesa’s Peck said consistent government standards had been crucial to the success of Europe’s wind-power companies, such as Gamesa and Iberdrola, which leads the world in wind-power production.

“In the Spanish state of Nevada, wind is 45 percent of power generation,” Peck said. Overall, he said, Spain gets 8 percent of its electricity from the wind.

U.S. production is minuscule by comparison, less than 1 percent of the country’s electricity use, despite growth that Gramlich said had averaged 22 percent a year since January 2002. By the end of 2006, the nation’s wind-energy capacity was rated about 11,600 megawatts, or about enough to power 3 million homes, Gramlich’s group says.

McGinty, the Pennsylvania environment official and onetime environmental adviser to President Clinton and presidential candidate Al Gore, said she watched in frustration in the 1990s as European companies took the lead in renewables, after a long dip in world oil prices sapped U.S. interest sparked by the 1970s’ price shocks.

“The great tragedy in this story is that most of the basic technologies were invented in the United States,” McGinty said. “And then the United States lost interest in that technology, and we lost multiple billions of dollars in investment to Europe and Asia.”

Now McGinty has hopes of getting some of that back, in part by encouraging Gamesa to expand and by trying to lure companies that are part of its supply chain.

McGinty said her pitch had not changed from the one she gave Gamesa: Pennsylvania has a reliable workforce, great location, solid infrastructure and electrical grid, and good highways and railroads for delivering turbine components – all crucial considerations for making, delivering and using Gamesa’s massive wind-power units, which are topped by three six-ton blades and, from ground to blade-tip, stand about 40 stories tall.

Europe’s wind-energy industry is mature and looking for new markets, McGinty said. “Our goal is to bring the companies themselves to Pennsylvania – to hire Pennsylvanians and bring investment and jobs to our economy,” she said.

For its part, Gamesa has made other U.S. forays, including the opening of wind farm development offices in Minnesota and Texas, and hopes to develop wind farms in 15 to 20 U.S. states. But company officials say that Pennsylvania, thanks largely to support from the state’s government and its electrical utilities, remains fertile ground for this still-fledgling U.S. industry.

“We’re always looking for opportunities, but we’re focusing a lot of our efforts on Pennsylvania,” Steiner said.

Facts on Gamesa

Headquarters: Vitoria, Spain 2006 sales: $3.2 billion

2006 profit: $420 million

Employees: 4,604 worldwide; 800 in Pennsylvania.

History: Created as Grupo Auxiliar Metalúrgico in 1976 and renamed in 2002.

Products: Gamesa-built turbines in more than 12 countries produced 2,402 megawatts of energy in 2006.

Stock: Traded over-the-counter as GCTAF, Gamesa shares rose 90 percent in the last year from $19.60 to $37.15 as of yesterday.

By Jeff Gelles
Inquirer Staff Writer

The Philadelphia Inquirer

20 June 2007