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Oh, I wish I had the time to write more here.

There's a lot I agree with, and some nitpicking that I'd like to do.

In defense of Bob Oak, I think that a great deal of the outrage is less at the fact that that money is headed overseas, than that there is a lack of an effective industrial policy to integrate expertise from overseas to build American industry.  Basically, he's pissed that there isn't an industrial policy here......  

Which means that in large part, you two are in agreement.

For me, I'm far less worried about European investment, Vestas, Gamesa, etc.... then the very clear threat from the Chinese.  Vestas and Gamesa have made committments to local content in North America.  A-power and the Chinese startups haven't.

I'm researching the Basque renewable energy cluster right now, and it's clear that industrial policy was a huge part of it. Eventually this is to be my dissertation.

Local content requirement allowed Gamesa to emerge from under the shadow of Vestas, and create a Spanish wind energy base.

This was done through protecting the domestic market for Spanish produced turbines, and only once this base was built beginning the process of internationalization.  

Ok, let's shift that to the side, and talk about China.

It's clear that the Chinese have an industrial policy in place to not only protect their local market but to monopolize control over the raw materials (95% of rare earth minerals used to make the permanent magnets used in wind turbines are mined in China. The other 5% is largely in Australia, and much of that is under the control of China non-Ferrous, as when they bought Lynas.) It's not just wind turbines, it's everything that has rare earth magnets in it.

The Chinese have placed export quotas on the minerals themselves and the magnets.  They are using their control over these to fuel a strategy of vertical consolidation.  They want to create (and have at least for periods) differential internal and external prices for these products.  And that creates a huge advantage in terms of centering production in China.

Since US government funds are going to purchase several hundred turbines from A-Power produced in China, helping to fuel this strategy of vertical consolidation, there is a reason for outrage.

It's this very specific case with China that is the problem.  And if it's allowed to proceed, the Chinese will make sure that they only components of the full wind turbine that are produced in the United States are low value added, e.g. outside the nacelle, the towers and the blades.

That is a reason for concern.

You agree that local content requirements are a good industrial policy, but it has to account for value added, so that you have the local content in the nacelle, not just the blades and towers........

So much more I could say, not enough time....  Maybe after the semester wraps up.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Nov 10th, 2009 at 01:17:50 PM EST
If the USA is to respond to Chinese "neo-mercantilism" or allegations of dumping or in any way, it would seem that much of that response should be focused on their wind energy products.  Kill two birds with one stone. Give an incentive to China to revalue their currency and revise their "neo-mercantilism" and reward European countries that have invested in US based factories.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 10th, 2009 at 02:27:54 PM EST
[ Parent ]
... the oil companies taking advantage of an unreflective, poorly thought out populism to attack the very policies which would do the most good in laying the foundations for investment in US manufacturing in wind turbines and other equipment to harvest sustainable, renewable energy resources.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Nov 10th, 2009 at 05:52:11 PM EST
[ Parent ]
Before i wade into this discussion, one analysis i can provide for background is a salient discussion of what is behind A-Power.  I write this in full agreement with MfM's worry about the "very clear threat" from China (meaning Chinese turbine manufacturers.)

China does indeed have an industrial policy designed to jump-start the Chinese industry.  To qualify for any government program in China, the turbines must be 70% sourced in China.  This has led to a huge business in technical licensing of designs from established European shops. The only other pathway for western firms to enter the market is to form joint ventures with Chinese firms, or to actually establish subsidiaries, like Vestas, Nordex, GE, and Gamesa.

Virtually all of the European design shops have license arrangements with Chinese companies, as well as some manufacturers like REpower. The licenses themselves run the gamut in quality, including designs from the top shops like aerodyn, to very poor shops whose sole interest is royalties.

Background to this analysis is that such industrial policy is known to the Chinese to be fraught with potential failure for many firms. The Chinese wind industry has exploded so quickly that in general the performance level of the equipment is very poor. We have been told by officials that they expect up to 90% of the firms to fail, but that is the method to create a competitive industry globally.

A-Power existed as a near consulting firm, with a controversial background. They acquired the license for this turbine from a 3rd tier German manufacturer, Fuhrländer, who had little real success in Europe, but had great licensing success in Germany.

In fact, Fuhrländer provided the licenses for China's largest manufacturer, Sinovel, even though they could barely sell the turbine in Europe.  Before these licenses, Sinovel barely existed.

The German company acquired a further license for a 2.5MW turbine, but this time from a reputable design shop, W2E, made up of ex-Nordex designers. They've produced a few dozen of the turbines here in Europe, which i've analyzed and found excellent, at least as far as the design.

Instead of a further license with their partner Sinovel, for some reason  Fuhrländer sold the license to a firm with no prior manufacturing experience, and a shady past, A-Power.

A-Power's first turbines were completed this summer, and they are now in full production for both Cielo in Texas and the Chinese market. Production lines established before any testing is completed have a history of failure in the wind industry, and that's very possibly the case here.

Such failure would not reflect on the design from W2E, rather the QC at manufacturing level.

Strangely,  Fuhrländer has also licensed the technology to a start-up in the US, which was planning to establish manufacturing of the design in the US.  They will likely now be undercut by A-Power, a very queer decision by  Fuhrländer. At least two of these turbines are currently operating in the US, which i believe to have been manufactured in Europe.


"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Tue Nov 10th, 2009 at 03:24:04 PM EST
[ Parent ]
Sooo much good information here.  Of which I had little idea.....  So happy that you wrote this here.

Do you have any good sources of info about the A-Power story?  There's been a spate of stories written in the popular media in the US, but none have framed it in terms of industrial policy.  I've been wanting to explore this case with China further.  It seems that a really good article could be written in this vein, making the story understandable for a broad audience outside of academia.

Thanks for the comment.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Tue Nov 10th, 2009 at 03:44:59 PM EST
[ Parent ]
There's not a lot of verifiable info on A-Power, much of what i've learned is through direct contacts with analysts.  I've been told that the father of A-Power's president is in jail in the US for securities fraud, which analysts claim to have verified, but i haven't.

What's most important to me is that industry history makes it unlikely that the turbine will be successful, despite its pedigreed design. The turbine has been undergoing testing in Germany since 2008, and there are several dozen installed this year in Europe. i was impressed when i visited three of them, after two days with the design team.

Chinese turbines' capacity factor is far lower than standards here, and that's for the best machines. it will take a minimum of 3-5 years before European quality begins to be reached, and likely longer.

Here's the turbine on the highest tower in the world, 160m.

What's even weirder about the story is that A-Power's license is upgraded from the somewhat tested 2.5 design to the untested 2.7MW version.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Tue Nov 10th, 2009 at 05:31:41 PM EST
[ Parent ]
I'd note that rare earth help make better magnets but it is possible to build wind turbines without them if need be. The main loss is one of weight, and maybe a few % of net generation.

Maybe CH can comment more on that.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Nov 10th, 2009 at 04:37:28 PM EST
[ Parent ]
It's true the prime advantage is weight, particularly with the bulky and heavy low speed generators for gearless turbines (and to a lesser degree hybrid turbines with a one or two stage gearbox.) net energy loss at this point is minor, perhaps less than a percent.

Saving weight is about lessening loads on rotating equipment, and lighter generators help.  perm mag gens when properly designed likely decrease downtime and mtbf.

There are likely to be other sources of rare earths down the road, but that's just speculation on my part.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Tue Nov 10th, 2009 at 05:09:48 PM EST
[ Parent ]
There are other sources of rare earths but capital is required to develop them.  Unless they are given an assurance of a market price adequate to service the debt they can't be developed. Likely only a sovereign govt. could provide such assurances, as the venture would be vulnerable to being sabotaged by the Chinese simply by selling rare earths at prices below the cost of production for the new mine. And a government guarantee would be labeled "Socialism!" We are hoist on the petard of our own economic ideology.

The USA could easily this problem by negotiating an agreement with China that either gets an agreement on the minimum prices at which China will sell rare earths or agreement to sell rare earths to the USA at the same price they are sold to Chinese companies and making access to the US export market contingent on that agreement. But that would be serving the national interest of the USA but not the corporate interests of the energy companies and the financial services companies involved in importing manufactured goods from China.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 11th, 2009 at 12:42:38 AM EST
[ Parent ]
Well, one could leave this to the market as well. If the Chinese block all exports the price will go up and capital will be available outside China. Sure, there is always a risk that China undercuts the price ot threatens to do so, but that doesn't make much sense as China isn't interested in exporting these minerals. That's the problem.

I'm also sure new miners could reach long time fixed price supply deals with the large consumers of rare earth minerals, which are crucial not mainly for wind power but for hitech armaments.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Nov 11th, 2009 at 02:52:09 AM EST
[ Parent ]
rare earth minerals...are crucial not mainly for wind power but for hitech armaments.

Well, I knew that iridium is often used as a "flashing" over metal parts used in electronics, as I used to purchase rotary switches with iridium flashings for audio console applications, and iridium is a rare earth, the one whose deposition at the boundary of the Cretaceous marked the extinction of the dinosaurs, of which my console was one.  :-)

If they are important primarily to hitech armaments the production could be guaranteed by the US Government, but commercial products would still cost more than alternate products made with Chinese raw materials, not to mention virtually free labor. Plus any commercial use of "strategic" materials would involve the user with bureaucratic requirements, etc.

Others could better judge the likelihood of investments for rare earth mines being funded absent guarantees, but I would favor slapping an ~ 20% tariff on ANY product containing embargoed "strategic" materials. And while we are at it, phase in tariffs to cover the cost of providing health care and retirement benefits to Chinese workers. Were China to respond by dumping $US they would be hurting themselves and the Fed is already involved in massive QE anyway.  What does another $2-3 trillion matter. It is fiat money anyway. Deal with consequences with new fiats.  :-)

The US would have to pay more for domestically manufactured consumer goods but would have a vastly improved national accounts balance. The ones hurt would include those who bet on the "manufacture everything in China" strategy. All of the "Free Trade" "Globalization" bull shit has mostly been propaganda in the service of the financial sector.  Time for an Industrial Policy worthy of the name that serves the interests of the average US citizen instead of the existing de-industrialization policy that serves the interests of a parasitical financial sector.  

Chop! Chop!      USA!  USA!  USA!

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 11th, 2009 at 08:58:21 AM EST
[ Parent ]
No, iridium is one of the platinum metals (along with osmium and platinum) but it is certainly rarely occuring.
by njh on Sat Nov 14th, 2009 at 08:56:27 PM EST
[ Parent ]
I know that you're right.  It's the role that a marginal price and performance advantage coupled with massive wage arbitrage can play in leading the value added part of the industry (aka the stuff inside the nacelle) to cluster somewhere in China.  

That said, in terms of access to resources as a technological, rather than price, restraint, the problem is undoubtedly far larger for hybrid and electric vehicles.  I see huge problems there, simply in the quantities required for large scale production of hybrids.  Total 2008 production in China was  25,000 tons for neodymium and 31,000 for lanthanum.

Both are need to makes hybrids.

Each electric Prius motor requires 1 kilogram (2.2 lb) of neodymium, and each battery uses 10 to 15 kg (22-33 lb) of lanthanum. That number will nearly double under Toyota's plans to boost the car's fuel economy, he said.

Toyota plans to sell 100,000 Prius cars in the United States alone for 2009, and 180,000 next year. The company forecasts sales of 1 million units per year starting in 2010.

This means that if Toyota got the entirety of Chinese production it would be limited to around 23 million by the neodymium, but  the lanthanum would limit it to somewhere between 1.8-2.8 million vehicles annually. With wind turbines seeking these same minerals, that is going to create an issue.  At least in the short term, monopoly control over these minerals (at a level that OPEC could only dream of) could allow them to pursue a policy that made it nearly impossible for "green energy" industries to be developed, or sustained, in Europe and the US.

Plus, the question of whether it's hybrid cars or wind turbines that suck up that supply of rare earths is going to have to be answered.  Looking at these difficulties, I'm more and more enamored of the potential of using ammonia as an ertzatz hydrogen carrier, produced through electrolysis, to fuel vehicles.  Which means that thew turbines get the rare earth's, but if we are looking at this in strictly market terms, it's likely that the cars win.........

Ugh....  

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Wed Nov 11th, 2009 at 04:02:47 PM EST
[ Parent ]
re ammonia and stored windpower, are you aware of stranded winds visionary diaries here and at dkos?

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Thu Nov 19th, 2009 at 08:24:53 AM EST
[ Parent ]

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