Wind of Change: The economics of wind power

Wind is a clean, natural, and inexhaustible power source providing an increasing amount of electricity around the globe. While environmentalists have voiced concerns about the effects of large wind turbines on bird and bat populations, and there have been outcries over the aesthetics of wind farms, the carbon-free power source is having a positive economic impact where the farms are being built, and where turbines are manufactured. But, because of the huge capital investments required, the full potential may not be realized for some time to come.

Like the auto industry, the wind turbine industry is dominated by a handful of major manufacturers, such as GE, which depend upon a myriad of small companies to supply the many parts that go into an electricity-generating wind turbine. From afar, the windmills, which I’m told can weigh up to 75 tons, don’t look that complex, but these huge machines include not only the visible spinning blades but gearboxes, generators, computers, controls, frames and much more. All the pieces and parts need to be made by specialist manufacturers.

Consider, for example, Cardinal Fastener, a Cleveland-area company visited in January by President Obama. Cardinal makes the large nuts and bolts needed to hold together enormous parts. It is but one of dozens of companies that supply GE its competitors.

As important a role as wind power is playing, isn’t it also subject to the same financial pressures felt by most other industries today? It’s not immune. Consider again Cardinal Fastener. Shortly after the president’s visit, Cardinal announced it was laying off 12% of its workforce because orders from traditional large equipment manufacturers, such as Caterpillar, as well as wind turbine manufacturers had slowed. Cardinal later applied for a loan from the State of Ohio which it received early this month and will rehire laid-off workers and add about 20 people to its staff.

With investments of up to $3.5 million needed for each installed wind turbine, access to capital is crucial to new wind farm installations. Yet some economically distressed areas are considering harnessing wind power as a way of creating jobs and increasing the tax base. The Lorain, Ohio, city council just this week announced that it is supporting the erection of a 13 turbine wind farm in Lake Erie just north of the city. To make this project happen, it has applied for a $9.8 million grant from Ohio. The nearby Village of Sheffield Lake earlier announced plans to build a land-based wind farm for which the city has applied for $14 million of federal stimulus money. Many jobs will be created during the construction and installation phase and additional people will be needed to monitor and maintain the wind-powered generators.

If sufficient federal stimulus money and private investment is available the industry should take off. Not only is Cardinal hiring, but the Detroit News recently announced that a new wind turbine assembly plant in the suburb, Novi, will hire 250 people. It said this is one of about two dozen Michigan plants in the wind turbine manufacturing food chain.

A surprising, to me, aspect of the wind economy is its effect on tourism. The conventional wisdom has been that wind farms would be detrimental to tourism. However, a 2007 study done by researchers at the Strom Thurmond Institute of Clemson University suggests that wind-farms actually can draw tourists and predicts that a proposed wind farm off the coast of South Carolina could result in annual revenue of $500,000 from tourism. It stated that the wind farm in Palm Springs California draws about 12,000 tourists each year, and areas of Scotland and Denmark with wind farms have seen up to a 25% increase in tourism.

While the full future economic impact of wind generation is probably yet a bit fuzzy, there’s no doubt of the importance and significance wind power and other renewable energy sources will have. There is a lot of room for growth, as wind-power contributes only one percent of electric energy generated in the United States.