Buy American: The Wind Industry's Achilles Heel

(MoneyWatch)  Four Senate Democrats, worried that too much stimulus money has gone to foreign companies, introduced legislation that would only fund renewable energy power projects that rely on materials made in the U.S. And in the meantime -- before another dollar goes overseas -- the senators want to suspend the clean-energy grant program.

The effort couldn't come at a worse time for the U.S. wind energy industry, which is already bracing for a challenging year of tight credit and fewer installations.

Government projects financed in part by the stimulus must already meet buy American requirements, which means they have to rely on iron, steel and manufactured goods made in the U.S. The new legislation introduced by Sen. Charles Schumer, D-N.Y., would apply the buy American standard to private projects that seek stimulus funding. Grant money would only go to projects that preserve and create jobs in the U.S.

Here's the problem: Protectionist measures in a global economy are highly problematic because in many cases there simply is not a domestic manufacturer to pick up the slack. Instead the global companies move onto to a market that wants the product, in this case wind turbines. This means the wind farm project dies, and along with it, the construction and maintenance jobs.

Part of the buy American credo is that manufacturing jobs are more valuable because they employ more people, pay better and last longer than the construction gigs. And that's not incorrect. But centering the argument on construction and maintenance versus the turbine-maker jobs is too simplistic.

The wind energy industry -- and virtually every other industry, mind you -- is supported by numerous other businesses in the supply chain. It's not just about building the massive turbine blades or steel towers. There are companies, like U.S.-based American Superconductor (AMSC) for example, that design turbines for manufacturers and build the components used in the electrical systems. And from there any number of local and regional subcontractors get involved in the process.

Which means local suppliers benefit when a foreign company launches a project in the U.S. And that's because of the local supplier's proximity to the project. It just makes sense for a company building a wind power project to use local suppliers for components, American Superconductor spokesman Jason Fredette told me.

Keeping the market open tends to help, not hurt, the U.S. wind industry, Fredette added. And while he's not worried about the buy American provision, he did note that if the legislation is passed, it would keep foreign companies from investing in wind energy projects here. And that's problematic because there are very few U.S.-based turbine manufacturers. GE (GE) is the largest and even it doesn't make all of its turbines here in the U.S.

U.S. companies considering getting into the turbine manufacturing business may be discouraged from jumping into an industry that has stalled. There already is little appetite among U.S. companies to get into turbine manufacturing compared to say, South Korea.

Take American Superconductor for example. It may appear that the company doesn't need the U.S. wind energy industry. After all, the company has a global reach and in fiscal 2008, 84 percent of its wind energy sales were outside of the U.S. The company has grown in places like China and India, where there's high electricity demand and incentives. And in South Korea, for example, companies like Hyundai Heavy Industries have invested aggressively in wind energy because they see opportunity, not risk in the industry, Fredette noted. That same view doesn't exist in North America, he said. But that doesn't mean American Superconductor isn't interested in the market here. In fact, one of its goal in the next 24 months is to find a U.S. manufacturing company to commission turbines.

The wind energy industry -- and local manufacturers -- would benefit far more from long-term incentives or a renewable energy standard than a buy American provision. what's needed are measures that will encourage tentative U.S. companies to get into the turbine manufacturing business.

Photo of wind turbines by Flickr user Caveman, CC 2.0