Future of tax credit on mind of Siemens plant

Aug 19 - McClatchy-Tribune Regional News - John Green The Hutchinson News, Kan.

Amid growing layoffs in the wind industry, Siemens Wind Power officials are developing a response plan for Hutchinson's nacelle manufacturing plant should a federal wind tax credit expire.

"We're making plans either way, for either scenario," whether the tax credit is extended or ends as scheduled on Dec. 31, said Jim Jones, director of manufacturing for Siemens North America and Hutchinson's interim plant manager.

"As of right now, we don't have a final firm load plan we can base those decisions off of," Jones said, referring to future orders. "We're ready either way, to go with full production or make minor reductions."

Anomaly year

The Hutchinson plant, which opened in October 2010, may see some layoffs whether the 2.2-cent per kilowatt credit is extended or not, Jones hinted. But without an extension, more cuts would be likely.

"We have load (orders) going into next year," Jones said. "But it's important people understand this year was an anomaly. Because of expiration of the (production tax credit), all the companies had to gear up (to beat the expiration deadline with their orders.) Hutchinson's production is in excess of what we'd normally expect. What we'll see is a realigning of that load."

The plant is -- and has been -- at its peak production level much of the year, with more than 400 employees. Temporary workers, employed through several local agencies, make up a portion of the payroll, however.

"It's well under 50 percent," Jones said of the number of temporary workers, declining to be more specific.

If there are job cuts, those workers would be the first affected.

"That's why we have temporary contract workers, so we can make minor adjustments as necessary," Jones said.

"We don't anticipate any mass layoffs," Jones said. "That's a bad word and gives the wrong connotation of what we're seeing. We know there will be a drop in new orders, but there are orders."

As far as the timing of any payroll decision, Jones said he didn't expect action on the federal legislation until at least November.

"We have a pretty good feeling that Senator (Chuck) Grassley's (R-Iowa) bill (extending the PTC) will proceed through the Senate," Jones said. "We're looking forward to see what the House does. I think the consensus was when the House returns later this month it will take up the bill. Then it will probably be November before they make any kind of binding votes."

Upstream impact

The production tax credit is a federal income tax credit available to energy companies that helps bring down the cost of buying wind power.

"By our estimates, the reductions in the cost of wind power (from the credit) are pretty significant," said industry expert Mark Bolinger, with Lawrence Berkeley National Laboratory's Environmental Energy Technologies Division. "In Kansas, which has great wind resources, some of those projects are selling output in the $30 to $40 per megawatt range. Without the PTC, it sells for $50 to $60 per MWh."

"That of course impacts the ability of a utility to buy, and it doesn't make as much sense to offer long term contracts for wind," he said.

The failure to extend the tax credit is being felt first, Bolinger said, by companies that make outsourced components for the larger manufacturers.

"We've seen announcements of layoffs," he said. "Some are coming from the big turbine manufacturers. But a lot are among the component suppliers."

Last month, Gamesa made 165 temporary layoffs at its two factories in Pennsylvania.

On Aug. 6, turbine blade manufacturer LM Wind Power revealed it was cutting 234 jobs at its Little Rock, Ark., plant, including 140 temporary workers.

Then last week Vestas announced it was cutting jobs at its Pueblo, Colo., wind tower plant, Texas-based Trinity Structural Towers said it's moving some of its production from wind to making railcars and DMI Industries announced plans to close its Tulsa, Okla., factory and sell another, laying off 167 people.

"It's going to be tough," Bolinger said. "At this point next year, it's not going to be a very good year for wind power installation in the U.S., even if the PTC is extended at this point. There's a lead time. Turbines are very large and require time to manufacture."

If Congress fails to extend the PTC, Bolinger said, "I think there will probably be a period of inactivity, where everyone is waiting around to see if it gets reinstated. Unfortunately, I think there will be a waiting game until there is some certainty it's not coming back at all. I think the industry is trying to make do and proceed as best it can without the credit... I think the uncertainty is the major issue here, just because people will sit on their hands until there is more certainty."

Rep. Tim Huelskamp, who has a residence in Hutchinson and Fowler, and Rep. Mike Pompeo, of Wichita, have repeatedly expressed opposition to extending the credit, despite support for the extension from Gov. Sam Brownback and Sen. Jerry Moran.

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