Manufacturing Reputations


November 29, 2013

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As wind energy projects proliferate worldwide, and the industry supply chain starts to take the shape of other global manufacturing sectors, there are bound to be some bumps along the road.

Take GE, a global manufacturer of wind turbines that recently has started to see a few issues with blade breakage and failure at some wind farms in the US.

The most recent incident occurred at an Invenergy development in California, and was the fourth incident to have occurred with blades from a GE 1.6-100 model with 48.7m blades.

Upon testing of the failed components, GE admitted that up to 1.5% of its global turbine fleet may be similarly affected, with the suspect blades having originated from the same Brazilian factory.

As manufacturers move into new geographies and establish new factories, and despite the best quality control systems in the world, it is highly likely that new components will not be of the same quality as those from existing factories in established markets.

And whilst there is a strong incentive to move manufacturing to new markets to cut costs with lower overheads, the potential serial defect that may result can damage a lot more than just the equipment on the day.

Company reputations and track records depend on their reliability, something that is especially crucial in the wind industry as lenders and investors embark on ever more stringent due diligence when evaluating the supply chain for projects.

But there is a conundrum for manufacturers. Whilst looking to capitalise on a new appetite for wind energy projects in the emerging market, some countries are demanding that new projects contain a certain percentage of ‘local content’.

In practice this means that branch-plant factories need to hire local employees and use a locally based supply chain.

This is obviously great news for countries looking to conflate wind energy with economic growth, and there’s an argument to say that there are some established markets, such as the UK, that have failed to learn this lesson. But it brings a new risk paradigm to projects in the emerging markets, that commensurately pushes up the cost of capital and insurance risk.

It is only of course an issue that is solved with time, as new manufacturing facilities work through initial teething problems and early production stages. And like heavy manufacturing industries that have gone before it, the wind industry will eventually benefit from a global supply chain with parts of the same quality, available worldwide.

It’ll be a few years yet, and this of course assumes the continued growth of the industry, but in the short term, the battleground lies with the manufacturers as to meeting the challenge of expanding into new grounds without compromising corporate reputations.

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