Governors' Wind Energy Coalition

Photograph by Joshua Lott/Reuters, TPI Composites supplies turbine blades to GE

Vic Abate expects that many makers of gearboxes, towers, and blades for wind turbines will go under next year. He should know: As vice president of General Electric’s (GE) renewable energy business, Abate is the executive who will seal their fates.

With a federal tax credit that subsidizes the U.S. wind industry set to expire at the end of 2012, GE is scrutinizing its supply chain. That’s significant as the Fairfield (Conn.)-based company is the market leader in wind, with a 29.4 percent share in 2011, according to the American Wind Energy Association (AWEA). Uncompetitive vendors will be culled, Abate says, while stronger suppliers will be offered operational and financial assistance. “We’re in the process of picking winners and losers,” he says

A looming industry shakeout may give Abate an opportunity to wring better terms from his 200-plus vendors. The company might have as many as 10 suppliers for certain components now, a figure that may dwindle to just three once he is finished pruning.

Manufacturers of turbines and other components will shed an estimated 10,000 workers in the U.S. this year in anticipation of a slowdown in orders, says the AWEA. If Congress doesn’t extend the production tax credit, that figure will hit 37,000 next year—about half the industry’s workforce. The incentive, first offered in 1992, grants owners of wind farms a credit equal to 2.2¢ per kilowatt-hour for electricity produced over a 10-year period. Extending the break for just one more year would cost $4.1 billion in forgone tax revenue over a decade, according to estimates from Congress’s Joint Committee on Taxation. Senator Charles Grassley (R-Iowa), one of the sponsors of a bill that would preserve the credit, has said he expects no decision until after the November elections.

“Without an extension this industry is going to be in real trouble,” says Steven Lockard, chief executive officer of TPI Composites, a maker of blades that counts GE among its financial backers. “The job cuts are coming pretty quick, depending on where you are in the supply chain.”

If the tax credit is renewed near the Dec. 31 deadline, it will take six to nine months for production rates to rebound, said Peter Duprey, CEO of Broadwind Energy (BWEN), during a May 9 conference call with investors. The maker of steel towers got more than 10 percent of its sales from GE in 2010. Kaydon (KDN), a manufacturer of ball bearings that counts on GE for one-tenth of its revenues, is also bracing for tough times. “There will unquestionably be a dropoff in wind shipments and production,” Kaydon CEO James O’Leary said in a May 9 conference call.

As the industry leader, GE is in a better position to weather the loss of incentives. Its orders for wind turbines more than doubled in the first quarter, from a year earlier, partly because wind farm developers are scrambling to beat the December deadline.

GE suppliers will be scored on efficiency, quality, and price, along with the strength of their balance sheets. “The ones that have the best quality and the lowest cost position are the ones that are going to win,” says the GE veteran. Sounds like Survivor, the reality TV show pioneer—except in Abate’s version, there’s no 11th-hour immunity. “Once you’re out, you’re out,” he says. “There won’t be any head-fakes.”

The bottom line: General Electric, the No. 1 maker of wind turbines in the U.S., is winnowing its supply chain in anticipation of an industry shakeout.