Naperville-based Broadwind Energy Inc. has been hungrily snatching up companies in a concerted effort to be the premier wind turbine provider. Broadwind, however, along with others in the alternative energy industry, is counting on the Renewable Energy Production Tax Credit Extension Act of 2009.

Under this act, introduced Jan. 9 by Rep. Earl Pomeroy, D-N.D., producers of electricity from certain renewable sources would continue to receive the present 2-cents-per-kilowatt-hour tax credit for five more years. Without this credit the industry can't compete with fossil fuels.

“It’s all relative to demand,” said Karen Keller, a company spokeswoman, referring to Broadwind’s future growth, “and we’re hopeful with the new stimulus package and legislation.” 

The $819 billion economic revival that the House approved Wednesday allocates $18.5 billion to energy efficiency and renewable energy programs.

The aggressive Broadwind Energy, formerly Tower Tech Holdings Inc., has acquired four companies in the past 15 months. The company, which became public in February 2006, most recently acquired Badger Transport Inc. in June 2008 to handle transportation logistics for other subsidiaries of the company.

“The strategy behind Broadwind as a whole is to be everything from soup to nuts, the whole component to make wind turbines,” Keller said.

But are these acquisitions wise given the state of the economy?

The hard question to ask is “why would you ever want to get away from your core competency?” said J. Eric Svaan, lecturer of operations and management science at the University of Michigan. It’s important to make sure supply chain decisions are justified and to weigh the risks of greater exposure to debt, he said.

Recently, one of Broadwind's Brad Foote Gear Works Inc. plants “moved to a larger facility to accommodate future growth,” Keller said. Brad Foote has three manufacturing plants, two in Cicero that employ about 400 workers total, and one in Pittsburgh.

Symptomatic of expansion, Brad Foote has nine machinist openings on its Web site, eight of which require a 12th grade or equivalent education level. Tower Tech, now a Broadwind subsidiary, also has multiple online job postings. “A lot of our staff came from the auto industry,” Keller said, “having tech training does help.” While the auto machinists may not be an exact fit, “Broadwind is committed to doing the training if need be,” she added.

In a gloomy report on Illinois manufacturing jobs last week, Manufacturers' News noted that one bright spot is increased employment at Siemens Energy and Automation, a unit of Siemens AG that makes wind turbine gears in Elgin.

The job picture is impressive, given the frozen credit market. The American Wind Energy Association stated in a press release Tuesday, “at year’s end…financing for new projects and orders for turbines slowed to a trickle and layoffs began to hit the wind turbine manufacturing sector.”

Cameron Drecoll, Broadwind’s chief executive, is still bullish. “Brad Foote continues to grow well above industry levels and has for the second year in a row. 2009 will be another record year,” Drecoll said in the November/December 2008 Gear Technology issue, a publication of Elk Grove Village-based Randall Publishing Inc.

Brad Foote Gear Works produces wind energy gear boxes, or transmissions for wind turbines with capacities up to 2.5 megawatts. Currently, 60 percent of gears produced by Brad Foote are used by the wind industry. Brad Foote’s primary customer is Clipper Turbine Works Inc., which assembles turbines in its Cedar Rapids, Iowa facility.

The typical wind turbine capacity is 2 megawatts to 2.5 megawatts, said Fernando Ponta, assistant professor of mechanical engineering at Michigan Technological University.

Further clouding Broadwind's future is a question of who will own a controlling block of the company's stock.

Broadwind Energy stock has taken a nosedive over the past eight months. Today, the stock is trading for around $5, compared with upwards of $28 in June. Tontine Capital Partners LP, based in Greenwich, Conn., filed an amended 13D on Jan. 9 to disclose its 48.7 percent ownership stake in Broadwind and to announce it will liquidate two of its four hedge funds. Broadwind Chief Executive Drecoll owns 13.2 percent of Broadwind shares, the second largest block after Tontine's.

In the filing, Jeffrey L. Gendell, general partner of Tontine, says the hedge fund will use several strategies to dispose of its Broadwind stock:  open market sales, underwritten offerings, privately negotiated sales, selling Broadwind outright and distributing stock to Tontine’s investors.

“We’re aware of the filings, [but] we can’t speak on behalf of Tontine or what they plan to do,” Keller said.

Gendell also declined to comment on the imminent sale of Tontine’s stake in Broadwind.

Trading volume of Broadwind spiked to nearly 1.4 million shares on Oct. 14, following Jim Cramer’s ringing endorsement of the wind industry the previous day. “The time for wind has never been better,” Cramer said. “Broadwind is an outright buy under $8 a share,” he said.

Trading closed at $11.10 on Oct. 14, nearly doubling the Oct. 13 price of $7.05. Broadwind’s rally, however, was short lived as the stock has only once reached its Oct. 14 price since Cramer’s hyping.

Broadwind Energy, which is traded on the OTC Bulletin Board market, reported a net loss of $3.4 million, or 4 cents per diluted share, in the quarter ended Sept. 30, down from $683,000, or 1 cent per diluted share, in the same period last year.  Third-quarter sales were $64.5 million, dramatically beating $3.1 million in the year-earlier quarter.

Annual company revenues soared to $29.8 million in 2007 from $4 million the year before, but Broadwind still realized a net loss of $3.4 million in 2007 and $2.7 million in 2006.

The manufacturer reported that it employed a staggering $84.6 million in investing activities for the nine-month period ended Sept. 30, compared with the year-earlier period's $4.1 million investment. Broadwind used $49.6 million to purchase property and equipment and $24.6 million for acquisitions.

The nearly $50 million property and equipment expenditure is reflective of expanding and opening new Brad Foote and Tower Tech Systems facilities. Tower Tech began construction on new plants in Sioux Fall, S.D. and Abilene, Texas in May 2008. The plant in Abilene currently operates with only 30 employees, but management wants to pump up that number to 100 or 150. Each plant will have the capacity to produce 150 towers annually.

Broadwind will release fourth-quarter and full-year earnings in the second week of February, Keller said.

Despite its aggressive investing in the business, Broadwind is confronted by a reality limiting the renewable power industry.

“Financing is tough,” said Jonathan Hoopes, managing director of Greentech research at ThinkEquity LLC. The tight credit market is a problem, he said, but it doesn’t mean the wind industry is a no go.

According to Julie Clendenin, media relations specialist at the American Wind Energy Association, the slowdown in 2009 will give manufacturers a chance to catch up with demand. Broadwind Energy does not discuss current orders or backlogs for turbines.

“Right now there are shortages in every piece of the supply chain,” Clendenin said. But according to Ponta, the main bottleneck in the operation is making the wind blades. “The design is rather flat. We know everything we need to know about this, but the blades are different,” he said, noting that manufacturers have accumulated experience making shafts, bearings, gearboxes and electrical equipments, but not blades.

Transportation of parts and finished goods also creates logistical problems. “Some sort of new ideas are needed in that direction,” Ponta said. With bumps, bridges and curves in the road, the turbines are very problematic to transport, he added.  Blades typically are about 38 meters long, but can run up to 61 meters, according to Ponta.

The overall trend in the industry is growth, but it’s not insulated from the economic downturn entirely, Clendenin said. Jennifer Ratcliff of Manufacturers’ News Inc. in Evanston, Ill., expressed the same sentiment, saying that it is difficult to tell where the industry is going exactly. It’s a fledgling industry that is still developing, Ratcliff said.

However, Jay Lehr, science director and alternative industry expert at the Heartland Institute, a Chicago think tank, says the future of wind-generated industry is easy to predict. “Wind will never be a significant part of our nation’s energy,” Lehr said. To create a wind farm that would equally productive as a power plant, it would need to have 7,500 windmills and 200 square miles of land. A power plant only takes up one-third of a square mile, Lehr said.

Lehr also noted that about 1,500 birds die annually in a typical California wind farm. Sometimes the turbines are called “bird cuisinarts,” he said.


Wind power, Lehr declared, exists only because of the tax credit. "The government mandates that we have to produce it."

The industry agrees, so it's pushing hard for the five-year extension to be passed. The 2-cent credit is significant given that the leveled cost of energy from a wind farm is around 8 cents or 9 cents per kilowatt-hour, according to Hoopes.

Conventionally generated electricity costs between 5 cents and 18 cents per kilowatt-hour, but is below 10 cents in most places, according to the Energy Information Administration.

“Energy independence has been a goal of many administrations but it has never really been followed through on…it gets moved to the back burner,” said Eric Stine, analyst at Northland Securities Inc.