Alternative Energy
Wizards of the Wind
The growing enthusiasm for alternative energy is blowing lots of
business – and new competition – in WECS Electric Supply’s direction.
S
ometimes, it’s a specialty
distributor’s lot in life to
see his specialty suddenly
become the latest trend and
find all kinds of generalists
jumping into his business. Fortunately,
that trendiness usually also means
there’s a lot of new money being spent
in his area of expertise. Having decades
of experience and a list of customer
references long enough to reach the
ground from the top of a wind turbine
puts a company like WECS Electric
Supply in an enviable position.
From his desk at the company’s
modest headquarters in North Palm
Springs, Calif., it’s easy for Bruce Ham-
mett to see which way the wind is
blowing. Farther down in the Coachella
Valley, golf courses and manicured
lawns form an irrigated oasis that’s
almost ridiculously green. But up here
where the desert mountains are still
desert, blades of grass blanch in a losing battle for any bit of moisture. The
green blows in with the wind.
The north end of the valley, along
the San Gorgonio Pass, is a patchwork
of towering wind turbines. Hammett
can tell you about each one. Not just
the make and model, but whose gear
is inside, when it was built, what it
replaced, how much power it generates, how long ago it was down for
By Doug Chandler, Executive Editor
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Electrical Wholesaling / APRIL 2009
maintenance — anything you want
to know.
Over the years since he founded
WECS Electric Supply in 1984, Hammett has come to think of each individual turbine as a customer. Just
as any electrical distributor outside
salesperson can drive you through a
visual wasteland of industrial parks
and narrate with stories about what
gets made inside each of those lookalike buildings and how they do it,
Hammett’s knowledge of the turbines
just spills out of him.
And this knowledge extends far
beyond the Coachella Valley. WECS
Electric has bid on roughly 70 percent
of the wind-power projects in North
America over the past 25 years, and
has won at least part of the business
on about 40 percent of them, Hammett
estimates. For those he doesn’t win
on the construction side, there’s still
follow-up maintenance and operating
equipment. That’s why he considers
each one a customer.
WECS Electric is now the largest
supplier of electrical parts and systems
for wind-power turbines in North
America. The company (its name is an
acronym for “wind energy conversion
systems,” the technical term for windpowered generators) was a two-person
operation as recently as 2001, when
Electrical Wholesaling did a cover story
on WECS Electric (July 2001). It’s still
a very lean operation, with five people
working in the company’s headquarters,
plus sales engineers in remote offices
in Kansas City and Dallas.
When Hammett started the company, wind power was still an esoteric
curiosity for most of North America.
By 2001, they were doing about $6
million dollars in sales per year. Now
he doesn’t share his sales numbers,
but says his company has grown along
with the wind power industry. The
world’s installed wind power capacity
has doubled roughly every three years
since 2000. Wind power’s production
of electricity in the United States has
doubled in just the last three years, and
now is the largest in the world at over
25 GW at the end of 2008.
Increases in public concern for environmental issues and in the economic
viability of large-scale wind farms have
dramatically changed the picture over
the past few years. President Obama
harnessed this enthusiasm in his election campaign and has made alternative
energy a large part of his administration’s economic stimulus package. The
American Recovery and Reinvestment
Act of 2009, aka the stimulus package,
includes several incentives for investing
in alternative energy, including a grant
program for developers, an extension of
the wind energy production tax credit,
a loan guarantee program for developers and manufacturers, investment in
research and development and a tax
credit for manufacturers.
This array of incentives promises
to further raise the stakes, but as of
yet it’s had no direct impact, Hammett says. Yet, the economics of wind
power, combined with mandates by
some states and public utility boards
to make wind and solar a larger part
of the power mix, already are driving a
rapid increase in wind energy projects,
which in turn has brought many new
players into the market. For WECS,
this means a bunch of new potential
customers and competitors.
“Right now we have a thousand
distributors trying to get into this,”
Hammett says. “There’s some very
good talent trying to get in, and some
very shaky talent trying to get in. I have
a lot of good competition out there. I
also face a thousand other distributors
who can sell it for a dollar less and get
an order instead of me, but don’t know
what it is they’re selling.
“It’s just like in the contractor end of
things, which is going to pose us a problem in the next couple of years,” he adds.
“There’s a lot of talented contractors in
this industry who love this industry, and
there’s a lot of them who are trying to
get into it who have been fixing milking
machines and building houses.”
To maintain his company’s position
as the leading distributor in the market,
Hammett is looking to reinforce his relationships with existing developers and
contractors and his reputation among
newcomers. He has the advantages not
Continued on page 28
www.ewweb.com / APRIL 2009
21
50 percent loan to my inventory value. That pretty well wiped out
my LIFO value.”
Price Deflation
Many distributors might say, “We’ll just have to burn through
the current inventory and take the hit.” As one eight-branch distributor said, “We decided to write our inventory down with our
last physical inventory in December 2008 and converted to ‘average costing.’ We avoided some taxes, but still sustained the overall
write-down on the business value. What an eye opener that was.
We’re rolling along thinking that we were worth $XXX million,
and now we are worth almost $3 million less.”
Another distributor said, “Price deflation coupled with banks
having a problem with our inventory dollar value caused us to
postpone our accounting method change till next year. The book
value of our company dropped about 26 percent in a 90-day period.
That made us sit up and take notice. At first I couldn’t believe it.
But there it was in black-and-white.”
There is a potential bright spot. This is an opportunity to get
your inventory as lean as possible — “rightsizing” it for today’s
marketplace. Frequently what and how much you are now selling
differs from what you sold six months ago. If a distributor decides
to write down the value of their inventory, it’s a good time to get
rid of dead inventory. You may want to consider donating some
of it to help at tax time. You may also want to decrease fill rates
or rethink service levels that require ordering more frequently or
sourcing “C” or “D” items from other distributors or manufacturers’
regional warehouses, or forgo that portion of the order.
In this economy, many distributors are suffering from decreased
cash flow and deflation. To manage through the recession consider
the following:
Prepare for changes in the way you account for inventory value. If you use LIFO, talk to your accountant/ tax advisor
about a reserve fund.
Review your inventory and purge slow or non-moving
items. Donate where you can. A tax write -off is better than zero
value.
Reevaluate how, what and where you purchase. Chances
are you can get by with less inventory. Seek to increase your
turns.
Collect your days’ sales outstanding (DSOs). That inventory may have been purchased at a higher cost than the replacement
material.
Allen Ray is principal of Allen Ray Associates, a consulting firm that
helps companies improve profitability through effective pricing strategies and streamlining business processes through effective e-business
utilization. He can be reached at (817) 704-0068 or allen@allenray.
com. David Gordon is a principal of Channel Marketing Group, a
consulting firm that develops market share and growth strategies
for manufacturers and distributors. He can be reached at (919)
488- 8635 or [email protected]. Visit their industry blog
at www.electricaltrends.com for more insights into growing your
business profitably.
28
Electrical Wholesaling / APRIL 2009
Alternative Energy
(Continued from page 21)
only of having been around from the beginning as
key supplier to just about every wind energy project
on the continent for the past quarter-century (as well
as many offshore and overseas projects), but also of
being active in all three “tiers” of the wind energy
market — providing materials for new construction
and “repower” projects, supplies for maintenance and
operations, and parts for the manufacturers.
Like most any good specialty distributor, Hammett’s ace in the hole is his deep stock of specialized
product and deep knowledge of how those parts
are used. The evolution of wind turbine technology and its international nature create a lot of
subtle variations in the products required. Turbine
manufacturers’ warranties typically expire after two
years, which drives the maintenance and operations
side of WECS Electric’s business.
The technology used in wind turbines has advanced considerably since WECS Electric opened
its doors. The first modern wind turbines, built in
the early part of the 1980s, were able to produce
around 30 kW each. Today, most turbines for land
installation generate 1.5 MW to 2 MW.
Towers have grown taller as the blades have
grown longer, to the point that they’re bumping up
against the limits of what’s practical on land with
existing technology. Among the limiting factors
are the practical considerations of transporting
and installing the parts. The blades can only be so
long (about 40m) before trucks can no longer move
them down the road, over hills and around bends.
That’s a boon for domestic manufacturing, because
no one wants to ship these things by boat — better
to build them as close to their ultimate destination
as possible. The electrical equipment inside has
evolved as well, primarily in the electronics that
control the release of power onto the grid.
Despite its turmoil, Hammett is glad to be in the
wind market during this downturn. The difficulties
in financial markets have produced a temporary
lull in construction of new wind farms, but that’s
unlikely to last. The two biggest obstacles to the
wind power industry’s growth over the next three
to four years are financing problems in the short
term and utility interconnect issues in the longer
term, Hammett says.
“There are some wonderful places to put wind
farms, but no place to put the energy,” he says. “If we
don’t get the transmission problem solved in the next
year-and-a-half or two years, we’ll still have places to
build. Beyond that, we won’t have the ability to transmit
the energy to the loads that would use it.”