Stimulus grant boosts Energetx
HOLLAND — "There is a sense of urgency on our part," said David Slikkers, CEO of S2 Yachts Inc. in Holland, since the famous yacht builder's Energetx Composites division landed a $3.5 million federal stimulus grant through the state of Michigan in December.
The terms of the matching investment grant from the American Recovery and Reinvestment Act entailed a commitment by Energetx to create 300 new jobs within 24 months. About a dozen people now work for Energetx, which was established as a stand-alone LLC in July 2008 after S2 and the other manufacturers in the North American yacht and power boat industry saw sales begin sinking dramatically in 2007.
Slikkers said Energetx has thus far landed a couple of contracts to build tooling for manufacturers of wind turbine nacelles. Energetx has also been pursuing sales prospects for "community-sized" wind turbine blades, which are from 10 to 20 meters in length.
"If a company gave us a purchase order tomorrow and we had the tooling, we could be making blades Monday morning," he said.
"We feel a purchase order is not that far away," he added in an interview with the Business Journal Jan. 8.
Employees will be added a few at a time as orders come in, he said.
Slikkers said his Energetx management staff also believes it has a good chance of landing a contract to make the large utility-size turbine blades by mid-summer, and the company’s long experience producing boat hulls places it in a logical position to manufacture the wind turbine nacelles, as well as the tooling for them.
A nacelle, which is made of composites, is the housing on top of the tower that contains the electrical generating equipment and the hub to which the turbine blades are attached. Slikkers said the expertise and technology required to manufacture large, high-quality turbine blades and nacelles is the core competency of Energetx — "our sweet spot."
He said quality problems with turbine blades made overseas, delivery lead times of up to 24 months, and the cost of transporting them to end users in the U.S. are factors that open a window of opportunity for Energetx here in Michigan, where a rush is on to build commercial wind farms.
Large turbine blades can be well over 150 feet long and must be shipped in their entirety, just the way they leave the mold. That presents a major logistical challenge. The cost of transporting a complete set of three from Europe to the U.S. is about $100,000, according to Slikkers.
Breaking into the market has not been as easy as it initially appeared, according to Slikkers. The wind generation equipment industry, which began first in Europe, is "a very closed community, protectionist by nature," he said.
Still, Energetx is now negotiating a licensing agreement with a European blade designer/manufacturer he declined to name, and he said it is possible they may strike a deal by spring to make that company's blades in Holland.
Part of the urgency Energetx is feeling may be due to the disastrous conditions its parent company has experienced in the pleasure boat industry. Slikkers said 2006 was the last good year for yacht sales; since then, S2 Yacht sales have dropped "probably close to 70 percent." S2, which makes the high-end Tiara yachts and smaller Pursuit Boats, had about 800 employees in 2006; now that number is about 200.
Although S2 is still among the handful of top pleasure craft manufacturers in the U.S., the market for boats in the U.S. was "extraordinarily" bad in 2009, according to Slikkers. As for 2010, best information indicates that pleasure craft sales will be somewhere between flat to 5 or 10 percent lower than 2009.
The credit market and consumer confidence are the key factors in boat sales this year, said Slikkers. It is a different world in the banking business now, compared to a few years ago, he said. Individuals with net worth of as much as $20 million are "not able to get financed" for new yachts, he said.
Even the wealthy who could pay cash for a new yacht now are more inclined to try to borrow the money, said Slikkers, for two reasons: The recession was so hard on investments that people are afraid to spend the base of their wealth, and interest rates are very low now.
He said it used to be normal to see 30 percent of high-end pleasure craft purchases financed; now it is 80 to 90 percent.
The state of Michigan has been trying for years to encourage manufacturing diversification beyond the ailing automotive market. Last August, Michigan announced that it would accept applications from existing manufacturing companies for a total of $15.5 million in ARRA funds that would be used for diversification into advanced manufacturing of renewable energy systems and components. The state is also actively trying to persuade a major wind turbine manufacturer to set up shop in Michigan; the ARRA funds are intended to create suppliers for that company or companies.
The state said in December that five companies qualified for the ARRA renewable energy manufacturing grants. The Dec. 9 announcement by Gov. Jennifer Granholm states that almost 80 Michigan companies applied, "requesting nearly $198 million."
The four other companies are located in Eaton Rapids, Plymouth, Rochester Hills and Saginaw.
Slikkers said it was a competitive bidding process, with each applicant required to go into detail to document its qualifications and its proposed renewable energy manufacturing project.
"We had to demonstrate we had a process (for advanced manufacturing) and it was on the leading edge," said Slikkers.
"Without a doubt, it's a great jump start," Slikkers said of the ARRA grant. He added the company feels "blessed" to have received this help.
Under the terms of the matching grant, Energetx has to make the total investment and then later will be reimbursed for 50 percent of it. The grants can only be spent on pre-determined specifics; in the case of Energetx, that is for a quality process, technology, tooling, and design for manufacturing large-scale advanced-composite wind turbine blades.
Slikkers said the grant process requires "monthly submittals and monthly accounting," and a degree of internal scrutiny by government officials that the privately held company has never experienced before.
"I'm glad they're asking questions," he said. "We take the responsibility (of accepting government funding) really seriously," he said.
When asked if financing its initial investment in the project would be a challenge for Energetx, Slikkers replied, "We hope not."
As for the economy in general and the future of the parent company's boat manufacturing business, Slikkers said they expect it to be "a slow walk out of the woods."
"We don't have any grand illusions about how rapidly this (economy) is going to recover," he said.