Stimulus money pays for street, traffic lights made largely overseas
By Lou Kilzer
Published: Sunday, October 16, 2011
The United States is spending tens of millions of federal economic stimulus dollars to replace streetlights and traffic lights nationwide with energy-efficient ones made mostly in Asia, a Tribune-Review investigation found.
An exemption in the "Buy American" clause of the American Recovery and Reinvestment Act of 2009 -- legislation President Obama championed to create American jobs -- says components and subcomponents of green-energy products need not actually be U.S.-made. As a result, the Trib found, many products needed to make streetlights, traffic lights and other high-tech products are manufactured in China, Taiwan, Japan and South Korea.
One of those products, light-emitting diodes or LEDs, is central to replacing energy-wasting, high-pressure sodium streetlights and old traffic signals in most American cities.
The LED lamps produce better light, last years longer and require less electricity to produce the same degree of illumination. Communities across the nation are using stimulus funds to make the switch to LED lights, including dozens in California and Michigan.
But because of shortages of American-made LED parts, several companies bidding specifically on street light replacement projects acknowledged to the Trib that their products would be better labeled "assembled in America" than "made in America."
"It was a mistake" to include the loophole language in the stimulus act, said Joel Joseph, chairman of the Made in the USA Foundation in Beverly Hills, Calif. He said stricter federal rules requiring "all or virtually all" of the product to be U.S. manufactured should have applied to programs using stimulus money since Congress intended for the law to create American jobs.
The Federal Trade Commission standard states that "all significant parts and processing that go into the production must be of U.S. origin -- that is, the product should contain no, or negligible, foreign content."
"But at the end of the day, there are only a few people who can pull it off," said Bob Adams, owner of Chips and Wafers, an LED streetlight supplier in Paradise Valley, Ariz. "This 'made in America' stuff is pretty much a myth."
The Department of Energy granted $6.3 billion in stimulus money to cities and states for projects to improve energy efficiency. Energy officials acknowledge they don't keep track of how a government entity spends that money.
Ben Goldstein, a department official who oversees "Buy American" provisions, said the responsibility for making sure federal stimulus allocations are used properly ultimately rests with the recipient state and local governments involved.
Many companies are vying to get contracts to replace streetlights and traffic lights, but a Trib analysis of import documents show many of those companies depend substantially on foreign-made parts.
Dennis Cinkovic, a representative of Lavalux LED in Ambridge, acknowledged that most of that firm's LED streetlight components are Asian-made. He quickly added: "We're well over 10 percent made in America."
Cinkovic and Harshad Borkar, a Lavalux associate, said if they can win a major municipal streetlight project, they would buy or build an assembly facility on Neville Island to expand from Lavalux's squat, two-story building on Merchant Street.
Lavalux differs from many of its larger rivals in size but not in use of foreign parts. Leotek Electronics USA Corp. is a major LED firm based in California. The Trib reviewed that company's documents and found Leotek is a subsidiary of Leotek Electronics Corporation of Taiwan, which is a subsidiary of Lite-On Technology Corp., another Taiwanese company. Leotek USA has won more than a dozen stimulus contracts for streetlight and traffic light projects nationwide.
Chris Nye, director of Leotek's commercial and industrial products group, said the company purchases some LED lights from Philips Lumileds, an American subsidiary of a Dutch company.
Philips produces the semiconductor wafer -- the first step in LED construction -- at its San Jose, Calif. plant. It ships the wafers to Singapore, where workers cut them into chips and send them to Malaysia for workers to mold them into commercially viable LED modules, or "packages."
Nye said some of those packages go to Leotek in Taiwan, whose workers put them on circuit boards. They send the boards and streetlight housings to Leotek's plant in Milpitas, Calif., where workers combine them with "U.S.- and non-U.S.-made components" for assembly.
Federal law says to qualify as "American made," a product must be "significantly transformed" in the United States. Nye said Leotek meets the requirement "by conducting complete assembly" at the Milpitas facility.
American companies trying to make LED streetlights and traffic lights face a problem.
Their Asian counterparts have a head start, said Ross Young, senior vice president of IMS Research, an England-based research firm that tracks the worldwide LED industry. Taiwan, South Korea and Japan each has won large LED market shares, he said.
China is beginning "to dominate the capacity for growth," said Young.
Chinese officials decided two years ago to phase out making compact florescent lamps because they considered LEDs to be the future of lighting, according to a report this year by the Swedish Energy Agency and the National Lighting Test Center in Beijing.
To do that, the Chinese government began providing subsidies to attract manufacturers of semiconductor wafers. More than 60 LED package producers are located in the People's Republic, as well as 2,500 companies that fabricate finished LED lighting fixtures, according to the report.
"We don't have the manufacturing experience" in the United States, said Vrinda Bhandarkar, director of LED lighting research for market research firm Strategies Unlimited. "They have it there."
Bhandarkar said it would have been unrealistic to expect U.S. cities to restrict their choices in selecting streetlights.
"If they had said only American made, it would not have happened," she said.
Cree, Inc. in North Carolina and Philips Lumileds manufacture a significant number of semiconducting wafers, Young said.
Although Philips sends wafers overseas for further production, Cree cuts them into LED chips in the United States. In fiscal 2011, however, 76 percent of Cree's sales came from outside of the United States, including 36 percent in China. More than half its manufacturing production capacity is now China-based, as is nearly half its workforce.
Some of the globetrotting Philips chips wind up back in the United States, where workers made them into streetlights at subsidiary Philips Hadco in Littlestown, a small Adams County community near the Maryland border.
Although Hadco uses LEDs originating in the United States, import records show that its parent, Philips Lighting, imported about 19,000 tons of lighting materials into U.S. ports during the past year. Most of the shipments were from Asia.
Philips spokeswoman Silvie Casanova said "the lion's share/bulk of these imports are for non-streetlighting applications."
One thing China hasn't done to a large degree is to manufacture the machines, called reactors, that make the wafers. Aixtron SE of Germany and Veeco Instruments Inc. of Plainview, N.Y., primarily manufacture the reactors costing $2 million to $12 million.
A look at Veeco's quarterly statement shows that's changing. The company's sales to China grew to $340 million in the first half of this year, compared to $43.6 million in the same period of 2010. China's government is subsidizing up to 50 percent of the cost of the machines, said Veeco spokeswoman Fran Brennen.
"There's no question there are very attractive incentives in China," Young said.
'We gave it away'
There are ways to get a mostly American-made product.
BetaLED of Racine, Wis., which just got the contract for the first phase of Pittsburgh's streetlight replacement project (see related story), makes various outdoor lighting using Cree chips and assembles outdoor lighting fixtures. Cree in August acquired the firm and its parent, Ruud Lighting, also of Racine. Cree spokeswoman Frances Fawcett said this acquisition is an example of how Cree remains an American LED chip manufacturer.
Yet, there is a clear China connection. Shipping documents show Ruud Lighting imported 4.2 million pounds of lighting fixtures and related products from mostly Chinese companies during the past 12 months.
Fawcett said most of the products listed on those bills are for other types of lighting and not for the BetaLED streetlight fixtures.
Cree imported more than 700,000 pounds of materials, mostly from its Cree Hong Kong Ltd. subsidiary, according to shipping documents on ImportGenius.com, a company that tracks imports to America.
In fact, the Trib analysis of the 13 proposals for the first phase of Pittsburgh's LED project -- which used federal "Buy American" guidelines but not federal money -- found almost all bidders use significant amounts of components made overseas.
Appalachian Lighting of Ellwood City and Hubbell Lighting Inc. of Greenville, S.C., said they use more than 75 percent American-made components in their LED streetlights. Appalachian submitted one of the most expensive bids among those competing for the Pittsburgh street lighting project.
Dialight PLC, a United Kingdom company, contends in its latest annual report that after moving 50 jobs from Mexico to North Carolina, it is "the only qualified U.S. manufacturing facility for stimulus-funded traffic signal projects."
Figures show, however, that the United States does not figure as a major player in the LED traffic light industry. The international trade monitoring site Alibaba.com lists 3,124 traders of LED traffic signals and lights in China, compared to fewer than two dozen in the United States.
Adams, whose Chips and Wafer company qualifies as an LED streetlight "manufacturer" under stimulus guidelines, scoffs at the program. He said his firm does LED design work and testing, but doesn't make chips or wafers as its name implies. The company recently won a contract to install 1,000 LED streetlights in Hawaii through a $500,000 federal stimulus grant.
"There are only two companies in America left in the (manufacturing) business: Cree and Philips," he said. "I'm considered a manufacturer, but I have a (Taiwanese manufacturer) that provides the product...
"I watched us invent LEDs. We gave it away."Additional Information:
City getting LED lights
Pittsburgh isn't using federal money to replace 40,000 streetlights with light-emitting diode, or LED, lights. At least not yet.
The city is digging into its budget and using $816,000 in state money from a Duquesne Light Co. rate settlement to pay for the estimated $2.1 million first phase, which involves replacing 3,200 streetlights in business districts throughout the city, including Downtown.
BetaLED of Racine, Wis., and King Luminaire of Jefferson, Ohio, got the contract for the first phase work, which will begin in November, Joanna Doven, spokeswoman for Mayor Luke Ravenstahl, told the Tribune-Review. Though not the lowest bid, their LED lights were deemed to be more in line with the city's 'Made in America' policy than the dozen other proposals, she said.
It is unclear where the city will get money to continue the switch and which areas would get new lights next, said Jim Sloss, Pittsburgh's energy and utilities manager.
City officials will 'look for potential grants out there from other areas and from the state' and seek private partners to help pay for other phases, he said.
Mayor Luke Ravenstahl originally announced the city would spend $1 million from $3.4 million in federal stimulus dollars for streetlights, but the money went to heating and cooling system work at the City-County Building, according to federal documents.
Since 2008, Pittsburgh politicians have planned to switch streetlights from high-pressure sodium lights to LED because the latter are brighter, use less energy and last longer. Although LED streetlights then cost about $1,000 each, that cost now for the most used fixtures is under $400 per fixture, Sloss said.
If prices continue to fall, he said the cost for replacing city streetlights during the next five years could be under the estimated $24 million.
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