12

- i CHAPTER 12 PRELIMINARY MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

12.1 INTRODUCTION

................................ ................................ ................................ .............. 1

12.2 METHODOLOGY

................................ ................................ ................................ ............. 1

12.2.1 Phase I: Industry Profile

................................ ................................ ......................... 2

12.2.2 Phase II: Industry Cash

- Flow Analysis and Interview Guide

................................ 2

12.2.2.1 Industry Cash

- Flow Analysis

................................ ................................ 2

12.2.2.2 Interview Guide

................................ ................................ .................... 2

12.2.3 Phase III: Subgroup Analysis

................................ ................................ ................. 2

12.2.3.1 Manufacturer Interviews

................................ ................................ ....... 3

12.2.3.2 Revised Industry Cash

- Flow Analysis

................................ .................. 3

12.2.3.3 Manufacturer Subgroup Analysis

................................ ......................... 3

12.2.3.4 Competitive Impact Assessment

................................ ........................... 3

12.2.3.5 Manufacturing Capacity Impact

................................ ........................... 4

12.2.3.6 Employment Impact

................................ ................................ .............. 4

12.2.3.7 Cumulative Regulatory Burden

................................ ............................ 4

12.3 Preliminary manufacturer impact analysis overview

................................ .......................... 4

12.3.1 Industry Overview

................................ ................................ ................................ .. 5

12.3.1.1 Industry Cost Structure

................................ ................................ ......... 5

12.3.1.2 Inventory Levels

................................ ................................ ................... 6

12.3.2 Interview Topics and P reliminary Findings

................................ ............................ 7

12.3.2.1 Market Shares and Industry Consolidation

................................ ........... 7

12.3.2.2 Products & Profitability

................................ ................................ ........ 8

12.3.2.3 Conversion Costs

................................ ................................ .................. 9

12.3.2.4 Cumulative Regulatory Burden

................................ ............................ 9

12.4 Overall Key Issues

................................ ................................ ................................ .............. 9

12.4.1 Core Steel Availability

................................ ................................ .......................... 10

12.4.2 Equipment Conversion Costs

................................ ................................ ................ 10

12.4.3 Intellectual Property

................................ ................................ .............................. 1012

- ii LIST OF TABLES

Table 12.1 Power, Distribution and Specialty Transformer Manufacturing Industry Employment and Earnings 5

Table 12.2 Power, Distribution and Specialty Transformer Manufacturing Industry Material and Payroll Costs 6

Table 12.3 Power, Dis tribution and Specialty Transformer Manufacturing Industry End

- of

- Year Inventory 6

Table 12.4 Power, Distribution and Specialty Tr ansformer Manufacturing Industry Full Production Capacity Utilization Rates

................................ ................................ ............................. 712

- 1

CHAPTER 12 P RELIMINARY MANUFACTU RER IMPACT ANALYSIS

12.1 INTRODUCTION

The purpose of the manufacturer impact analysis (MIA) is to identify and quantify the likely impacts of amended energy conservation standards on manufacturers. In the Notice of the Proposed Rulemaking (NOPR), DOE considers a wide range of quantitative and qualitative industry impacts that might occur due to an amended energy conservation standard. For example, a particular standard level could require changes in manufacturing practices, equipment, raw materials, etc

. DOE fully analyzes these impacts during the NOPR stage of analysis.

DOE announced changes to the preliminary analysis MIA format through a report issued to Congress on January 31, 2006 (as required by section 141 of the Energy Policy Act of 2005 ( EPACT 2005), entitled “Energy Conservation Standards Activities .” 1 As a result, DOE collects

, evaluate s , and report s preliminary MIA information in the preliminary analysis (as opposed to waiting for the NOPR stage)

. Such preliminary information includes market data, market shares, industry consolidation, equipment mix, key issues, conversion costs, foreign competition , and

cumulativ e regulatory burden information, if available. DOE solicits this informati on during the preliminary manufacturer interviews and reports the results in this chapter. Appendix 12A includes a copy of the interview guide that DOE distributed to manufacturers.

To the extent appropriate for this rulemaking, DOE plans to apply the meth odology described below to evaluate amended energy conservation standards for Distribution

Transformers

.

12.2 METHODOLOGY

DOE conducts the MIA in three phases . In Phase I , DOE creates an industry profile to

characterize the industries and conducts a preliminary MIA to identify important issues that require consideration. Section 12.3 of this chapter presents initial findings of the Phase I analysis. In Phase II, DOE prepa res an industry cash flow model and a detailed interview questionnaire to guide subsequent discussions with manufacturers. In Phase III, DOE interviews manufacturers and assesses the impacts of amended energy conservation standards both quantitatively and qualitatively. DOE assesses industry and subgroup cash flow impacts and industry net present value (INPV) using the Government Regulatory Impact Model (GRIM).

DOE also assesses impacts on competition, manufacturing capacity, employment, and regulatory

burd en based on manufacturer interviews and discussions. The Federal Register NOPR and technical support document (TSD) present results of the Phase II and III analyses.

1 This report is a vailable on the DOE website at: http://www1.eere.energy.gov/buildings/appliance_standards/pdfs/congressional_report_013106.pdf

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- 2

12.2.1 Phase I: Industry Profile

In Phase I of the MIA, DOE collects pertinent qualitative and quantitative financial and

market information. This includes data on wages, employment , industry cost s , and capacity

utilization rates for manufacturers of distribution transformers . Sources of information include reports published by industry groups, trad e journals, the U.S. Census Bureau, and Securities Exchange Commission (SEC) 10

- K filings. In addition, DOE relies on information from its market and technology assessment, engineering analysis, life

- cycle cost analysis, shipments analysis, and equipment p rice determination to characterize the distribution transformer manufacturing industr y

.

12.2.2 Phase II: Industry Cash

- Flow Analysis and Interview Guide

In Phase II, DOE performs a preliminary industry cash

- flow analysis and prepare s written guidelines for inte rviewing manufacturers.

12.2.2.1 Industry Cash

- Flow Analysis

DOE uses the GRIM to analyze the financial impacts of amended energy conservation

standards. Amended energy conservation s tandards may require additional investment, higher production costs, and could aff ect revenue through higher prices and

, potentially

, lower shipments

. The GRIM uses several financial parameters to determine a series of annual cash flows for the year that amended energy conservation standards become effective and for several

additional years. These factors include annual expected revenues, costs of goods sold , selling and general administration expenses
, research and development expenses, taxes, and capital expenditures

. Inputs to the GRIM include those f inancial parameters

, manufacturin g costs, shipment forecasts, and markup assumptions. The f inancial information is developed from publicly available data and confidentially submitted manufacturer information. DOE compares

the GRIM results for the standards case at each trial standard leve l against the results for the base case in which no amended energy conservation standards are in place. The financial impact of

amended energy conservation standards is the difference between the two sets of discounted

annual cash flows.

12.2.2.2 Interview Guide

DO E conducts interviews with manufacturers to gather information on the effects of amended energy conservation s tandards on revenues, costs , direct employment, capital assets, and industry competitiveness. Before the interviews, which occur in Phase III, DOE distribute s an interview guide to help identify the impacts of amended energy conservation standards on

individual manufacturers or subgroup s of manufacturers. I nterview guide topics include: production costs; shipment projections ; market share; equipmen t mix; conversion co sts; markups and profitability; competition; manufacturing capa city; cumulative regulatory burden; and other relevant topics.

12.2.3 Phase III: Subgroup Analysis

Phase III activities take place after publication of the preliminary analysis . These activities include manufacturer interviews; revision of the industry cash

- flow analysis; a12

- 3

manufacturer subgroup analysis; and an assessment of the impacts on industry competition, manufacturing capacity, direct employment

, and cumulative regulator y burden.

12.2.3.1 Manufacturer Interviews

DOE conduct s detailed interviews with manufacturers to gain insight into the potential impacts of amended energy conservation standards on sales, direct employment, capital assets, and industry competitiveness. The interview process is critical to the MIA because it provides an opportunity for interested parties to privately express their views on important issues

. Interviews

are scheduled well in advance to provide every opportunity for stakeholders to be availa ble for

comment. Although a written response to the questionnaire is acceptable, DOE prefers

interactive interview s , which help clarify responses and provide the opportunity to identify

additional issues not specifically addressed in the interview question naire. A non

- disclosure agreement allows DOE to consider confidential or sensitive information in its decision

- making

process. C onfidential information will not be made available in the public record . At most, sensitive or confidential information may be a ggregated and presented in industry

- wide representations.

DOE uses information gathered during manufacturer interviews to supplement the

information gathered in Phase I and the cash flow analysis performed in Phase II.

12.2.3.2 Revised Industry Cash

- Flow Analysis

As discussed, DOE request s information about profitability impacts, changes in capital expenditures , and other manufacturing impacts during the interview process. DOE revise s its industry cash flow model based on the feedback it receives in written comments and during

interviews.

12.2.3.3 Manufacturer Subgroup Analysis

Using average cost assumptions to develop an industry cash flow estimate will not adequate ly assess differential impacts among manufacturer subgroup s. Smaller manufacturers, niche players, and manufacturers exhibiting a cost structure that differs greatly from the industry average could be more negatively affected. Ideally, DOE would consider the impact on every firm individually; however, it typically uses the results of the industry characteri zation to group

manufacturers with similar characteristics. During the interviews, DOE discuss es the potential subgroup s that have been identified for the analysis. DOE ask s manufacturers and other interested parties to suggest what subgroup s or characteri stics are most appropriate for the analysis.

12.2.3.4 Competitive Impact Assessment

Section 342 (6)(B)(i)(V) of the Energy Policy Act of 1992 (EPCA) directs DOE to consider any lessening of competition likely to result from the imposition of standards. EPCA

further directs the U.S. Attorney General to determine the impacts, if any, of any decrease in competition. DOE makes a determined effort to gather and report firm

- specific financial information and impacts. DOE bases t he competitive impact assessment on manufact ur er cost
data and other information collected from interviews. When assessing competitive impacts,12

- 4

DOE’s interviews generally focus on assessing asymmetrical cost increases

, the potential increase in business risks from an increased proportion of fixed co sts, and potential barriers to market entry ( e.g ., proprietary technologies). The competitive analysis may also focus on assessing any differential impacts on smaller manufacturers.

12.2.3.5 Manufacturing Capacity Impact

One of the significant outcomes of amended energy conservation standards can be the obsolescence of existing manufacturing assets, including tooling and other investment s

. The manufacturer interview guide presents a series of questions to help identify impacts on manufacturing capacity, spe cifically capacity utilization and plant location decisions in North

America with and without amended energy conservation standard s. The interview guide also

addresses the ability of manufacturers to upgrade or remodel existing facilities to accommodate

th e new requirements; the nature and value of stranded assets, if any; and estimates for any one

time restructuring or other charges, where applicable.

12.2.3.6 Employment Impact

The impact of amended energy conservation standards on employment is an important

consid eration in the rulemaking process. To assess how domestic employment patterns might be affected, the interview process explores current employment trends in the distribution

transformer industr y and solicits manufacturer views on changes in employment patt erns that may result from new or amended standard s . The employment impacts section of the interview guide focuses on current employment levels at production facilities

, expected future employment levels with and without an amended energy conservation stand ard

, differences in workforce

skills

, and employee retraining.

12.2.3.7 Cumulative Regulatory Burden

DOE seeks to mitigate the overlapping effects on manufacturers of energy conservation standards and other regulatory actions

. DOE analyze s and consider s the impact on manufacturers of multiple, equipment

- specific regulatory actions.

12.3 PRELIMINARY MANUFACT URER IMPACT ANALYSIS OVERVIEW

During the preliminary analysis phase, DOE conducted a preliminary evaluation of the impact of potential new and amended energy conservation standards on the distribution transformer industry

.

The primary source s of information for this analysis are the U.S. Census, industry reports, and interviews with manufacturers of distribution transformers , conducted in the third quarter of 2 010

. To maintain confidentiality, DOE only reports aggregated information here.

DOE d oes not disclose company

- specific information, nor does it identify the individual

manufacturers that disclosed information

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- 5

12.3.1 Industry Overview

The following section summarizes publicly available industry data.

12.3.1.1 Industry Cost Structure

DOE is unaware of any publicly available industry

- wide cost data specific to only

manufacturers of distribution transformers

. Distribution transformers manufacturing is classified

as a su bset under the North American Industry Classification System (NAICS) code 335311 ( Power, Distribution and Specialty Transformer Manufacturing )

. Therefore, DOE presents the data below as a broader industry proxy for the distribution transformer industr y , which, in combination with information gained in interviews, inform DOE’s analysis of the industry cost

structures. For simplicity, DOE will refer to these broader categories by the equipment they represent, namely distribution transformers

. DOE obtained the below data from U.S. Census
Bureau, Annual Survey of Manufacturers, Statistics for Industry Groups and Industries from

200 5

- 200 8

.

Table 12. 1 present s the employme nt levels and earnings from 200 5 to 200 8

. The statistics illustrate approximately a 13

- p ercent increase for both o verall number of employees and production workers from 2005 to 200 8

. The statistics show the number of factory workers g rew at a 3

- percent rate annually from 200 5 to 2008

.

Table 12. 1 Power, Distribution and Specialty Transformer Manufacturing Industry Employment and Earnings

Year Production Workers All Employees Annual Payroll ($000s)

200 8 16,529 22,096 959,372

2007 16,538 22,307 976,611

2006 15,438 20,642 863,266

2005 14,529 19,509 781,440

U.S. Census Bureau. Annual Survey of Manufacturers, 200 8

- 200 7and 2006

- 2005.

Table 12. 2 presents the costs of materials and industry payroll as a percentage of shipment value from 200 5 to 200 8

. The cost of materials as a percentage of shipment value fell slightly over the 200 5

- 200 8 period

. During the same time period , the cost of total payroll and the

cost of payroll for production workers increased by 23 .0 percent and 2 0

. 0 percent , respectively

.12

- 6

Table 12. 2 Power, Distribution and Specialty Transformer Manufacturing Industry Material and Payroll Costs

Year Cost of Materials

(percent of shipment value) Cost of Payroll

for Production Workers (percent of shipment value) Cost of Total Payroll (percent of shipment value)

200 8 50.09 7.77 13.0 1

2007 52.03 7.80 13.2 1

2006 51.90 10.4 0 17.2 5

2005 51.20 11.1 0 18. 47

U.S. Census Bureau. Annual Survey of Manufacturers, 200 8

- 200 7and 2006

- 2005

12.3.1.2 Inventory Levels

Table 12. 3 show s the year

- end inventory levels obtained from the U.S. Census Bureau, Annual Survey of Manufacturers, Statistics for Industry Groups and Industries from 2005 to
200 8

. Again, DOE presents these data as a broader measure of the distribution transformer

indust r y

. The industr y ’ s end

- of

- year inventory from 200 5 to 200 8 increased in dollar value. However, as a percentage of shipment value th e industry’s end

- of

- year inventory has seen a slight reduction.

Table 12. 3 Power, Distribution and Specialty Transformer Manufacturing Industry End

of

- Year Inventory

Year End

- of

- Year Inventory ($000s) End

- of

- Year Inventory (percent of shipment value)

200 8 865

, 396 11.74

200 7 799

, 074 10.81

200 6 637

, 235 12.73

2005 520

, 976 12.31

U.S. Census Bureau. Annual Survey of Manufacturers, 200 8

- 200 7and

2006

- 2005

DOE obtained full production capacity utilization rates from the U.S. Census Bureau, “Current Industrial Reports,” Survey of Plant Capacity from 2002 to 2006. Table 12. 4 present s production capacity utilization rates for NAICS code 335 311 . Full production capacity is defined as the maximum level of production an establishment can attain under normal operating

conditions. In the Survey of Plant Capacity report, the full production capacity utilization rate is a ratio of the actual level of operations to the full production level.12

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Table 12. 4 Power, Distribution and Specialty Transformer Manufacturing Industry Full Production Capacity Utilization Rates

Year P ower, Distribution, and Specialty Transformer Manufacturing (%)

200 6 66

200 5 70

2004 61

2003 62

200 2 57

U.S. Census Bureau. 2007 Current Industrial Reports: Table 1a

- Full Production Capacity Utilization Rates by Industry: Fourth Quarters 2002 through 2006. November 2007

12.3.2 Interview Topics and Preliminary Findings

The following section summarizes information gathered during interv iews held during

the fourth quarter of 20 10 for the preliminary MIA.

12.3.2.1 Market Shares and Industry Consolidation

Amended energy conservation standards can alter the competitive dynamics of the marketplace, prompting companies to enter the market, exit the mar ket, or merge with other companies. The preliminary MIA interview questions asked manufacturers to share their perspectives on industry consolidation both in the absence of amended energy conservation standards and assuming amended standards at various eff iciency levels. The interview questions focused on gathering information that assessed:

 current and anticipated market share in the event of standards;

 potential disproportionate cost increases to some manufacturers;

 likelihood of industry consolidation;

 i ncreased proportion of fixed costs potentially increasing business risks; and

 potential barriers to market entry (e.g., proprietary technologies).

The need to assess anti

- competitive effects of proposed amended energy conservation

standards derives from the need to protect consumer interests. During the interviews, DOE also solicited information to determine whether amended energy conservation standards could result in disproportionate economic or performance penalties for pa rticular consumer or use r subgroups. Manufacturers were also asked if amended energy conservation standards could result in products that would be more or less desirable to consumers due to changes in product functionality, utility, or other features.

Market Shares : DOE inquired about the current market shares of manufacturers in the

distribution transformer industr y and how those shares might change after amended energy

conservation standard s

. For manufacturers that already produced high efficiency products and

use e fficiency as a p roduct differentiation tool, enhanced energy standards would provide a competitive advantage in the short term, but ultimately their market share would be unaffected in12

- 8

the longer term. One manufacturer noted an energy conservation standard requiring intense use of amorphous material could negatively impact the competitive stance of the domestic industry compared to foreign manufacturers. This is because several foreign countries have already set amorphous transformer technology as policy g oals, and all amorphous steel production is owned by foreign companies. This manufacturer also expressed concern that if the new standards require the use of newer technologies, the market share for those manufacturers not already using

the latest technolo gy could be seriously affected in favor of competitors that already do use the technology

. For example, a standard level that necessitates mitering of the core over butt

- lap designs (i.e., with a squared lamination edge) could disadvantage companies without mitering capabilities to cut the lamination edges on an angle

. Additional detail on these design types can be found in chapter 5. Finally, some manufacturers expected some weaker companies to exit the industry due to the new standards and consequently expect ed a rise in their market share.

Industry Consolidation : Although t he United States’ distribution transformer industry

is composed of a relatively large number of manufacturers ( above 60), the industry shows high

levels of concentration in both the liquid

- immersed and dry

- type markets. As few as six liquid

immersed manufacturers and 1 1 dry

- type manufacturers compose 80 percent of each of those

markets. Most manufacturers did not think there would be significant consolidation in the industry in the absence of standards. They also agreed that new standards most likely would not

lead to additional consolidation. However, a few manufacturers disagree d, and noted

consolidation trends are h ighly dependent on the economic cycle . They believe, given the current
difficult economic conditions , consolidation in the distribution transformer industry could take place in the near future

.

12.3.2.2 Product s & Profit ability

DOE requested manufacturers’ feedb ack on what they perceived to be the possible impact of amended energy conservation standards on manufacturers’ products and profits

. Higher energy conservation standards would likely result in higher per

- unit cost s that could

cause consumers to shift to l ess e xpensive alternative products, if such products were available. New standards could result in a change in the products’ utility to consumers. Manufacturers

could also fore see a scenario in which new standards caused margin compression

, which could

thr eaten the viability of some firms in the industry

.

Product Differentiation: Distribution transformers have very few characteristics that provide differentiation in the market. Many of the differentiating options for transformers, such as harmonic mitigat ion, would preclude the unit from the definition of distribution transformer. Within the classification of distribution transformer, though, o ne manufacturer stated that efficiency is used as differentiation criteria in the distribution transformer market. This manufacturer did not expect DOE would set an efficiency standard so high as to prevent efficiency from being used as a product different i on tool. M ost manufacture r s noted that currently about 85 percent to 90 percent of units are sold at the baseline efficiency level while

the remainder are higher efficiency units. Several dry

- type manufacturers expected this percentage to increase over ti me in the absence of new energy conservation standards with the adoption of NEMA Premium efficiency low

- voltage dry

- type transformers

.12

- 9

Product Utility : Some m anufacturers believed that new standards could result in larger equipment being produced, conseq uently affecting consumer utility. For example, larger units

could be more difficult to mount on poles or fit in underground vaults. In general, h owever, manufacturers found it highly unlikely that higher efficiency standards w ould result in products

that are “more or less ” desirable to consumers

.

Profit M argins: Several manufacturers commented on the adverse negative impact new energy conservation standards may have on profit margins. One manufacturer in particular spoke of the possible profit erosion caus ed by a standard requiring increased used of core steel . Since the amorphous material is controlled by a single

- source
, internationally headquartered supplier,

increased demand of amorphous steel may jeopardize domestic operations while providing off

shore competitors with a com pet iti ve advantage

. Another set of manufacture r s noted that new

standards could result in a reduction of sales and thus, an erosion of profit margin as fixed costs would be spread over lower volumes . According to these manufacturers, as end users are confronted with higher prices resulting from higher efficiency standards, there would be a strong tendency to opt for repairs and r efurbishments rather than purchasing a new unit. Only two

manufacturer s expected profit levels to rise in the short term upon the imposition of new

standards. In any case

, most manufacturers expected short term changes in margins, whether positive or negative, to level out an d ultimately remain unchanged over the longer term

.

12.3.2.3 Conversion Costs

All manufacturers stated that the conversion cost s associated with amended standards

would depend on the efficiency level established by th ose standard s

. I f the efficiency levels are set to where they can only be obtained via amorpho us material

, the capital investment could be

substantial . On the other hand, one manufacturer noted there will be minimal capital requirements if the new efficiency levels can be attained with traditional grain

- oriented core

steels

. According to manufacturers, conversion costs could range from one to six million dollars

per major manufacturer . This figure would include new production equipment purchases (e.g., mitering machines ) necessary to accommodate higher efficiency standards and the required increment in production capacity

.

12.3.2.4 Cumulative Regulatory Burden

M anufacturers did not identify any additional regulation s that w ould add to the regulatory

burden already imposed by amended energy conservation standards on the distribution

transformer manufacturing industry.

12.4 O VERALL KEY ISSUES

Perhaps the most important aspect of the prel iminary MIA is the opportunity it creates for DOE to identify key manufacturer issues early in the development of amended energy conservation standards. During preli minary interviews, manufacturers identified three major12

- 10

areas of concern: (1) core steel availability, (2) equipment conversion costs, and (3) intellectual

property.

12.4.1 Core Steel Availability

Manufacturers commented that there is limited global supply for t he types of core steel necessary to build higher efficiency distribution transformers. In particular, a standard level that required the use of an M2 grade steel or better could result in supply issues due to a lack of qualified supply sources

. O nly a ha ndful of global steel providers are capable of supplying M2 grade steel and only one supplier is able to produce amorphous ribbon. As such, a sudden increase in demand for these core materials would likely result in a shortage , according to

manufacturers

. T he increased demand for electrical steel from growing economies like China

and India exacerbates the tight supply market. While the current global economic downturn has abated most supply issues, manufacturers indicated that a return of solid economic growth w ould only further strain the limited supply of these high quality core steels.

12.4.2 Equipment Conversion Costs

Some manufacturers commented that certain technology options considered in the analysis may require large capital investments and retooling and strand existing assets. For example, e ntirely new machinery and manufacturing processes would be required to create symmetric core transformer designs. Similarly, if manufacturers decided to create their own amorphous cores for the amorphous design types, they would need to make large investments in new machinery to handle the amorphous material. While manufacturers could purchase prefabricated amorphous cores, a standard level that necessitates an amorphous design could cause the manufacturer to pu rsue its own amorphous core production to develop a competitive advantage in the marketplace. Lastly, a standard level where mitered core construction completely replaces butt

- lapped cores would require some manufacturers to purchase additional mitering m achines. Most small manufacturers do not currently have mitering capabilities, so they would have to outsource core production or face large capital investments.

For each of the capital investments described, some portion of the manufacturers ’ existing machinery for core production would be stranded

. Additionally, manufacturers indicated that there are often very long lead times for getting advanced machinery. Several manufacturers commented that it would take approximately two years between the purcha se request and the completed installation of new machinery for some of these capital investments.

12.4.3 Intellectual Property

Manufacturers expressed concerns about intellectual property rights pertaining to symmetric core designs. While the concept of a symm etric core transformer has existed for over a century, the practical implementation of the design was not developed until relatively recently. There are currently a small handful of companies in the world that have developed feasible symmetric core design s. Each of these companies own s patents for the designs, which are then licensed to other manufacturers who produce their own symmetric cores. This intellectual12

- 11

property would be a high hurdle for any manufacturer seeking to produc e the technology on a

l arge

- scale.