18/05/2009 by David Slade.

Explosive growth in the demand for wind power has created a global waiting list for wind turbines. Chinese turbine companies may be part of the solution as they ramp up production and get ready to export.

The world’s wind power industry is struggling to cope with rocketing demand due to rising oil prices, tougher emission laws and fear of climate change. Average lead time for delivery of turbines has increased from six months a year ago to anywhere between 24 and 36 months.

From a meagre 2,000MW in 1990, global wind energy capacity grew to 59,000MW in 2005 and reached the 100,000MW mark this year. Despite this, the wind turbine industry – dominated by Vestas of Denmark, Suzlon of India, GE of US, Gamesa of Spain and Siemens and Enercon of Germany – has failed to sufficiently ramp up production. Siemens admits that new orders will not be delivered until 2012.

“It is difficult to predict exactly when the shortage will end – but by current indications, the new investments in the supply chain capacity, are likely to bear fruit in a couple of years,” says Vivek Kher, spokesman for Suzlon. “However, demand has been outstripping all projections and whether the enhanced capacities will actually stay in step with the demand is something time will tell.”

If the shortage continues, countries may be forced to review their renewable energy targets.

What’s driving demand?

Several specific factors have been boosting demand in the past few months.

The US saw a surge in new orders to take advantage of government tax credits for clean energy, which expire in December this year. The Production Tax Credit (PTC) provides the owner of a qualifying renewable energy facility annual tax credits, currently valued at 1.9 cents/KWh, based on the amount of energy generated in the first ten years. The facility must start operation before the credit expires.

Last year, the European Union set an ambitious target: 20% of EU energy from renewable sources by 2020.

In April this year, China set a massive target of expanding wind power capacity to 100,000MW by 2020, from the current 5,600MW. Previously, in 2006, China passed the Renewable Energy Law, which requires power grid companies to buy the entire output of registered renewable energy producers in their areas. The National Development and Reform Commission (NDRC), China’s top industry planning body, sets the purchase price.

CLSA Research estimates that the US, Europe and China will be spending about $150 billion on wind projects in the next five years.

US dithers, China surges ahead

In the US, an unstable regulatory regime is one factor hindering turbine production.
Sporadic tax breaks for renewable energy projects, usually on a year-to-year basis, have discouraged US manufacturers from scaling up. Congress, for example, has stalled the extension of PTCs beyond the end of 2008.

In the past, when tax credits lapsed the demand for wind turbines came crashing down the following year. If the trend is repeated this time, it may actually result in overcapacity of turbine manufacturing in the US, at least for the domestic market.

Yet energy analysts say that if the US market slows down due to lack of tax breaks, China will more than compensate.

In the short term, massive demand from China may further tighten turbine supply, but expanding local production should ease the global crunch within a couple of years. Today, the Chinese market is dominated by the top three foreign manufacturers, Vestas, GE Wind and Gamesa, who enjoy a combined market share of 47%. However, this is set to change.

Zhang Guobao, vice president of China’s NDRC, says: “We are planning several measures to support the wind power industry including localisation of equipment production.” According to the Global Wind Energy Council (www.worldenergy.org), China will become the top wind turbine manufacturer by 2009.

To encourage production, China increased tariffs on imported wind turbines in May, while slashing import taxes on components. The latter incentive, to help Chinese firms compete internationally for scarce parts, will put pressure on the industry in the rest of the world. But, again, this is a short-term problem. Government rules already require that turbines have at least 70% domestically produced components. As a result, leading manufacturers have been setting up factories in China.

As things presently stand, most Chinese manufacturers can produce only smaller turbines, up to 1MW. Chinese firms are trying to overcome this weakness by licensing agreements and joint ventures with western companies.

Goldwind, China’s largest wind turbine maker, raised $245 million through an Initial Public Offer (IPO) early this year to fund a huge expansion. LM Glassfiber of Denmark, which has a cooperation agreement with Goldwind, opened its second turbine blade factory in China in October last year.

Other major Chinese turbine makers – Sinovel, Windey, Dongfang, MingYang and HEC – are also expanding capacities and shopping for joint ventures and licensing agreements with global players.

China High, the country’s largest manufacturer of gearboxes – the most critical and complex part in a wind turbine – plans a four-fold increase in production in the next two years. The company is aiming to become one of the top three global manufacturers of gearboxes, with half of revenue coming from exports.

China High, which already supplies to GE, REpower, Nordex and Goldwind, raised $272 million through an IPO to fund massive expansion. The company is raising another $250 million through convertible bonds and plans to buy a special-steel plant to secure supplies and reduce costs. Special steel accounts for half the cost of gearboxes.

Among the foreign players, Germany’s Nordex – the fourth largest wind turbine maker in China – announced in November that it would quadruple production capacity to 800MW by 2011 to meet growing demand.

Currently, MingYang is China’s only turbine exporter. But in the next three to five years, the number of exporters is likely to grow as other firms aggressively expand and acquire technology. Foreign manufacturers may be scaling up their production in China, but in the longer term it is the emergence of Chinese turbine and component manufacturers that will probably change the global landscape of wind power.

Response from the big players

With over 8,000 parts required to make a wind turbine, requiring a large network of reliable suppliers, component supply is creating the most problematic bottleneck for turbine makers. In order to meet increasing demand, leading players are rushing to beef up their supplies by setting up new plants, signing long-term contracts with suppliers and even making acquisitions.

Vestas Wind Systems

World leader Vestas, which has manufacturing and assembling plants in Denmark, Germany, Australia, India, Italy, Scotland, England, Spain, Sweden and Norway, is on a spending spree. It has invested $2.25 billion in organic growth in the past three years.

As part of its strategy to establish manufacturing in the US, Vestas announced in May that it would build the world’s largest wind turbine tower factory in Colorado, at an estimated investment of $250 million. When fully operational in mid-2010, the facility will produce 900 towers a year.

In March, Vestas opened its first US blade manufacturing plant in Windsor, Colorado, which will be fully operational by mid-2009, with a capacity of about 1,800 40-meter wind turbines a year.

Another blade-making plant in Castilla La Mancha, Spain – where Vestas already has three facilities – is scheduled to start production this year.

Ditlev Engel, chief executive of Vestas, said in Beijing in April that the company plans to increase its capital and technology investment in China to meet growing competition from domestic players. The firm has a blade-manufacturing facility in Tianjin, which started production in 2006.

Vestas RRB, a wind energy company in India that has a technical collaboration with Vestas, raised $190 million in investment from Merrill Lynch in October last year to fund new blade-manufacturing facilities in Chennai and New Delhi.

GE Energy

GE has a worldwide installation of over 8,400 turbines, generating 11,300MW.

With $12 billion in orders, including recent orders from Mesa, Texas ($2 billion) and Invenergy Wind ($2 billion), GE’s current capacity is sold out until 2009.

The company, which has production facilities in Germany, Spain, Canada, China and the US, is now aggressively expanding capacities.

GE’s commercial partner Molded Fiber Glass Companies (MFG) started building a new blade plant in Aberdeen, South Dakota in November and aims to start production this year.

In November, GE signed an agreement with TPI Composites to build a new facility in Newton, Iowa, to produce blades for GE’s 1.5MW wind turbines. TPI has also signed a long-term supply contract with GE to make wind turbine blades in a new facility being set up in Taicang, China. Production is likely to begin this year.

GE is also planning a new facility in India to manufacture 1.5MW and 2.5MW turbines, though no time frame has been announced.

Prolec GE, a joint venture between GE Energy and electrical transformer supplier Xignux, is investing $50 million in its facility in Monterrey, Mexico to increase transformer production by 30%.

“We are working with suppliers to ramp up their capacity to ensure smooth supply of components,” says Magued El Daief, GE’s managing director in the UK.

Suzlon Energy

Based in India, the world’s fourth-largest wind turbine maker has orders worth $4.2 billion. It is aiming to double production capacity to 5,700MW by March next year, at an investment of $1.5 billion.

Over the last year, the company has raised $1.1 billion through an IPO and a Qualified Institutional Placement to fund expansion and pay for Hansen Transmission, a big Belgian maker of gearboxes it bought in 2006 for $680 million.

Hansen intends to increase its capacity from 3,800MW a year to 14,300MW over the next five years. In addition to expanding at its main facility in Lommel, Belgium, it will be building plants in Coimbatore, India, and in China.

Last year, Suzlon bought Germany’s wind turbine maker REpower for $1.9 billion.

The company’s plans in India include a new plant to make control systems and generators in Coimbatore, a wind turbine and rotor blade facility in Mangalore, a forging unit in Vadodara, and enhancing tower equipment manufacturing at its Kandla sites.

The firm also aims to double production capacity in China to 1,200MW in 2009-2010.

“China has a very ambitious target and we have a strong presence there,” says Tulsi Tanti, chairman of Suzlon.

Siemens Power Generation

German giant Siemens, which boasts 6,600 installations and a combined capacity of 6,080MW, recently disclosed that it had four year-backlog of orders for larger turbines.

It said that any new orders will not be delivered until 2012, causing a panic among the utilities companies, particularly in the UK where the government has ambitious targets for renewable energy.

Sources at Siemens say that the company plans to triple turbine production by 2011.
However, the supply crunch has not stopped the company from signing up new orders. So far this year, it has received $2.4 billion in orders from the US alone.

This includes an enormous order in May for 218 turbines of 2.3MW capacity each from FPL, the largest energy provider in the US. Supply will begin in 2009. To ensure delivery, the company is doubling the capacity of its US facility in Fort Madison, Iowa, at an investment of $35 million.

“The expansion will increase our ability to competitively serve the North American market,” said Randy Zwirn, head of Siemens Energy Americas.

Siemens has also bagged another big-ticket order, worth $1.2 billion, in the UK from Greater Gabbard Offshore Winds, which is building the world’s largest off-shore wind farm 25km off the coast of Suffolk. Turbines will be delivered in 2009 and 2010.

Siemens has aggressively expanded its facilities in Denmark, investing $59 million in the past two years to keep pace with the demand.

Gamesa Wind

The Spanish company has 32 production sites in Spain, Italy, North America, Germany and Norway.

Vertically integrated, Gamesa designs and makes its own blades, root joints, gearboxes, generators, converters, towers and nacelles. It assembles wind turbines and develops wind farms itself, a capability that most of its competitors do not have.

The company has orders for over 8,000MW of installations, equivalent to its production capacity for the next two years.

In the last 18 months, Gamesa has added nine plants, including four new facilities in the US, three in China and two in Spain.

The firm is investing $80 million in manufacturing facilities and developing wind farms in China, and aims to be the largest foreign turbine maker in the country, with a 30% market share by 2010. It plans to add 1,800MW to its Chinese production capacity by next year.

In April, it signed an agreement with the US-based turbine tower maker Tower Tech Systems for supplying towers for its North American projects.

Back home in Spain, it created a joint venture last year with Grupo Daniel Alonso for manufacturing towers for wind-turbine generators. The combined entity, in which Gamesa has a 32% holding, will run four facilities in Spain.

The company is also expecting to complete a prototype of its 4.5MW turbine this year. The turbine is likely to go into production in 2010.

Enercon

Germany’s Enercon has a worldwide installation of 12,500 turbines generating 14,400MW, half of this in Germany. It has production facilities in Germany, Sweden, Brazil, India, and Turkey. It is scheduled to start production in Portugal this year.

This year, the company bagged two large orders for wind power projects in Quebec for 272MW installations to be operational by 2013. The company plans to open a factory for wind power components in Quebec to support the project, at an investment of $30 million.

Enercon is forcefully implementing vertical integration at its headquarters in Aurich. Here, MTA Metalltechnologie, a group company of Enercon, started making nacelle casings, cast components and steel parts at the end of 2007. The unit will add manufacturing of generator rings this year.

The company is also ramping up capacity in Portugal. At the end of last year, its rotor blade facility in Viana do Castelo started production for the Portuguese market. Two more plants are being built nearby, to be operational later this year.

Who will be top dog?

Vestas and Suzlon are the firms most aggressively expanding their capacity and can be expected to continue their global dominance.

Vestas, which has close relations with the major power utility firms, is banking on China to achieve its target of 25% share of the world market.

This year, Suzlon became only the second vertically integrated wind power manufacturer in the world, after Gamesa. This allows it to have better control over its supplies. Suzlon also has access to cheap labor in India, huge experience in the industry, a global network of suppliers and subsidiaries, and strategic acquisitions. The company looks well placed to profit from rocketing demand.

Safety concerns

As it gets bigger, the wind power industry faces a few safety issues. Several cases have been reported of turbines collapsing.

Two Vestas turbines collapsed in Hornslet, Denmark early this year, prompting an investigation by the Danish climate minister Connie Hedegaard. Another two collapsed in the UK last November and December, sparking a joint investigation by the company and the UK Health and Safety Executive. The first incident took place in Scotland; the second in Cumbria.

Siemens was fined $10,500 for safety violations in February after a six-month probe into the collapse last August of a turbine in Sherman County in Oregon, in the US. One worker was killed.

In February this year, Edison International, a wind farm operator in the US Midwest, complained that the blades of its 144-foot-long turbines, supplied by Suzlon, had started to split at three sites. Similar problems were reported at the sites of another customer, Deere & Co. Suzlon reacted by recalling 1,251 turbine blades.

As the manufacturers pursue rapid expansion and delivery, and produce larger and taller turbines, it looks like they will also need to lift their safety standards to match.

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18/05/2009 by David Slade.

The UK government revealed plans Monday to have smart meters installed in every UK home by 2020- but at what cost?

A new £9 billion scheme was announced Monday, a full three years after the Government intended to introduce the smart meters. The electronic smart meters read a household’s electricity and gas consumption and send the accurate information to the household’s energy provider. The idea behind the smart meters is that they will eliminate the need for someone to check energy levels- thus saving the energy companies money- and also quickly and accurately inform the consumer about energy overuse, saving the consumer money on energy bills, all while reducing overall energy use.

The smart meters are about the size of a small notebook, and are reportedly to cost about £340 per household. There are several different proposals as to how the smart meters will be managed, with the government’s preferred method seeing the energy companies responsible for the installation and maintenance and a third party handling the actual energy data.

The Government believes the energy reduction would ‘conservatively’ save each household £4 a year, or about £100 million throughout the UK. The energy companies say they will be able to offer consumers cheaper energy due to the reduction of operating costs.

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18/05/2009 by David Slade.

Companies are plugging into new green markets.

Survey indicates companies will implement ‘transformational’ sustainability programmes by 2012.

Company sustainability programmes that are currently developing on an incremental basis can be expected to start transforming businesses by 2012, according to a cross industry survey.

Businesses expect fast innovation in sustainability to be required to meet the lightning pace of climate change legislation, consumer demand and rising energy costs.

Financial impacts

Companies sample surveyed revealed that by 2012 the financial impact of regulations would be a key concern to financial directors compared to 2009 due to the extra carbon costs on flights, energy and the cost of inclusion in cap and trade schemes. The cost concerns of companies included:

• Flights within EU airspace will be subject to a 97% cap on emissions (relative to the 2006 baseline) from 2012. This will add to the cost of flying.

• The percentage of EU Emissions Trading scheme CO2 allowances sold at auction will increase year-on-year which adds to the wholesale price of electricity.

• From January 2010, US firms with high emissions need to collect GHG emissions data and report it from January 2011. January 2013 is a likely start date for cap-and-trade in the US.

• UK Carbon Reduction Commitment affects 5,000 private and public sector organizations from April 2010. The first performance league table and payments are due in October 2011.

Product innovation

Low carbon product development will be an important area of innovation by 2012, according to the company research. The success of product take up will depend on carbon legislation deadlines and ease of diffusion in the marketplace.

Other product innovation drivers will include the price of carbon, energy, and competitive dynamics between companies, which is expected to drive demand ahead of regulation.

Companies that started the R&D process in 07/08 to create low carbon products can be expected to trigger demand and substitution from 2012, according to the research.

Analysis suggests carbon management software will become increasingly important for companies attempting to monitor and reduce their emissions. The company survey identified regulations, risk management and competitive dynamics as key areas that will drive adoption of carbon management software from 2009.

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18/05/2009 by David Slade.

Communities secretary Hazel Blears and culture secretary Andy Burnham have today urged councils and developers to put good planning, local character and high quality design at the heart of development.

A new cross-Government strategy out today stresses that good quality buildings and ample green infrastructure - parks, trees and waterways - are not a luxury that can be dropped during difficult economic circumstances.

In World Class Places, the Government pledges that all new public and private development will be built to the highest design standards. All new government-funded building programmes, including social housing, schools and health centres, will include improved design standards. Every significant public sector project could have the opportunity to be advised or reviewed by a team of design experts from the Commission for Architecture and the Built Environment (CABE).

The Government will also establish an integrated set of design quality standards for homes and neighbourhoods to ensure the quality of design does not slip. These will cover the key issues that are fundamental to good design, such as sustainable and practical development, and using design to discourage crime and address the needs of older people and disabled people.

Hazel Blears said: “Badly designed housing estates and low quality neighbourhoods encourage crime, undermine communities, deter investment, spoil the environment and cost a fortune in the long term.

“If we give up on good design now, we will simply create rundown areas which we will all have to live with once we get beyond this recession - and we’ll end up paying for them twice.

“That’s why we can’t let the economic challenges we are facing now provide an excuse for bad planning, careless maintenance and poor quality buildings. It is vital we continue to build new houses, schools and hospitals to the very highest standards and we continue to maintain our great built heritage and invest in green spaces and green infrastructure.”

Andy Burnham, who is Government Design Champion, said:

“Buildings and their surroundings matter to us all. But the towns, public spaces and streets that we cherish and value have not come about by accident. They have been planned and designed, respecting and investing in the existing built environment and integrating the new with the old. Some of our greatest assets as a nation - and the things that overseas visitors most often remark upon - are the historic buildings and places that express our past and celebrate our present.

“Good design is not an extravagance. In the present economic context, it is vital not to relax in our quest for well designed houses, schools, hospitals, offices, and town centres. Achieving excellent quality of place and sustainable buildings should be at the heart of our thinking, and this new strategy will help us redouble our efforts to ensure that good design improves the quality of life for everyone.”

The strategy recognises the need for an approach which works right across government, and brings together all the elements of the built environment: new public buildings, heritage and conservation, regeneration and public services.

12 May, 2009

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