The Institutional Investor Guide to Modern Energy - (Page 5) Co-Published by Vestas better. Rather, it’s about increasing efficiency, allowing turbines to dependably generate more power while minimizing cost on both the production and operational sides. “Our customers don’t buy turbines because they’re in love with the green dream,” says Madsen, “but because it makes a good business case.” For Vestas, that’s meant custom tailoring four nameplate models, ranging from an 850-kilowatt turbine used in challenging, complex terrain to larger 2.0 MW and 3.0 MW turbines geared to the fastest growing area of the market. It’s in this latter, high-power category – picture the soaring towers and rotor blades sweeping an area larger than a football field – where technology innovation and supply chain efficiency provide competitive advantage. Troy Patton, senior vice president for R&D, says Vestas is working to improve blade aerodynamics, gearbox construction and system controls to enable better coordination between the supply chain and the company’s 800-plus engineers. “While technology is one piece, the important thing is that design engineers here understand that they need help from the supply chain, that this is really one huge circle,” he says. Recent estimates by the European Wind Energy Association already put the cost of generating electricity from land turbines at $0.04 to $0.08 per kilowatt-hour, a price that’s close to, and in some cases, on par with oil, gas and nuclear power. “The energy output you can get from a turbine is important,” says Christian Kjaer, CEO of the European Wind Energy Association, “but what drives manufacturers is figuring out how to get the lowest cost per kilowatt-hour.” Building the Best Turbine There are a number of different strategies for building the best turbine, with companies like Gamesa finding success with a 4.5 MW onshore turbine, while a slew of new homegrown entrants in China have quickly established a presence with turbines in the 1.5 MW range. Size does matter offshore, but the sector is proving a far more challenging environment than its onshore counterpart, says Edgar DeMeo, president of Renewable Energy Consulting Services and a co-author of a U.S. Department of Energy report that predicts a 20 percent wind energy share by 2030. In the report, DeMeo and his colleagues conclude offshore wind capacity could account for 54 gigawatts of the envisioned 300 GW needed in increased transmission. Still, supply constraints, logistical difficulties and technical concerns present significant obstacles. In the short term, nearly all the offshore growth is expected in Europe’s shallower, more easily accessed waters, while the U.S. and Chinese markets are largely dedicating themselves to land turbines, says Keith Hays, a European wind energy analyst with Emerging Energy Research based in Barcelona. By the end of 2009, Hays sees the United States overtaking Germany as the world’s biggest producer of wind-powered electricity, with China not far behind with a stunning 3,300 MW This Special Report was prepared by the Special Projects Department of Institutional Investor. installed capacity in 2007, accounting for a 147 percent yearon-year increase. The European Union also continues to be very strong. Its main markets include Germany, Spain, France, Italy and the United Kingdom, along with Poland and Turkey exhibiting considerable future potential. Downward pricing pressure attributable to new market entrants and investment in manufacturing capacity should also improve supply chain efficiency. “Now there will be a lot more product on the market and this will force incumbent players to compete,” says Hays. “The energy output you can get from a turbine is important but what drives manufacturers is figuring out how to get the lowest cost per kilowatt-hour.” Christian Kjaer, European Wind Energy Association Lower prices and the current financial slowdown are likely to erode the industry’s present 20 to 30 percent annual growth returns. However, the industry’s deep-pocketed customers should be able to ride out the economic downturn, so analysts expect the booming growth in wind energy capacity to continue for the next few years. Global Boom in Wind Indeed, the Global Wind Energy Council, based in Brussels, Belgium, predicts that the global wind market will grow by over 15 percent from its current size to reach 240 GW of total installed capacity by the year 2012. While wind still only generates one percent of all electricity in the United States, consider its astronomical rise over the past year, during which capacity jumped 50 percent to reach nearly 24 GW at the end of 2008 – an 80 percent increase in the last four years, with 58 percent of that coming in just the last two years. Annual U.S. market growth over the past five years has averaged 32 percent, according to the American Wind Energy Association. There’s enough wind in North and South Dakota alone to power America’s entire national grid. But transmitting wind power from rural areas – where the strongest winds are found – to populated areas with high demand will require a multibillion dollar transmission line investment. Policy leadership remains the most important single factor holding back the development of the global wind industry, says Peter Brun, senior vice president of government relations for Vestas. With the technology in place, there are encouraging signs coming from the Obama administration that give reason for optimism. “These issues are complicated and technical,” says Brun, “but I do think you can be optimistic because these barriers – like for example on transmissions – have been identified by politicians both in the United States and in Europe.” n March 2009 • Institutional Investor Guide to Modern Energy • 5
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