Wind: commodity prices, commodity pressures

Last year was not a good year for Denmark’s Vesta, the world’s largest manufacturer of wind turbines. Like the German PV companies, it grew its business based on home country government support, but like the PV companies is facing tougher competition in the global marketplace.

In 2009, publicly traded Vesta announced layoffs of 1900 workers, and last October axed 3000 more, closing four factories.

Now Renewable Energy World has a 2,500 word profile that’s supposed to be an upbeat update on the company’s fortunes, but to me sounds like more bad news. Europe faces overcapacity and 2010 sales were down because government buyers realized they’re broke. The industry’s trade association says their only hope is more aggressive GHG reduction mandates by EU governments.

At the same time, uncertainty in the US — the world’s largest installed base — is increasing.

Meanwhile, the article notes that Vesta faces increasing competition from Europe (Spain's Gamesa, Germany’s Siemens) and the US (GE) which are offering improved products and increasing European production.

If that’s not enough, Vesta — like the German PV companies — faces increasing competition from low cost producers in China and elsewhere in Asia. The money quote of the paper:

"You could say we have been too optimistic for too long," Ditlev Engel, chief executive of Vestas said last October as the company cut its workforce by 15%. He later qualified these words, saying it was right to study the markets before taking "tough decisions" to close four production units in Denmark and another in Sweden, but it was inevitable this phrase would make headlines, sending shockwaves across the industry.

Vestas' move was in response to shifting fortunes, and shifting global markets. "If you can make a turbine in Asia and deliver it to Europe at a comparable price to making it in Europe, we have a problem," said Engel. "So we have to make sure we can always compete with what we call 'Asia plus freight'."

In the comments section, one reader wrote:

He said it all in the beginning...
"Asia + shipping"

The wind folks like to think they’re a tech industry (not really) or a growth industry (depends entirely on subsidies and mandates). The reality is that they make equipment for producing commodity electrons, which makes theirs a commodity industry as well.

GE: green energy or greenwashing?

For more than five years, GE has been branding its green/environmental/sustainability efforts as ecomagination. It has custom domain, a Twitter feed and a prize contest (using open innovation ideas). It event spent nearly $3 million for a 2009 ecomagination SuperBowl ad.

When GE rolled out the campaign, a grad student writing in Monthly Review (which proclaims itself an “Independent Socialist Magazine”) was more than a little skeptical

As environmental degradation continues to expand in tandem with global capitalism, environmental consciousness becomes a new marketing strategy. GE's newest invention is to present itself as an environmental crusader. "Ecomagination" is its latest moniker, proclaiming that one of the world's largest corporations has gone green, embracing environmentally-friendly policies and promising to provide the world with solutions to environmental problems. All we have to do is trust the company and continue our lives, preferably as its customers, and it will bring us the clean, pure world shown in its advertisements.

An anti-envirnomentalist’s op-ed in the New York Sun was equally skeptical:

Environmental activists are cheering General Electric's new "Ecomagination" initiative. That's a hint that the rest of us should beware of the gimmicky-sounding program.

"Ecomagination is GE's commitment to address challenges such as the need for cleaner, more efficient sources of energy, reduced emissions and abundant sources of clean water," CEO Jeffrey Immelt said. "And we plan to make money doing it. Increasingly for business, 'green' is green."

Skepticism or not, there is a substance behind the ad campaign of the $150 billion/year conglomerate.

After selling its first turbine in 1901, GE quickly moved into renewable energy by selling a turbine for hydroelectric power generation. Its turbine expertise also led to its involvement in nuclear plants, as well as a range of fossil fuel power generation systems. Its decades-long experience with power transmission has also made it one of the most aggressive corporate backers of smart grid — the subject of the 2009 Super Bowl ad.

GE’s position in wind is more recent. In 2002, it spent $358 million to buy the wind energy assets of the bankrupt Enron Corporation, which had bought the business five years earlier. Founded in 1980 by Jim Dehlsen, Zond Energy shipped its first turbine in 1981. (Early on, Zond also purchased turbines from Vestas to install in its pioneering Tehachapi wind farm).

While GE’s wind business is the market leader in the US, 80% of its sales are in the US — perhaps a legacy of the lack of global focus by Zond or Enron. In its home market, it seems to be losing share to foreign competitors like Siemens of Germany and Suzlon of India. Like other Western makers, it has minuscule share in China due to trade barriers, and so last month formed a 51/49 joint venture with a Chinese partner.

GE also entered the PV industry via acquisition, with its 2004 purchase of the bankrupt AstroPower and its process for thin-crystalline silicon cells. More recently it has invested in various thin film processes, including CdTe and CIGS. A year ago, a GE R&D exec said solar was “the next wind for us.”

GE mentions solar thermal as a line of business but doesn’t say much about it publicly.

The contribution of these RE efforts to GE are a mystery, as it doesn’t break out wind or solar financials. Overall, the energy infrastructure segment of GE accounted for 24% of its $155 billion in 2009 revenues — but 62% of its $11 billion in profits. In mid-2008 it predicted $1 billion in solar revenues by 2011, but no progress report on how close it is to reaching that milestone.

Lessons from greening Google's billions

Although I don’t follow wind all that closely — if for no other reason that it will make a relatively small contribution to increasing California’s use of renewable energy — it was hard to miss news this week of Google’s investment in a planned $5 billion wind transmission line off the Mid-Atlantic coast.

The “Atlantic Wind Connection” (as it’s called) is interesting on several levels. The ownership is split between Google (37.5%), an investment company called Good Energies (37.5%), and the Japan trading company Marubeni (15%). The deal came about from a chance meeting between developer Trans-Elect Development and Good’s desire to find new projects to invest in.

The announcement is interesting on many different levels.

One is that this is a sizable bet among a series of ongoing RE investments by Google. It appears that it fits nicely with the founders’ philosophical support for renewable energy, as announced by Larry Page three years ago (and reflected in their personal investments in Tesla among other cleantech startups.) The announcement also reflects Google’s strengths at mass communications in web-enabled world, as much of the press coverage was just a paraphrase of the key details provided by Google and its partners in its posting and press conference. (A rare exception was the National Geographic story.)

The second point is that, as the Heritage Foundation noted, this is a rare example of a large RE project being funded by private investors rather than hefty government subsidies. They quote approvingly from the official announcement by Google’s “Green Business Operations Director”:

We believe in investing in projects that make good business sense and further the development of renewable energy. We’re willing to take calculated risks on early stage ideas and projects that can have dramatic impacts while offering attractive returns. This willingness to be ahead of the industry and invest in large scale innovative projects is core to our success as a company.

Third, this is a reminder of the importance of transmission infrastructure for any large-scale renewable energy projects: where the power is generated (wind coastal shelves, sunny deserts) is not where it needs to be consumed. The 350 mile transmission line would be built about 22 miles offshore, and come ashore in four places: Northern NJ, Southern NJ, Delaware and Southern Virginia. It would eventually have a capacity of 6 gigawatts of power. The project construction would take from 2013-2021.

Fourth, as an April paper in the Proceedings of the National Academy of Sciences points out, a wide geographic dispersion of wind farms can ameliorate one of the biggest disadvantages of wind power — dramatic fluctuations in output — by smoothing that output over a broader geographic base. The law of averages may make large scale wind generation more useful than the existing wind farms concentrated in a few localized areas like the Tehachapis and the Altamont Pass.

Fifth, the unique advantages of the Mid-Atlantic region point out the limitations of offshore wind more broadly. As the NYT article summarized:

The lure of Atlantic wind is very strong. The Atlantic Ocean is relatively shallow even tens of miles from shore, unlike the Pacific, where the sea floor drops away steeply. Construction is also difficult on the Great Lakes because their waters are deep and they freeze, raising the prospect of moving ice sheets that could damage a tower.

So if the plants have to be located far enough offshore to avoid objections over aesthetics but in shallow enough water to operate a fixed platform, there are limited opportunities to do so.

Sixth, it appears that local and state governments have conflicting motives between NIMBYism and a desire for local jobs — to the point of discouraging East Coast use of renewable energy generated in the Midwest. (A similar dynamic has occurred here in California). Again the NYT captured it nicely:

Nearly all of the East Coast governors, Republican and Democratic, have spoken enthusiastically about coastal wind and have fought proposals for transmission lines from the other likely wind source, the Great Plains.

“From Massachusetts down to Virginia, the governors have signed appeals to the Senate not to do anything that would lead to a high-voltage grid that would blanket the country and bring in wind from the Dakotas,” said James J. Hoecker, a former chairman of the Federal Energy Regulatory Commission, who now is part of a nonprofit group that represents transmission owners.

Finally, the construction of a transmission line does nothing to solve the daunting cost problems of offshore wind energy. Parochial governors aside, the cost of building and operating wind turbines in the ocean is higher than on flat dry ground: 50% higher is the estimate provided by the NYT.

More generally, the prices of wind generation are not falling as quickly as solar, and in fact ticked up last year at the height of a deep recession. (What’s up with that?) Blogger Tom Fuller argues that wind has a fundamental problem of lack of competition — where a cartel of a few large manufacturers controls the supply of generating equipment — and predicts an eventual triumph for solar:

There are a lot more [solar] manufacturers, and they are increasing capacity continuously. Each new generation of fab provides 20% performance gains, and the next generation of wafers is longer, wider, thinner and less likely to break. Innovations for their balance of system peripherals come from a variety of outside companies in their supply chain, and the inexorable march to grid parity is nearing its goal.

They both get the same level of subsidies, which amount to a pittance overall. So what’s the difference?

Solar sells to consumers, too. Residential, small business, offices and plants. Solar scales down as well as up. And their customers are you and me–cranky and demanding if things don’t work, unwilling to sign long term contracts, wanting to see bottom line improvements rather than brochures showing acres of installations.

So solar will win. Not because they’re nicer guys, but because their industry is more fragmented and they have more demanding customers.

Which, I believe, is the way the system is supposed to work.

So perhaps offshore wind will be the only local supply of RE available to the Northeast, but — as with everything else over the past 40-50 years — the region will remain an expensive place to live and work. In other words, not a good place to put a Google server farm.

Which way is the wind blowing?

The most controversial wind project in the US, the 400+ megawatt Cape Wind planned off Cape Cod, was approved by the Federal government Wednesday. Many considered this a surprising development, because of the adamant opposition of the Kennedy family — and other affluent members of the Massachusetts economic and political elite — who objected to the impact on their views of the Nantucket Sound.

As with solar energy in the Mojave Desert, this controversy found unlikely adversaries between pro-RE environmentalists and anti-development environmentalists. The Obama Administration, represented by Interior Secretary Ken Salazar, came down (mostly) on the side of renewable energy.

The NY Times captured the tension of this conflict in its own backyard:

Friends and foes have squared off over the impact it would have on nature, local traditions, property values and electricity bills; on the profits to be pocketed by a private developer; and even the urgency of easing the nation’s dependence on fossil fuels, a priority of the Obama administration.

Opponents argued that Cape Wind would create an industrial eyesore in a pristine area; supporters countered that it was worth sacrificing aesthetics for the longer-term goal of producing clean, renewable energy.

Developers say that Cape Wind will provide 75 percent of the power for Cape Cod, Nantucket and Martha’s Vineyard — the equivalent of that produced by a medium-size coal-fired plant. It would also reduce carbon dioxide emissions by the equivalent of taking 175,000 cars off the road, officials said, and provide 1,000 construction jobs.

The project has also made for some strange bedfellows. Cape Wind is backed by both Greenpeace and the United States Chamber of Commerce.

It has been opposed perhaps most prominently by members of the Kennedy family. Senator Kennedy was a longtime sailor on Nantucket Sound and fought the project up until he died.

President Obama himself on Tuesday toured the Siemens factory in Iowa where the turbines would be made. (No mention whether Iowa’s pivotal role as a swing state played any role in the factory location or the presidential visit.) The administration expects a string of future offshore wind farms up and down the East Coast, as part of a plan to raise wind to 4% of electricity generated in 2030.

In my memory, renewable energy was last in ascendancy in the 1970s and early 1980s around the time of the two Arab oil embargoes. Of the influential politicians of the day, Jimmy Carter probably would have sided with green energy (and energy independence) over Kennedy views — particularly when Sen. Kennedy began his very public nomination challenge leading up to the 1980 election.

I suspect that another Carter primary rival in 1976 and 1980 — Edmund G. Brown Jr. — would have come down another way. Then at the peak of his “Small is Beautiful” (ala EF Schumacher) infatuation, Jerry Brown was then about building less things, using less, spending less and consuming less.

What about today? In his adamant support for AB32 — the California precursor to national cap-and-trade legislation — Brown today is clearly about consuming less energy. While his campaign website brags about tax credits in the 1970s that brought windmills to California (mainly in the Altamont Pass,Tehachapis, and near Palm Springs), it doesn’t say how he’d come down on an RE vs. environmental preservation issue.

Our current Governator has strongly favored RE over environmental protection, implying that favoring the latter is something only a “girly man” who do. Given their moderate records on green energy, I suspect both of Brown’s GOP rivals — Meg Whitman and Steve Poizner — would also come down in favor of renewable energy (ala the Chamber of Commerce), particularly if there’s little government money involved.

But what would Jerry Brown do? I guess it depends on which way the wind is blowing. For the Obama administration, it appears that making progress on long-term renewable energy goals is more important than satisfying a small number of avid supporters in its base. This is good news for the wind turbine industry, and renewable energy advocates more broadly.

Rooftop wind turbines

The San Diego newspaper had an interesting story about a developer of small wind turbine.

The company, Helix Wind, appears to be struggling, but the product description was fascinating:

Helix Wind makes turbines small enough to be mounted on homes or commercial buildings. Its core products spin on a vertical axis and look like soft-serve ice-cream cones.

It reminds me a little of the story about Adobe installing wind turbines on roof of its skyrise HQ in downtown San Jose. The latest round of turbines generate about 50 kWh per year. The installation was finished last month.

We put solar panels on roofs due to scarce real estate, so at some level wind turbines on commercial or residential roofs make sense. The Merc story implies they get more energy per square foot than the equivalent solar panels.

To me, this seems to renew the (often unseemly) rivalry between the two main renewable energy growth areas. (Hydro is certainly renewable, but the recent growth has been in the wrong direction from a RE standpoint).

Pickens Plan peters out

The New York Times, Wall Street Journal and others have reported that T. Boone Pickens has given up (at least for now) on his plans to to build a four-gigawatt wind farm in the Texas panhandle.

The stated (and undoubtedly important) reason was that his remote wind farm needed transmission lines. At one point he hoped to borrow $2 billion to build his own transmission line, but financing in today’s credit crisis made that impossible. A line is expected to be completed in 2013.

Of course, another reason is that wind power is less competitive due to declining fossil fuel prices — in this case natural gas, which produces about 21% of US electricity.

The 81-year-old oilman was so confident (or aggressive) of his plan that he ordered 687 (some say 667) wind turbines from GE for the first phase, and now has to find something to do with them — either place them in other wind farms or “put ’em in the garage.” With $2 billion tied up in these turbines, it’s quite possible that he’ll never see the turbines used.

Of course, this is a stark reminder of the dependence of wind and solar on transmission capacity, and also (as if we needed it) their vulnerability to shifts in the prices of substitute fuels. But more generally, this is an example of the Achilles heel of both technologies — their low operating costs come due to massive up front capital costs, magnifying the risk to private sector investors who might otherwise eagerly embrace these technologies.

California’s renewable power mandate is one way to reduce that risk, by providing a relatively predictable demand for those building plants and thus committing utility cash flow to keeping such plants open. However, as with all government interventions in the marketplace, there is the risk (in this case, with ratepayer dollars) that such mandates prove to be foolishly bone-headed distortions of the market (something we can’t know until we try).

California’s 33% mandate by 2020 seems particularly risky; a figure of 20-25% after the first decade would be more realistic, giving economists and policymakers a chance to access program success. Instead, the Sacramento politicians (including our governator) want to brag about their legacy to the voters, who will forget (a decade later) about who was responsible if it all turns out badly.

Still, this demonstrates the benefit of the US system of federalism and local policy initiatives: California can try its experiments while others watch. If it’s a great idea, California ratepayers benefit and all the other states will copy it. If it’s a terrible idea — or needs fine-tuning — other states can try something different and only Californians pay the price.