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Giles Parkinson

Vestas CEO Ditlev Engel, however, says that the best days of wind are not over. in an interview with Climate Spectator, Engel says the Danish company can match the Chinese (and says it already sells more turbines in China than the Chinese sell outside of their country), and will play a critical role in future energy needs.

Engel says Australia has a magnificent wind resource which is as valuable as the resources that lie in the ground. But it is unlikely that Vestas will consider reopening the wind place and nacelle assembly plants it closed a few years ago.

He also says gives his views about technology development, and how the youth of today will have a different approach to energy than the current generation.

Giles Parkinson: Vestas is the world’s biggest wind turbine manufacturer. Just a week or so ago you announced losses for the third quarter. You’ve signalled that you’ve abandoned your long-term financial goals and your shares are down quite sharply. Has wind already seen its best days?

Ditlev Engel: No. Absolutely not. I think what we said the other day was because of the two main reasons: the sovereign crisis, predominantly in Europe; plus obviously the fact that there’s a lot of uncertainty in the United States in 2013 concerning the extension of the PTC (tax credit) could pose a challenge. But we, actually, at the same time, said just the reverse; that we still believe that the long term outlook for the wind sector is still very strong, but since, for instance, we have about a half of our business in Europe could be more impacted.

GP: you also face immense competition from Asia, particularly from Chinese wind companies. I guess to guarantee your long-term future you’ve also got to make certain of your short-term future as well. Are you confident you can match the Chinese?

DE: we have to remember that Vestas has 3000 colleagues in China and we went into China in 2006 and we built a number of plants there. that means that if the rules of the game going forward, for instance, are that everything should be used in China and shipped around the world, Vestas can definitely do that as well. Now, because of the magnitude of the products, but also, of course, the transportation costs, etc, etc, we don’t think that’s really going to happen. But actually, if you add up the numbers, if you look at 2010, Vestas sold more megawatts in China than all of the Chinese combined sold outside China.

GP: If you can’t beat them, join them, as it were.

DE: well, China is of course the world’s largest wind market, but if you look just here in 2011, I think we have already seen that the Chinese market has not grown to the level that it had done in the previous year, so I would say it’s getting into a more a normal stride now going forward than the very steep road that we saw just over the last few years.

GP: Both Denmark in wind and Germany in solar have invested a lot to encourage the development of the wind and the solar industries in their countries. part of that was justified by the fact that they would create a manufacturing base in their own countries. do you think those strategies will ultimately prove successful or will those manufacturers inevitably disappear overseas into cheaper economies?

DE: I’m not going to comment on solar because that’s not my home turf, so I’ll speak to the wind side of the business. And I would say, seeing from the wind point of view, I think one of the very important issues for us has been to globalise our business. And if we had not set up a global business as we have done now, we would have been in a very challenging position. we have five million people in Denmark and a very small country, so I think it’s nothing unnatural about the fact that we are globalising it. the wind sector has created a lot of jobs in Denmark and especially in the research and development, and now the Danish government has just increased its targets, so I’m sure that we’ll keep on seeing this development.

And just to give you an idea of how important it is, talking about China, we have just made a huge study on how you actually balance the grid much better going forward …which is obviously a very important knowledge that we have built over the years in Denmark, thanks to the very heavy focus on integrating wind into the totality of the energy system.

GP: I’ll get on to the balancing issue in a minute; you mention in your presentation – that was presented two weeks ago – you had a vision; wind, oil and gas. what you mean by that?

DE: we are 22,000 people in Vestas, and I think it’s very important that we all understand wherever we sit on the globe. And the focus when we say wind, oil and gas is really to position wind as an energy source on par with oil and gas. This means the performance of the turbines, the reliability, and the grid integration is very important. Oil and gas is going to be the base load for decades to come for the world. we all know that. And therefore it’s also very much a question of how do we incorporate with the existing energy sources. And if I just look at what has happened since 2005 until today, Vestas’ customer base has changed dramatically from small-, medium-sized developers, into some of the largest utilities in the world – and I think that’s another way to signal our vision, namely that we have to develop this energy source going forward.

You then look at it from a cost of energy perspective and then wind is by far the cheapest of the alternatives on the table and thereby it makes more sense to make wind as the natural partner of the existing cost of fuel going forward because we keep bringing down the cost of energy and it can be integrated with the existing technologies, which we have shown in Denmark. you know, with Denmark we get more than 20 per cent of our electricity from wind and it’s going to get up to 50 per cent, so it is the main part of the energy sources going forward.

GP: well, let’s go back then to the balancing question, because wind is criticised still a lot for its intermittency, that it doesn’t serve its purpose, and some people say we’d better off without it. How do you respond to that?

DE: First, we have to look at the macroeconomics… Normally when people ask me this, my first question I always ask back is: ok, if you don’t want to do wind, what do you want to do? When you just say no, you have to come up with an alternative. we know the energy sources in the world are going to come under tremendous pressure. three comments which came out of the International Energy Agency the other day, which is obviously one of the, if not the most respected commentators on the energy business going forward; they came out with a few, I think, very important messages. the first message is that we will soon go from $US100 to a $US150 per barrel of oil – the days of cheap oil of $100 per barrel are over. That’s the first point. the second point is that in Copenhagen the world leaders agreed that we have to keep the temperature increase below 2°C, because otherwise the costs to societies would go up dramatically.

According to the IEA, if we don’t start to change our carbon footprint, then by 2017 the world will pass the 2°C and then the window closes forever. And therefore, they said, any dollar that you do not invest today in making the new energy development will cost you… after 2020 will cost you $US4. And don’t take it from a wind guy, like me. Take it from the IEA. Politics has a very important role to play because I think it’s the job of the politicians to look at what are the costs of energy to society, short, medium and long term. And therefore, when people say to me, now we don’t want this turbine, we say fine, how will you then deal with these other very serious macroeconomic challenges?

GP: But how confident are you that the politicians will actually respond to the challenge, then, of lowering emissions? Because they’ve talked about broad targets, but are they actually implementing those policies? they are still a long way from those policies and I think that was the fundamental point that the IEA was making as well.

DE: But you know the day before yesterday in new York we unveiled the criteria for our Wind Made initiative that we have done together with a lot of major corporations in the world which we launched, actually, back in January. Now, we’ve set out the criteria. what we believe – and we can see from a lot of the consumers polled all over the world, also together with major companies – is that the sustainability issue is still very much at the forefront of the consumers’ minds. we can’t just rely on the politicians, you know, to solve everything, because we need to make sure that we all… that people can, sort of, on a broader base, see the picture here. so, I think there are other issues at the table.

 If I could just comment on the political side, let me say I was chairing a green growth working group at the G20 in Seoul and I was chairing the same theme with a group of different companies at the G20 which was conducted in Cannes in France just a few weeks ago and the interesting thing is when you talk to business from all over the world, as I had in my working groups – very big companies – they all say the same thing; we know exactly what is needed in order to move green growth forward. And the first one, and this is of course where we are very happy to see what has happened in Australia, is to put a price on carbon. secondly, we need to remove some of the trade barriers that are in green growth. Thirdly, we have to scale out the renewables. And fourthly, we have to stop subsidising fossil fuel, which is running at a magnitude of $US400 billion a year. And these were included in both of the G20 in Seoul and the G20 in France as recommendations from heads of state. And therefore I have to say I have to give a lot of credit to Australia for actually going out and actually delivering on the agreements made at the G20.

And I have to say, I’ve been very encouraged. Just to give you an example, I sat just two weeks ago and watched the president of Mexico, President Calderon, giving a presentation with slides on how …[failing] to act now on turning Mexico into a green economy …will cost Mexico, in the long run, much, much more. so, obviously it’s very important for the political leadership, but of course I think also to make people aware of what are the real costs, as per mr Calderon did the other day in France. …Because people can understand that. I mean I think everybody can understand what the IEA says. If it’s one to four, I think that’s a calculation most of us can understand.

GP: on the question of subsidies, the wind industry is criticised a lot for relying on subsidies to build wind turbines. notwithstanding that you think that there are more subsidies going to fossil fuels, but when do you think that the wind industry will be able to stand up without subsidies?

DE: you know, the question of subsidies and the costs of energy has to do with what does it cost society. And the key question is, do you measure the cost at the meter or do you measure the cost of the total costs for the taxpayer? And I can tell you, for instance, in Denmark, we have made a calculation because we have a lot of oil and gas coming out of the North Sea. we made a total calculation of what will it cost a Denmark to become 100 per cent fossil fuel free and the cost to GDP to run Denmark entirely on wind would be 0.5 per cent of GDP.

Now, we would obviously pay more for the electricity, but then we will save a lot on health care. we would save in a lot of other areas which, of course, society has to pay anyway. When people say to me, what is grid parity, then the only way to answer that is you’ve got to make a calculation for society. I know that in Colorado, one of the states in the US, they made the same calculation – because they, like your country here, have a lot of tourism and they used to be a big coal state – and they found out that, with the cost of coal, it actually ended up they were paying a lot of money for cleaning up their lakes, their rivers, in order to make the tourists happy. they actually found out that they had a lot of wind, so in making Colorado much, much greener, actually it looked like a higher cost per kilowatt hour, but if at the end of the day you looked at the total cost of Colorado, it was actually a better deal.

GP: Let’s talk about Australia. a few years ago you had a blade manufacturing plant in Australia. you had a nacelle assembly plant in Australia. Under what circumstances would you consider having such plants in Australia again? will that never happen?

DE: well, coming back again to the cost of energy …How can we, in the most cost effective way, deliver our products to Australia? we are building the largest wind farm right now called Macarthur in the state of Victoria and there we are getting the blades and the nacelles are coming from Denmark, but the towers are being produced in Australia. so, we try to look at what is the most optimal. the reason why we closed down the plants in Australia was because of the lack of longevity in the planning and, at that time, there were no signs that Australia was going to embrace wind again, which obviously has changed now. so, it’s all got to do with what is the the best business case for Australia. so it will depend on the size of the market, but at this moment I think it will be cheaper for Australia to get at least part of the turbines outside Australia, instead of making them here. so at this moment, we don’t have plans to reopen those. it was a great shame. we took it up at the time with the government before we took the decision, but it was just not possible.

GP: in Australia we have a lot of sunshine. do you see wind competing with solar in Australia and how do you think it will match up?

DE: the discussion between wind and solar, I think we’re going to need all of it, because the energy challenges of the world are so huge that …I think we’re going to need anything we can come up with. Just the other day we passed seven billion people on the planet and we are going to have another two billion people in the next 25, 30 years, so the pressure on resources is going to be massive. which I guess is exactly the reason why the economic outlook for Australia is so strong, because you are a society very much relying on all of the resources that you can export to the rest of the world, which I guess is good news from an Australian point of view, but it again means that from an energy perspective the cost of energy is going to be under significant pressure upwards. And I think we’re going, you’re going to need all of it. But if you look at it today, from a cost of energy perspective, then wind is significantly cheaper than solar now, but actually solar is going to reduce their cost as well in the coming years.

GP: Where do you think growth in the wind market is going to be? is it going to be in onshore or is it going to be in offshore?

DE: in Australia, you guys have so much land, so since it is much cheaper to install them onshore instead of offshore, then I’m sure that onshore is going to be the name of the game in Australia. And you also have to remember that the onshore wind resources you have in Australia are phenomenal. I mean, again, a lot of people know that you have a lot of resources in mining and so on and so forth. having fantastic wind resources onshore as you have in Australia is as good for the future economic security as having a lot of resources in the ground and you just have them up in the air as well, but people don’t think about it this way.

GP: Sure. Can you tell us about the size of the turbines of the future? will they continue to just get bigger and bigger or will there be…?

DE: I don’t think so. from a transportation, cost efficiency point of view, I think we are at the peak now. the turbines we are sending for Macarthur are called the V112 which is I think sort of the largest we are going to see. And for practical reasons, shipping reasons, transportation, I think we are at the edge, now, onshore. I think we’re going to get bigger and we have for offshore; we have a launch that’s a seven megawatt turbine, but that is so large that it has to be manufactured at a port very close for installation, so if you’re going up in that scale, you need to have a significant offshore market just around the corner like, for instance, we have in the UK.

So, I think we are at the peak now, and because of the cost of materials, the lighter you can make the design, the smarter you can make the design and thereby reduce the consumption of materials, the more you can lower the cost of energy. so, in the old days it was about, you know, making them just bigger and bigger. I would say going forward it’s about keeping them at this size and then keeping making them lighter, because that will keep on checking out the total cost of the manufacturing.

GP: will there be a complete step change in the way that turbines look, big three-bladed machines?

DE: I’m not an expert in this area, but I can tell you that we have tried so many different versions, two, four, whatever, and I think it’s going to end up a bit like a car, you know. They’ve been running on four wheels for a while.

GP: Yes. Fair enough. Can you give me your vision of what the energy map of the world will look like in 50 years’ time?

DE: in 50 years’ time?

GP: Yes.

DE: Wow. That’s a tough one.

GP: ok, 20 years then.

DE: But even that… well, I will put up a disclaimer and then I’ll give you my best shot. Walt Disney once said if you can dream it, you can do it. And where I really put a lot of hope on is the fact that all the people who are very, very into this debate see the future of energy and consumption in a very different light compared with the elderly generation. I think that the younger generation is going to push this agenda much, much harder. This is something we are polling on a global scale, and therefore I would say I think in the next 20 years I think you’re going to see companies and future leaders embrace sustainability and a new energy debate in a completely different way than we have done in the past. Young people today have a different perspective than the rest of us, which I find very encouraging, so I’m sure they will do a good job here.

GP: Does the view between young and old, does that explain a lot of the push back against wind that we see around the world at the moment, just in commentary? Wind does come in for a lot of criticism for one reason or another.

DE: the other day one of the heads of state at the G20 said you know, all history has shown that the best ideas start out with somebody starting to embrace it and then they develop over time. And I think one of the most important jobs we have to do in the renewable sector is to work with people and explain to them what are the myths and what are the facts and keep having this debate. And if people have challenges, if they’re anxious about the issues concerning wind, if they think that [wind farms] in some way are problematic to deal with, the best we can do is to have a dialogue about it. as I said before – ok, if we’re not going down this route, what should we then do, because we know we have to change. And therefore I think we have a very important role to make sure that there is public acceptance.

So, I think that’s going to be very important, also, coming back to the outlook for the next 20 years. If we can explain what are the pluses and the minuses associated with our type of technology, then I think people embrace that. And then I think there’s one thing we should not forget, and that is that technology always seems to change everything. we have a lot of close cooperation also at universities in China, so if you just imagine, for instance, that some of the issues concerning storage; there will be some breakthroughs there. You’re going to see the whole energy sector change forever. so, I think we have to remember, you know, that we are starting to say: ok, what happened in the mobile phone sector 20 years ago, well then some people might have said, well, maybe every household will have two phones, and it ended up with everybody has a phone with a tremendous capacity. we have to remember that there will be a lot of things coming from technologies that may be impossible to envisage today.

GP: Terrific. I do thank you for your time.

DE: thanks very much. Nice talking to you.

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