Blown away – Can wind energise British industry?

Posted on 6 May 2009 by The Manufacturer

The UK should reduce emissions of greenhouse gases by at least 80% by 2050, according to advice from the Committee on Climate Change. It also needs to bolster exports to assist economic recovery. Surely the time is ripe for a renewable energy manufacturing bonanza? says Will Stirling. - Part 1 of a three part series

Given multiple converging factors, the UK should have a thriving domestic large wind turbine industry. The arguments for this – environmental, economic, export-driven, the need for engineering skills and, at last, government funding – were brought into sharp focus from several angles last month. The Department for Energy and Climate Change published a report on April 23, Investing in a Low Carbon Britain, outlining the case for multiple low carbon energy types, vehicles, jobs and products. The British Wind Energy Association (BWEA), the trade association for the UK wind and renewables industries, produced a report on the manufacturing opportunities in wind, wave and tidal energy for domestic and export markets. The Chancellor’s Budget on April 22 announced a £405m fund to support low carbon manufacturing and green energy, as well as committing £525m for offshore wind energy projects over the next two years. The idea of green jobs for a green economy has real momentum from many directions.

Policy blown off course
Then, on April 29, Danish wind turbine manufacturer Vestas announced the closure of its Isle of Wight manufacturing base, to the dismay of many. Demand for wind turbines has dropped in the recession and many wind farm projects globally have stalled. But some feel the reason is deeper than mere economics. Vestas mainly supplies to the onshore wind market and probably established its blade plant on the Isle of Wight with a view to supply to the UK market. But government policy has focused on offshore wind. “It seems that Vestas has identified that the short term market for offshore wind turbines is likely to be less profitable than onshore,” says David Sharman, managing director of small wind turbine manufacturer Ampair. “Since the UK is blocking onshore it is not profitable, and many countries would like to host Vestas and give it business.”

Ditlev Engel, chief executive of Vestas, was hopeful that the Budget measures would help recover demand so that closure might be avoided. He told The Guardian the weakness of the pound was also responsible, making it more costly to build wind farms in the UK, but the biggest problem lay in planning application. “It is extremely time consuming and extremely complicated. Some of our developers, customers, will tell you it is so difficult. In the UK, nimbyism is a huge challenge. This is outside of Whitehall territory.” While offshore wind offers arguably more potential for large scale wind projects, onshore wind farms are by some estimates twice as cost effective as offshore. Planning constraints are certainly a big issue. Infrastructure projects normally have a 16 week maximum planning and approval period. In nonwind farm projects, a decision is reached within this time for about 70% of projects. Only 5% of wind farms get a decision by deadline, according to Nick Medic at BWEA. The reluctance of banks to lend for project finance further compounds the problems for makers of wind turbines.

Of Vestas’s decision, Adam Buckley, head of programmes at The Manufacturing Institute says: “It is extremely disappointing in light of the government’s target for achieving 15% of all UK energy from renewable sources by 2020. Britain has the best offshore wind, wave and tidal resources in Europe… the government must recognise that these resources present a significant opportunity to help create the right conditions for enterprise and UK manufacturing.”

Room for a British player
Project finance is tight, yet it is hard to avoid the conclusion that, had there been more policy-level conviction before now to finance onshore wind projects, and less planning red tape, Vestas would not be closing its UK plant (its R&D facility remains on the Isle of Wight).

Its decision is humiliating for government in light of its recent vocal support of low carbon industries. BWEA’s April report Powering a Green Economy, makes a compelling economic case for the UK to use the opportunity of renewable energy to bolster manufacturing, create and secure jobs, fill the skills gap, increase exports and contribute to economic recovery. It says that fulfilling Britain’s renewable energy potential will require up to 60,000 employees across wind, wave and tidal, including 10,000 offshore construction and operation jobs and says if the UK capitalises on its potential, its green technology sector could dominate world markets worth perhaps £200bn each in the next 20-40 years. For manufacturing, while the UK currently imports all its large scale wind turbines (mainly from Germany and Denmark, with Siemens alone supplying about half), BWEA says that, “providing measures to induce investment in renewables such as the recent US stimulus package [or UK Budget funding] are successful….. there is room for new entrants to the sector and a general need for greater production capacity across the board.”

While foreign companies like Vestas that could assemble turbines in the UK suffer from a weak pound when importing parts from Europe, conversely the low euro to sterling exchange rate is an opportunity, making British turbine manufacture more competitive both for domestic projects and for exports. Buying wind capital from Europe is more expensive now, adding weight to the argument for a UK wind turbine manufacturing capability. When the demand for wind projects recovers, without a domestic supplier the UK will be subject to the pricing policies of a small number of suppliers – only two manufacturers dominate in offshore wind, for example.

BWEA’s report articulates this case compellingly: “It is still possible that a major expansion of off¬shore wind in the UK will result in turbines being made abroad and exported to the UK. Being dependent on imports would be much riskier as there would be strong competition for the production capacity from the home markets of those manufacturers. The opportunity to max¬imise the benefit to the UK would be lost: there would be no chance to earn export revenue from future offshore development in Europe or elsewhere if we have not developed a manufacturing base.”

Industry must respond
A British wind power industry would have to contend with the dominance of Siemens, Vestas, Repower and Nordex, which have proven technology and are favoured suppliers by both public-private projects like London Array and on-site single turbine operators like Wind Direct and Ecotricity. But the revenue and export appeal of manufacturing big wind turbines alone is alluring – recession or not, Germany’s export of wind turbine technology is worth over $6.8bn per year and growing, which rises to more than $10.2bn if including installation, operations and maintenance according to the German Wind Energy Institute.

Some domestic manufacturing does benefit from a foreign turbine industry. Converteam in Rugby, for example, is a leading manufacturer of power conditioning and conversion equipment for the wind market. But there are issues for UK companies supplying to wind manufacturers abroad. “It is more difficult to compete against established suppliers when crossing the sea and with exchange rate volatility to contend with (though the current low pound is helping right now),” says Dr Gordon Edge, co-author of BWEA’s report. “Hence our insistence on bringing a turbine assembly facility to the UK, as a prelude to building up the local supply chain rather than the coda.” As Dr Edge points out, the UK component is still very low, “even for towers that are relatively simple to make and difficult to transport – factors in favour of local production.”

The UK seems to have missed a trick in taking viable opportunities in the wind turbine supply chain. But who is to blame, government or industry? “The German and Danish governments were active in bringing forward emerging technologies to commercialisation, this didn’t happen in the UK,” says Alex Murray, small wind systems manager at BWEA. Others support this view. EEF, the manufacturer’s organisation, wants to lobby government to make up for past complacency. “The main reason manufacturing activity in the wind sector is limited in the UK is the lack of government vision and support,” says Roger Salomone, energy adviser at EEF. “In stark contrast to the generous subsidies for generating power from wind, there has been no plan for exploiting the industrial opportunities. The world-leading Danish wind turbine industry was deliberately nurtured over several decades through a phased programme of government support. EEF is looking to the Low Carbon Industrial Strategy, due to be published this summer, to address this lack of foresight and ambition.”

However some voices, like WMG’s Lord Bhattacharyya (see page 18), feel that industry needs to take a leap of faith. In the 1980s and early 1990s there were some UK pioneers making wind turbines, Howdens and Wind Energy Group being notable. “They failed to establish themselves due to a difficult home market with a support mechanism (NFFO) which focused very hard on reducing cost, at the expense of actually delivering projects and thus providing orders to domestic manufacturers,” says BWEA’s Gordon Edge. Few British names are today associated with the big turbine market, and the consensus view is that only with a stronger state commitment to invest in wind energy, Howdens and others might have persevered. Rolls-Royce, perhaps the best placed British company to enter the wind turbine market, has been comparatively quiet for its size and reach. A campaign group, Wind Not Weapons, has demonstrated at Rolls-Royce’s Raynesway nuclear engineering plant to drop nuclear in favour of manufacturing sustainable technology. The company has in fact invested in onshore wind and tidal energy projects through partnership with the Energy Technology Institute. ‘Helm Wind’ is researching methods of improving the efficiency of generating electricity from offshore wind. But its manufacturing contribution to wind is muted, at present.

Grasp the nettle
Ostensibly the manufacturing opportunities for Britain’s green economic revolution are vast, providing there is political will, funding and the necessary skills available. Collating and delivering those three elements is a big challenge in a stretched economy, but must happen for many important reasons. “UK manufacturing must be in a position to take advantage of the demand that this sector creates – this requires both an acceleration of government policy, a relaxation of the planning approval process and a targeted support programme to develop supply chain capability within the UK manufacturing renewables sector,” says The Manufacturing Institute’s Buckley.