Vestas now into profit with generous plans for global growth in wind power

When windmill supplier Vestas takes half page colour ads in the Wall Street Journal inviting readers to go and look at their Q2 08/09 results at vestas.com - you know it's good news.

It is .. but good news has been a long time coming .. see Thursday, March 30, 2006 Vestas, Big sales more losses in the wind farm business Vestas, the world's largest producer of wind turbines, lost nearly DKK 1.2bn (EUR 116m) on sales of DKK 26.7bn (EUR 3.58bn)last year (04/05) up 52% on the previous year. The company's board called the loss 'disappointing' and 'totally unacceptable'. see also Friday, November 25, 2005 Wind Energy - more problems / losses stack up for Vesta.

Investors, like Lord Patel who have hung in there have seen some modest gains as they have finally solved a lot of the problems of manufacture and reliability in use.

June 27th Order for 36 wind turbines with a combined output of 66 MW on 4 sites of 28 units of V90-1.8 MW wind turbine , eight units of its V80-2.0 MW wind turbines, installation and 5 year contract from Spain's Enel Union Fenosa Renovables (EUFER).

June 27th Order for 50 wind turbines for China 50 turbines in two projects totalling 100MW in China with a subsidiary of China Datang Group, a leading wind power producer in China, Delivery of the turbines is scheduled to begin at the end of the year and be completed in the first half of 2009.

June18th Order for 36 wind turbines for a 66MW Trapani Salemi project in Sicily from Suez' unit WINDCO Spa. due to come on stream October 2009.



The Statement says that the continuing improvement in profitability is attributable to the higher prices which Vestas initiated in 2005 and improved operational efficiency...."The overall demand pressure on the industry persists, and there are still long lead times for a number of key components; up to 15 months." ... Cash flows have improved and large inventories have helped to stabilise production capacity and Vestas’ ability to supply in the second half of 2008.... and explain the short lead times on the new projects listed above.

They also stated that order backlog on June 30 of 7.2 billion euros (US$10.73 billion). This compared with 4.8 billion at the end of the first quarter and was 67 % up on the figure at end-June last year. Note turnover year on year for Q2 is only up 3% 1067 to 1094 DKK.

These guys have vision

.."Vestas expects that modern energy (what BERR calls sustainable) will account for at least 10 % of global power production in 2020. To achieve this, more than 900,000 MW of modern energy must be installed over the next 12 years, which translates into annual growth in installed capacity of 20-25 %. The market will thus rise to an average of at least 80,000 MW per year over the next 12 years, against 20,000 MW in 2007 (ie 4 fold increase)."

By 2010 Vestas aims, together with its sub-suppliers,(and 17,370 staff worldwide) ) to be able to manufacture, ship and install 10,000 MW. In 2007, Vestas shipped a total of 4,974 MW.

On 2 June 2008, The U.S. Department of Energy (DOE) Assistant Secretary of Energy Efficiency and Renewable Energy Andy Karsner and 5 wind turbine manufacturers, (GE Energy, Siemens Power Generation, Vestas Wind Systems, Clipper Turbine Works, Suzlon Energy, and Gamesa Corporation) signed a Memorandum of Understanding (MOU) with a view to jointly seeking to increase the proportion of wind power relative to overall US power production from the current level of 1% to 20 % by 2030. See DOE Report 20% Wind Energy by 2030- May 2008
this addresses the 20% Wind Scenario:The 20% Wind Scenario presented here would require U.S. wind power capacity to grow from the current 11.5 GW to more than 300 GW over the next 23 years. (If interested in wind energy and how a modern industrial nation with an established manufacturing base should act in planning for, it this is a must read). BERR please Note , orders backlog, staff recruitment (see below) a5 month delay on component supplies Ditto on nuclear power.

Vestas has a blade factory in Windsor, Colorado,with an annual capacity of 1,800 blades, a second plant near Brighton, Colorado, will double capacity by 2010.

China’s most recent statement regarding wind power is to have an installed capacity of 100,000 MW by 2020, which is largely the same as the global capacity at the end of 2007.

On 26th June 2008, the UK government announced its fairytale plans for achieving 20 % renewable energy by 2020. The Vestas Isle of Wight factory will cease making the blades for its V82 turbine (which now mainly go to US) and change in 2010 to 44-metre blades for the V90 turbines which is predicated on the UK expansion using the V90-2.0 MW and 3.0 MW turbines are particularly well suited for this market, onshore as well as offshore. IOW will also become an R&D centre. The Cambeltown factory will shut.

Vestas expects to employ up to 1,500 people in the UK in 2010, against 1,114 employees today.

It is of interest that Vestas launched a global employee bonus programme, from Jan1 2008 in which eligible employees may achieve a bonus of up to 8 per cent of their base salary. The way this has been introduced suggest that recruitment of qualified engineers and their retention is a problem.

Looking for Press comment on Vestas results - we found this from Reuters "Shares in Spanish wind turbine maker Gamesa rise to the top of Madrid's leaderboard, up 4.2 % to 30.01 euros after Danish rival Vestas reports its order backlog has ballooned on soaring oil prices.

For those interested in investing in wind power, especially in the US you might look here at the report that The Goldman Sachs Group 21st March 2005 announced it will acquire Houston, Texas-based Zilkha Renewable Energy.

Goldman Sachs was then invested in 30 power-producing entities. “Goldman Sachs doesn’t invest in sectors that they think are stagnant or declining,” said Chris Taylor of Zilkha. This by the way was Zilkha of Selim Zilkha the son of the Banker of Baghdad who set up Mothercare in the UK, sold out. Setup an oil facilities company using the (then) new computer technology to exploit Gulf oil wells declining rserves and sold out for US$1 Bn to El Paso Gas ...then set up Zilkha energy investing in wind whcih he sold out to Sacks of Gold.

Zilkha Energy was an early investor in UK wind energy with the $80Mn. 10 sq Km site with 30 Vestas V80 2MW units at th North Hoyle field off Rhyl (Total Installed capacity 60 Mw. annual Load Factor 35.8% - UK Average 27.1%) which is the longest running offshore development(commenced Nov.2003) in the UK and now owned from 2005 by Beaufort Wind Limited.***

A BERR report on North Hoyle provides useful information - total overall final project cost totalled £81m (prior to grant) which equates to £1.35m/MW. The BERR (DTI as was) grant for the project of £10m reduced the total cost to £1.18m/MW. Total metered output 2007 was 117,000 MWh Annual operating costs in 2007 ( 3rd year of operation) amounted to £2.8m (equivalent to £47/MW or 1.51p/kWh - compare this with British Energy nuclear power realised sale price £45.7/MWh ).

As a bribe to operators The Energy White Paper 2007 declared the government’s intent that from 1st April 2009 wind ROCs will be banded:– Offshore wind farms to receive 1.5 ROCs per MWh. – Onshore wind to continue receiving 1 ROCs per MWh.

TO really understand the UK Renewables business got to Renewable Energy Foundation The REF is charity , supported by private donation and has no political affiliation or corporate membership. In pursuit of its principal goals REF highlights the need for an overall energy policy that is balanced, ecologically sensitive, and effective.

REF is part of a growing national consensus that the United Kingdom's energy policy is unbalanced, and that the drive for renewable energy generation has been inadequately planned.

*** Beaufort Wind Energy was owned 100% by Zephyr Investments .Three partners: RWE Innogy, Englefield Capital LLP4, and the Bahrein based First Islamic Investment Bank E.C. (F.I.I.B) (called Arcapita from April 2005) through its investment vehicles arranged by its subsidiary, Crescent Capital Investments (Europe) Limited, took one third (Jan 2004)each of the share capital of the investment fund, Zephyr Investments Ltd, established in April 2003.

RWE Innogy's retail subsidiary, npower, continue to purchase power and Renewable Obligation Certificates from Beaufort Wind Ltd under long term purchase contracts as part of its strategy to meet the UK Government's Renewable Obligation targets.

In August 2007 , Englefield Capital, sold their 1/3 rd stake and Arcapita Bank sold their 1/3rd stake in Zephyr which owned 17 wind farms = 20% of UK wind farm capacity for £145 Mn each (they said their cost was £55Mn each) to Infracapital, a European infrastructure fund managed by Prudential M&G, and a subsidiary of an investment entity advised by JPMorgan Asset Management, will each buy half of Arcapita's stake.

The value of Renewable Obligation Certificates dropped during 2007 from about £48 to £32 as more renewable energy came on stream.

If you have got this far, the North Hoyle farm generates electricity at say £47/MW it sells that for roughly that price and receives £33 for each ROC (it was £48 in 2007) which is effectively the gross profit. That is why they need a bribe from April 1st in 2009 to receive 1.5 ROC's for each MW generated.