In conversation with Mr Frank Nielsen, CTO and Mr Ian Telford, Vice-President, Sales and Marketing, LM Wind Power
LM Wind Power expects high growth rate; sees big business in India, China
LM Wind Power, the leading global manufacturer of blades for wind turbines, revolutionised the WTG blade industry by introducing by far the largest blade of 61.5 meters long, back in 2004. It is currently making a prototype of a much longer blade for Alstom Wind before the global launch end of 2011.
Even during the tumultuous times of global recession, the company managed to remain highly profitable by showing extreme resilience and bounced back as it regained its market share, with revenues of EUR 727.5 million, 6.4 per cent lower than previous year. InWind Chronicle caught up with Mr. Frank Nielsen, CTO and Mr. Ian Telford, Vice-President (Sales and Marketing), LM Wind Power to unravel the company’s future plans and its focus on India.
IWC: What sort of R&D went into development of the largest wind turbine blade in the world?
Frank Nielsen: The R&D process is still going on and the prototype is in production. The first one will go online in Q4 2011 in Europe. It is a joint effort between Alstom and LM Wind Power and we have done a design iteration to further refine and increase efficiency. We work closely with Alstom to complete this record-breaking initiative and also to make sure to overcome the hurdles. Our role has been as an integrated partner, to design the turbine in co-operation with our partner. In that sense, we act as tier 1 supplier to Alstom.
IWC: What is the company’s investment plan for India in FY 2011-12?
Ian Telford: Considering that India is now number 3 in annual wind capacity additions globally, there will be uptake in our factories, as we plan to expand our existing facility. The Indian unit — LM Wind Power Blades (India) Pvt Ltd — has a capacity to make blades for 750 MW and this will now be increased during 2011 by 500 MW at the Dabaspet plant, near Bangalore.
With the epicentre of the wind energy industry moving towards the Asia-Pacific and India and China offering the biggest opportunities for growth, LM Wind Power is also contemplating to have a unit with a capacity of 600-700 MW in north-western part of India. The company is scouting for locations in Gujarat and Rajasthan and expects to produce blades there during 1st half 2012.
The company has delivered the largest blade LM 47.5 P in India for Suzlon S97 WTG which is now flying in Rajasthan (since April 2011). We plan to manufacture this blade in the country and will have a large setup for the purpose. To facilitate blade manufacture, the technology has been imported from Europe to India. Our experience during the blade manufacturing process has been immensely gratifying, especially with the significant contribution from engineers in Bangalore in terms of technical support.
IWC: What sort of challenges have you faced in India?
Frank Nielsen: In India, rules and regulations to support the wind sector are secured in a sustainable way and on a long-term basis to attract investors. The company really appreciates REC and GBI schemes for boosting the sector. We have found good co-operation in India. The talents and resources are available, and there is no communication problem. We have also got help from political circles. During 2010, 32 per cent of the company’s sales came from India and China and our estimated market share for blades in India was 28 per cent in the year.
Nevertheless, there are constraints such as grid instability; the planning process is cumbersome; and road access problems (which is a major bottleneck for the transportation of bigger WTGs). Besides this, some taxes are very high on WTG imports. Though it augurs well for development of local market, at the same time it is an impediment for foreign blade manufacturers like us. We import 50 per cent of raw material for manufacturing the blades. However, we have considerably brought down this part (earlier the company used to import 90 per cent of the raw material) by localising the blades.
Initially, there were issues of custom clearance - We faced problems in importing raw materials and then getting them to the factories. Sometimes the raw material lay at the harbour for 4 weeks and products with shelf life expired.
IWC: REC trading has taken off in India, how do you think this will help big companies like you to survive?
Ian Telford: This is expected to push up demand for wind turbines and in turn demand for blades. In that sense, it will support our growth plan for India.
IWC: LM Wind Power has managed to make its presence felt in a highly protectionist Chinese wind power market by opening four new workshops of 3 moulds each, and expanding an existing one. How has your journey been so far?
Ian Telford: In China, we have more than doubled our capacity during 2010. By the end of 2010 we had achieved optimal capacity utilisation in China as more customers placed bigger orders, thanks in part to our new product offerings. Our success in China required taking prompt action in response to legal and regulatory changes. The Chinese Ministry of Industry and Information Technology drafted tighter standards for wind turbine suppliers, and restrictions on the number of permitted manufacturers and terms under which foreign operators can produce and export.
The deals are larger and things move faster in China than in Europe and India. One needs to be a quick decision maker as well as a strategist to be ahead in the market that offers big opportunities. We introduced the revolutionary GloBlade®1 LM 42.1P which is a plug and play blade for 1.5 MW turbines for Class III winds. This blade will also be flying in India during 2011.
Frank Nielsen: However, China has a closed market in which the main market players or the largest game changers are the government and the government utilities. In order to succeed in the Chinese wind market, you have to have the right connections with the clients and the government.
Ironically and unlike rest of the world, the bidding process involves the price of the megawatt of the WTG and is not based on how much energy it will produce. This is a highly inefficient manner of approach, as the company winning the tender is not responsible for the life time of the WTG etc. Moreover, during bidding where a number of companies submit their tenders the rules are not clearly set out. This often creates unnecessary confusion.
The Chinese market does present some challenges however. The integration of wind energy into the country’s power distribution grid has caused bottlenecks and limited the effect of the government’s generous support for the sector. Meanwhile, competition among government-owned companies remains fierce. Prices for turbines have consequently fallen in recent project tenders, and this has had a knock-on effect in the form of margin erosion and has since spurred further consolidation. Against this background, LM Wind Power put in a strong performance in 2010, raising its share of the Chinese wind turbines market to 11 per cent from 6 per cent in blades.
Ian Telford: The longer term outlook for the Chinese market remains highly positive. In order to meet the Chinese government’s aim to source 15 per cent of its energy needs from renewable sources by 2020, the country needs to expand its wind power capacity to a minimum of 200 GW by that year. At present, China has just over 40 GW of installed wind power capacity, which means that the country will need to add an average of 16 GW each year. The outlook for prices in China, meanwhile, is expected to improve through 2015.
IWC: With the advent of multi-megawatt wind turbines, the demand for longer blades is expected to rise. What are your commitments for the rapidly growing offshore wind industry?
Ian Telford: We had plans to manufacture the largest blade in the world since the year 2009. And it was quite a feat that we achieved. After we announced the deal with Alstom, requests started pouring in for blades of up to 90 meters in length. Since bigger machines are ideal for installation in the sea, our blades will be able to increase the power efficiency of offshore WTGs effectively.
Offshore wind power market per se, Northern Europe (UK, France, Germany) is the place to watch out for, typically due to its high speed wind regimes in the seas and oceans as well as the region’s aggressiveness to turn renewable energy friendly. This is coupled with the availability of relatively shallow coastal waters and the need to find space for much larger projects than are possible on land.
China, Korea and the US are other countries where we see good offshore wind market potential. Though America has huge offshore wind energy resource due to strong, consistent winds off its long coastline, only a robust offshore wind industry can turn it into an economic activity.
IWC: Which region or country do you rate as the most aggressive wind market?
Frank Nielsen: The US is a volatile market and hence offers a huge challenge. China, on the other hand, will be a major market player though it poses a number of risks for foreign manufacturers and investors.
The Chinese government lists energy as an important subject in its 5-year plan and renewable energy development is a vital part of it. Asia’s economic powerhouse also harbours the wish of becoming a world leader in renewable energy technology. From industry experience, we can say that China is going to be very successful in harnessing renewable energy and is already working on its solar pursuit.
In terms of India, there are huge opportunities for low-wind markets. From technology perspective, the country offers a broader market – low-wind speed areas, high turbulence regions etc.
IWC: What does your order book reflect?
Ian Telford: The growth areas lie in Class III wind regions and offshore. We are much better than last year mainly due to orders from India and China. The market will grow at a pace of 5-8 per cent beginning 2015, and we are expecting to grow faster than that.
IWC: Any new business plans?
Frank Nielson: In January this year, LM Wind Power Service & Logistics announced the acquisition of Encore Power Services (EPS), a leading provider of field services and component repair for wind turbine generators in North America. We are optimistic about our association and anticipate good business in the time to come.
Ian Telford: As the blades
get longer and WTGs get bigger, the rotor is the motor (the only thing that
catches the wind). We make big blades for big machines.
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