Birger Tuemand Madsen, BTM Consult
Release Date: 2009-06-29
How did you get involved in the wind industry in the early days?I graduated as an engineer in 1970, and subsequently has to join the military for two years. In 1972, I was employed by Vestas and in 1979 we started making wind turbines. At the time, I was the head of the first department for the production of wind turbines at Vestas. Back then, we were only putting up turbines in Denmark in the first two years. At the end of 1982 there was a big wind power boom in California starting in which we took part. About 50% of all installations in the US came from Danish companies like Vestas. When I left Vestas, I had been there for fourteen years.
Throughout its development the wind industry has gone through boom and bust cycles. In your perspective, what have been the critical moments in the development of the industry over the past thirty years?
There have been several critical points, but if you look at the upside, the most positive event was in 1979 when the Danish Parliament passed a law that which gave direct subsidies to investment in wind energy. It created a market. Initially it was difficult for wind energy to compete with traditional power sources, but the creation of this 30% subsidy system made the difference, it made investment in wind power reasonable from an economic point of view. This law created a market, and it was very intelligent that the subsidy was given to the turbine owners. Future owners put in an application for a wind power plant, which has to meet high requirements and has to be approved in order to guarantee that donor money was not wasted on rubbish turbines. It created competition within the framework of Denmark’s sixteen or seventeen manufacturers at that time. From 1981 to 1986, I was Chairman of the Board for the Danish Wind Turbine Manufacturers Association, the FDV, which we created. In this period, I had a lot of contact with the Ministry of Energy and Utilities as well as the turbine owners. Similar activities were taking place in European countries such as the UK, The Netherlands, and Germany. The difference was that the Danish government established public R&D projects to develop prototypes of wind turbines, test large turbines on a scientific level, and gain a better understanding of how wind works. The UK, The Netherlands, Germany, and Sweden did not do this. Denmark was also the only country that created market stimulation. It took ten years before similar schemes appeared in Germany and the UK in 1990s, and this was the key to our success.
The publicly funded R&D program in Denmark started the development two 600kW wind turbines with concrete towers. At that time, the commercial size of a turbine was only 60kW kilowatts, so we were aiming for a tenfold increase in turbine size. Later on, we built the first 2MW wind turbine at a time when the commercial size of turbines was coming close to 500kW, developing a turbine that was four times bigger that the market standard. What happened was that these small wind turbine manufacturers underwent stiff competition, so that by the mid-1980s, there were only four to six companies remaining. They merged and acquired one another and today we only have Siemens Wind Power and Vestas remaining. Siemens is German-owned and I think 30% of Vestas is in Danish hands, so they are true internationally operating companies headquartered in Denmark. The 30% subsidy lasted for ten years, but was reduced to 20% and 15% as wind turbines became more economically feasible. When it expired in 1989, the subsidy was only 10% and then disappeared.
There was one critical period, which we have to look at, which was when the US wind market disappeared. It was in 1987 and almost all wind companies went bankrupt, or at the very least they were recapitalized. Between 1982 and 1986, the US accounted for 90% of the world market. Of the remaining 10%, about 8% was in Denmark and 2% in the rest of Europe. You can imagine when this US market disappeared almost overnight it caused huge problems.
Looking back at the situation now, it was crucial that the knowledge and the turbine designs survived. Most companies continued to find new capital, so the knowledge did not disappear. Intensive work on the up-scaling of the wind turbines was then started to produce a turbine with the same production capacity for half the price or a turbine at the same price with doubled production capacity. That was the challenge, and everybody could see that wind power would become more feasible if we could scale up. I think the up-scaling from 100kW to 600kW turbines was quite successful; there have been bigger problems in up-scaling from the 600kW level to the 2MW of today.
Nowadays you annually release a World Market Update.through BTM Consult, which is revered for the accuracy of its forecasts. Nevertheless, you underestimated the growth of the Chinese wind industry last year; do you have to adjust your forecast for the global wind industry and for China once again this year?
I don't know. There is a lot of discourse. It is a very difficult situation, because on one hand there is the financial crisis which of course has an impact on everybody, but on the other hand there is very progressive work on climate issues, which should result in the definition of global binding targets during COP15 in Copenhagen in December, 2009. This is in favour of wind energy. I don't think the impact of the financial crisis will be very heavy. Money will start to flow again, one way or another, and I think there will be a flow into renewable energy. It is very important to stimulate economies around the world when you see recession coming. I think it is an excellent affair, not only for wind energy but for the renewable energy sector as a whole. It is a win-win situation for society, we improve the climate, reduce our dependency on fossil fuels, stimulate a new sector, and create jobs.
At the same time, due to the financial crisis, oil, gas and coal prices have gone down, do you thin that this will have an impact on investment in renewable energy around Europe?
It is important, but Europe has already taken the decision to have 20% renewable energy, 20% CO2 emission reduction, and 20% increase energy efficiency by 2020. This has been decided on the ministerial level in Europe, and what we are now discussing is how to sharing of the burden across the European continent.
Why do you call it the sharing of the burden? Why is it not the sharing of the opportunity?
Yes, that is a good one. It is a burden for some countries, because there are big differences emission levels, economic development levels, and the unevenly distributed emission reductions agreed when Europe signed the Kyoto protocol back in 1997 also play a role. It also depends on the local natural resources in individual countries as wind, hydro, biomass, geothermal and solar resources are not evenly distributed either. That is one of the reasons for burden sharing.
What will hosting COP15 do for Denmark, its international reputation, and its renewable energy sector?
I think it is very important for Denmark and I also think that the industry will gain from it. Denmark will be very much in focus at the end of 2009. There are a lot of things that failed or are not excellent in Denmark, but the total energy consumption in Denmark has not increased over the past three decades while the economy has grown 50% or 60%. Another thing is that we are the only country in the world which achieved a penetration of wind energy of 20%, which will be the renewable energy target for Europe as a whole. Europe as a whole today is at about 3.7%, and that is mainly due to Germany and Spain.
What do you believe that the Danish government should do right now in order to support the Danish wind industry to enable it to be successful internationally in the coming five to ten years?
The best we can do is to give the wind companies the possibility to test their new models on a large scale in Denmark, onshore and offshore. There is a lot of discussion about where we can install turbines larger than 2MW, which also makes this our biggest challenge.
How crucial is if for Denmark to remain the R&D hub for the sector?
It is absolutely crucial because we should justify why two of the world’s leading wind turbine manufacturers, Vestas and Siemens Wind Power, will remain headquartered in Denmark in the years to come. There should be some advantages for them being in Denmark. One existing reason is a high level of specific education related to the wind industry that is offered through specialised courses in Danish universities. The other advantage should be that they can test all their new turbines in Denmark. If these two differentiators are still there, then these companies will be encouraged to maintain their R&D base in Denmark, because if you look at the market their headquarters should be in China or the US.
If you were given unlimited financial and human resources, and you had the mission to create your own turbine manufacturer, where would you locate it? Which markets would it focus on, and what sort of size turbines would you be producing?
That was a good question. The industry has so far been successful in up-scaling, but the continuous focus on up-scaling has resulted in a situation where the full potential of R&D has not been utilized. In a few years, 1.5MW will be too small. Based on physical laws it is nonsense to make turbines much bigger, because there is this third power law. If you extend the physical dimension of a turbine, then the area harvesting the wind is changed in the second power, but the volume of the blades and the towers is increased in the third power. This means that from a pure technical mathematical point of view, a 5MW turbine would be much heavier than a 2MW relative to its output. However, when the turbines were 50kW the same logic already implied that it was nonsense to make them bigger. Instead of turbine size we should focus on optimizing the design. Structures are getting lighter and materials are getting better which enables the industry to push the design limits. After gaining all this knowledge and optimizing turbine design of 2MW turbines all the low hanging fruit will have been picked, so you cannot continue along that road. You will get bigger turbines.
One of the dilemmas is that the Germans are poised to take the lead in offshore wind. They will call for 5MW or 6MW turbines, which makes sense offshore because the foundations are so expensive, and the foundation into the seabed for a 6MW turbine does not cost twice as much as one for a 3MW turbine. This means that reducing the number of foundations for an offshore project creates a clear advantage, which will drive the demand for large turbines. But if you put up a 6MW turbine onshore competing with three 2MW turbines, I am pretty sure that today the economy would be better for the 2MW turbines. At the moment it makes no sense on land to install large turbines onshore, but there is an incentive for offshore application due to the cost of foundations.
In many geographic areas even 2MW turbines are considered big turbines, and it causes problems, but we have never seen a company downsizing and optimizing their old 750kW and 1MW turbines to produce cheap, and efficient turbines. The average turbine installed in China last year was 1MW, which was largely due to the fact that the majority of the Chinese manufacturers are making 750kW turbines. Nevertheless, they are progressing very fast in China and within a few years the average size will be 1.5MW.
Where would I locate my production facilities and what would I manufacture? I would find a good location in Europe, and I would like to develop the optimal 1MW turbine.
Would that also imply developing a more vertically integrated company?
The supply chain would be easier to handle with smaller turbines. The current bottlenecks in the supply chain are related to the production of 2MW and 3MW turbines, which require special components for which there is limited supply. If you go down to a smaller turbine size, then more companies are able to supply the parts. So the supply chain problems and the up-scaling are very much related.
Where do you believe that the industry will be heading next?
We will see different levels in the coming decade. There will be a market for huge 5MW to 10MW turbines dedicated to offshore. Offshore is still a niche market which in 2007 represented 1% of the world market and in 2008 will perhaps reach 1.5 %. Our five year forecast at a world level states that offshore wind will represent 4.5% to 5% of the market. This means that the number of turbines produced for offshore in the future will never be a huge number, and therefore will not benefit from the economies of scaled enjoyed by smaller turbines. At the same time there will be a market for wind farms utilizing 2MW to 3MW turbines, and there will be a market for 1MW turbines, which will be a big market in the future. So there will be two or three different levels, and there will be manufacturers that will focus on one or several of the segments.
What will be the technological challenges for the development of offshore wind?
At the moment offshore turbines more or less have the same design as onshore wind turbines, the main difference is size. I think you have to rethink the concept of offshore wind turbines; otherwise they will be too expensive. For the time being offshore wind is not competitive with onshore electricity production. One of the big problems for is the fact that the wind industry has focused very strongly on comparing offshore to onshore kilowatt hours, and offshore will never win that game. Instead, we have to come to the conclusion that offshore is still wind energy, but on a different scale. Today, an offshore project will cost roughly 50% to 100% more per megawatt installed than an onshore project.
What are your expectations for the onshore and offshore development of the wind industry in China?
I would absolutely utilize China’s land resources first and in fact I would say that the UK should have done the same. The UK has huge resources on land, but did not have an appropriate planning system. They have not succeeded in developing wind power inshore, so therefore they go offshore at a much higher cost.
The Chinese wind industry vastly exceeded its own targets. Did that surprise you?
Yes, it has been much more dynamic than I could have ever imagined. If you had asked me five years ago, I would have said that there is a potential for China to be a big market, but not that it would grow so rapidly. That has really surprised us.
If we look a few years ahead, will BTM Consult also be the information source of reference for the Chinese market as you are in Europe?
It is our intention to watch the Chinese market very carefully, because it is rapidly becoming one of the most important markets in the world. We really strive to be updated on what happens in China, because next time when we make a new forecast, we will also make a forecast for the development of the Chinese wind industry. The annual increase in electricity consumption in China is bigger than the total electricity produced by all wind turbines in the world since day one, that gives a good indication of the market potential.
| Company: | BTM Consult |
| Position: | Founder |
| Country: | Afghanistan |