Germany Green Tech (Feb 2010)

Release Date: 2010-02-09 00:00:00

Germany is the world’s prime example that environment and economy do not have opposing interests. This is why German disappointment at the watered-down outcome of the COP 15 summit on Climate Change could be summarised in German Chancellor Angela Merkel´s comment "Copenhagen has not made us optimistic," as she regarded it with mixed feelings and hoped for more progress. The negotiations failed to produce a successor to the Kyoto Protocol – which set binding targets for the reduction of greenhouse gas emissions and was signed and ratified by 187 parties of the UN Climate Convention but excluded the United States. The "Copenhagen Accord" was reached by 25 leaders of the United States, China, India, Brazil, South Africa and major European nations, but the 194 participants to the conference only took note of this accord. In the wake of the conference, Merkel called for a binding climate deal in 2010, highlighting that this year in Bonn and Mexico, which will host COP16 at the end of the year, the focus will be on laying down the binding targets that will be the core of a new global climate regime. For Germany, however, it is somewhat easier to commit to such ambitious targets as not only has the country produced global leaders in the different areas of renewable energy, but is rallying every sector of its economy behind the primary objective of achieving greener world.

Chapter 1

German leadership for a green future

“Environmental questions figure prominently on the agenda of politicians and the business community, and are also on the priority list of German voters,” explained Dr Arend Oetker, a fourth generation family businessman who serves both as President of the German Council on Foreign Relations and the Vice-Chairman of the Federation of German Industries. After having seen the ice cap of Greenland melting firsthand as part of a delegation of Swedish, German and American politicians, businesspeople and scientists, Dr Oetker started working daily on the subject of climate change and expects his companies to come up with energy saving ideas. “This is not being idealistic, this is a real issue of survival; companies that are the best in energy saving and climate consciousness will be more profitable down the line,” he emphasized.

Even though the U.N. climate conference in Copenhagen fell short of expectations, Germany’s political leadership reinforced its commitment to the country’s ambitious climate protection strategy, which has been raised from 30% to 40% CO2 emission reduction by 2020 compared to 1990. Currently, Germany is not only the world's sixth largest greenhouse gas emitter but is also a leader in renewable energy and energy efficiency technology, which are destined to be a pillar of Germany’s future economic competitiveness and a key driver of new job creation. While unions and heavy industry are concerned that ambitious unilateral climate policies could make them less competitive and therefore jeopardise jobs, advocates of green development highlight that Germany has created hundreds of thousands of green tech jobs in the last decade.

“At times, the Federation of German Industries is sometimes perceived to be preventing the establishment of ambitious targets, while sometimes it is not very easy for politicians to see both sides of the coin. Politicians have to create the framework for Germany’s transfer into new energy sources but these must be digestible by the applicable industries. This is a heavy debate in Germany, since politicians like to push ahead but sometimes we have to ask how that is realistic,” Dr. Oetker stressed. In June 2009, the Federation of German Industries stated that a 30% reduction of greenhouse gas emissions in Germany by 2020 over the 1990 level was ambitious but possible and economically justifiable with significant investment efforts and the participation of all sectors. Today, the German business community faces a government that pursues an even more ambitious climate strategy and a 40% emission reduction target.

“Germany will have the chance to make its economy more fit for the future," stated Prof. Schellnhuber, Director of the Potsdam Institute for Climate Impact Research and climate change adviser to Chancellor Merkel. “I can understand that companies have to defend their position, but from the point of view of a national economy it is a very short-sighted stance. There are many more opportunities in transforming our society towards sustainability than there are risks; that is absolutely clear. By the end of the 19th century, many new industries sprang up with pioneers such as Siemens and Bosch deploying their ideas. It was a co-evolution of technology, industry and culture, and was probably the golden age of Germany. Something like this could happen again if we renewed our energy systems, which are still very inefficient. However, the people who fear they have the most to lose, often the non competitive industries, generally exaggerate the costs.” More than ever, Germany’s business community and political leadership will have to consider both sides of the coin to find a path towards sustainable economic development, international competitiveness and environmental protection.

Navigating between climate policy and economic policy

As a result of the failure of the climate negotiations in Copenhagen to introduce immediate binding emissions limits, climate policy and trade policy are destined to become increasingly intertwined. In the past, the United States refused to ratify the Kyoto Protocol since it provides manufacturers in nations like China and India, which do not face emission caps under the treaty, with an unfair competitive advantage. Following that line of thought, business and opinion leaders in Europe and the United States have launched the idea of imposing border adjustments, which are essentially import taxes imposed by carbon-taxing countries on goods manufactured in non-carbon-taxing countries. While border adjustments could serve as a quick fix to protect heavy industries such as cement and steel, they would effectively blur the boundaries between climate policy, economic protection and WTO rules and regulations. Both importers and multinational corporations are sceptical that border adjustments could be implemented without violating WTO, while China and India already indicated that they would categorically oppose the actions by any country to utilize environmental and climate protection measures as a pretext to conduct trade protectionism.

Dawn of a new economic reality

The world is destined to remember 2009 as the year of the worst financial and economic crisis in decades. More importantly, it also emphasized the shift of economic gravity to the world’s largest emerging economies – Brazil, Russia, India and of course China – which emerged as frontrunners on the global path towards recovery while the world’s developed economies suffered the greatest slowdown in trade volume and value accompanied by negative GDP growth.

For Germany, Europe’s economic powerhouse, 2009 was not only the year in which its GDP contracted by 4.8%, but also marked the end of the country’s reign as the world’s leading exporter. Although this will not be confirmed until both country’s full-year data are published, preliminary figures suggest that China has surpassed Germany as the biggest exporter of manufactured goods last year. Having dominated the global trade arena since 2003, exports generate around 40% of German GDP and have been driven by both globalisation and the country’s world-class engineering sector, which also includes strategically important environmental technology areas including solar energy, wind power, water and waste management, material science, energy infrastructure and energy efficiency. While the international success of “Made in Germany” technology not only increasingly decoupled the success of Germany’s leading corporations from the development of their domestic market, it also raised their dependency on stable economic growth in the world markets. While Germany’s mechanical engineering firms are in a strong position to maintain their technological leadership, new challenges are emerging as globalization continues to level the international economic playing field while proposed CO2 emission limits to combat climate change could potentially transform the competitiveness across a range of industries.

When Germans became “efficient” at the cycle of life

Germany´s success in renewable energy was due to its interpretation of the “demand” for energy rather than the “supply” of energy, according to Prof. Klaus Töpfer, who introduced groundbreaking environmental policies during his tenure as Federal Minister for the Environment, Nature Protection and Nuclear Safety between 1987 and 1994. “The challenge is to reduce demand for energy without decreasing the economic potential by focusing on energy efficiency. The push for efficiency started in Germany with what we call the life-cycle economy, which has also become one of China’s main targets to avoid developing a waste society. Our waste philosophy is typical for a simple capitalistic market economy; creating a life cycle economy is a precondition for better market chances. Right now this has become an international export article of the highest importance”, he notes. The European Union has established the 20/20/20 agenda for 2020, and one of the ‘twenties’ is energy efficiency. At the moment, Prof. Töpfer explains, even very modern coal power plants have efficiency rates of just about 50%, with cars being even less efficient, and light bulbs having an efficiency rate of less than 5%. “Phasing out inefficient technologies brings us a step closer to the cycle economy, and it is essential to make producers responsible for their products from start to finish so that the producers of waste are also responsible for handling their waste. This change in philosophy will have direct effects on demand. Industry leaders such as Siemens and General Electric have been reorganising and are increasingly focused on the green economy, and are beginning to concentrate primarily on the demand side, since they recognise that this drives business. We, therefore, must do our utmost not to reduce the discussion of the green economy to an analysis of the supply side alone. Evidently there is a growing understanding among industry leaders that you can truly make gold by going green,” elaborated Prof. Töpfer, who was succeeded by Angela Merkel as Federal Minister for the Environment, Nature Protection and Nuclear Safety, and subsequently served as Federal Minister for Regional Planning, Building and Urban Development and Executive Director for the UN Environmental Program.

Prof. Töpfer recognizes that the recovery of German industry following the economic crisis is not driven by the development of industry and economy in China rather by consumer expenses in Germany. “The main question facing us today is how can we avoid repetition of this economic crisis? And most importantly, how can we regain economic stability without overloading the environment? The solution has to be something like a New Green Deal which can simultaneously handle both the economic and environmental crisis. Countries can learn from Korea which is putting much effort into ‘greening’ its economy. Although Germany seems to be doing a lot in this field, I don’t feel like we are doing enough.”

The German mindset: swinging between “China hype” and “China angst”

The German-China debate is swinging like a pendulum from extremely optimistic to extremely pessimistic, and sometimes it’s very small events which make a change,” stated Prof. Eberhard Sandschneider, the China expert at the German Council on Foreign Relations. “Most people do not look at China in an objective way, they see what they want to see, which is very simple since China is such a big and multifaceted country. People are almost automatically afraid that when a German company is moving to China we are losing jobs, and losing jobs is a killer argument in this country. So it’s a very complicated irritating debate that is driven by psychology rather than reality.”

At the same time, Prof. Sandschneider pointed out that the problem of how to approach China is a challenge for German businesses and politicians alike, but there is increasing recognition that whatever the problem is there is no solution without China. “We need a cooperative and constructive basis to work with China,” he emphasized. “The China angst debate is part of it, but one should never forget that in the United States the China debate is still split between those who favour engagement and those who favour containment. If you chose China as an opponent you will get China as an opponent. Managing strategic cooperation between a rising power and a former dominant part of the world is a major challenge which reaches beyond China’s border to include the Southeast Asian region. Of course people in Europe still believe that we will be part of one pole in a multi-polar world, but my impression is that some Chinese don’t really expect Europe to be able to become a pole.” Europe has prepared strategy papers on China ever since 1993 and its relationship with China has evolved from partnership into strategic partnership and today is described as an enhanced strategic partnership. “I’m waiting for the next step. What could the possible term be? Super enhanced, super strategic partnership? My argument would be that China is not a strategic partnership, believe it or not. The Chinese have there interests, we have ours, but there is no automatic common strategic base. They just are different,” explained Prof. Sandschneider.

Germany already is China’s most important European trading partner – with Sino-German trade roughly equaling to China's trade with Britain, France and Italy combined – in an environment where every EU member country has its own China policy. “You wouldn’t expect the German Chancellor to invite business leaders from France to join her as part of a German delegation to China and vice versa. At the very moment Chancellor Merkel makes a mistake and meets the Dalai Lama, President Sarkozy is offering France as the new strategic partner of China in Europe,” Prof. Sandschneider noted. “Germany should engage with China right away because waiting for Europe to get its act together would mean to postpone any China policy until the second half of the 21st century. I know that Germany sometimes is a difficult partner in the Chinese perspective but it’s true the other way around as well. Taking a more relaxed attitude towards each other would certainly help, starting with the Dali Lama and ending with Intellectual Property Rights.”

The basis of Sino-German relations is still China’s interest in German technology and German companies’ interest in the Chinese market. “It is not discouraging German entrepreneurs, but I would never advise them to give their technology to their Chinese partners, and expect market share in return. They will have to fight for market share in China where the competition is growing. German companies might end up competing with local companies, using their technology and fighting them for their market share in China. That’s not the ideal deal from a German perspective; but sharing technology is an important part of business. My advise would be: yes, go to China, but be careful in choosing your business partners. Secondly, don’t expect them to shovel gold at you in China. It is a very hard, competitive and very discrete market,” Prof. Sandschneider concluded.

From coal capital to solar city

Science Park Gelsenklrchen, Schmitz-Borchert It started very early in the 1960s when Willy Brandt, campaigning for the Chancellery, said "Make the sky blue again over the Ruhr". Back then, Germany was in a similar situation to many Chinese regions nowadays with old industries in decline. In 1966, the first coal mines were closed down, and by the 1980s everyone in the Ruhr region knew that hard coal mining would very soon be finished. “The principles of economic development dictate that you must start with the skills that you already have and build upon that knowledge; we needed to replace old industries by capitalising on our existing competences. The new idea was to focus on the growing renewable energy industry,” started Dr Schmitz-Borchert. As Director of Science Park Gelsenkirchen, he takes great pride in the fact that the 3,500 steel workers who used to work on the current site of Science Park Gelsenkirchen have been replaced by 500 white collar workers, which is perfectly in line with his objective of creating new jobs providing great potential for the future.

The idea to develop Science Park Gelsenkirchen came in the 1990s, at a time when projects focussed on green energy were developed on a very small scale. Since the Ruhr region had skilled glass industry workers, and this industry was looking for new opportunities at the time, solar power seemed like the logical choice. This early entry into the solar industry provided Gelsenkirchen with the opportunity to be ahead of other cities and regions, and the idea of clean air and new perspectives fit very well with Gelsenkirchen’s new hopes and ideas.

In 1996, the facilities of the Science Park Gelsenkirchen were built with the largest solar power plant in the world on its roof. This was not just a visual reminder but a bold statement on its position as the launchpad for future energies. Whereas its solar energy ambitions were clear from the outset, Science Park Gelsenkirchen’s impact as a catalyst for the structural change in the Ruhr region, Europe's largest industrial agglomeration, is becoming apparent at a slower pace. “We are still very much at the beginning of the road of transforming this region successfully,” recognized Dr Schmitz-Borchert. “Now, fourteen years later, the people of Gelsenkirchen have accepted that they are part of a solar city, and that solar power can be synonymous with a better life.””

“After the reunification of Germany, investment in the solar industry shifted towards the East where industrial initiatives such as Solar Valley were launched. Nevertheless we have achieved a lot in this field. For example, Scheuten Solar, has established a solar module factory and the Canadian PV-company Arise Technologies will set up an R&D centre to develop the next generation of solar cells,” explained Dr Schmitz-Borchert. “One important factor in their decision to come to Gelsenkirchen, and the Ruhr region, was our fantastic investment climate that is strengthened by the number of universities located in proximity and the very strong R&D support from the Fraunhofer Institute for Solar Energy Systems, which strongly supports technology development in the solar industry, as well as from state organisations through a number of funding programmes. All things considered, it makes a very good story for all the potential investors.”

While the intention was to create a new industry cluster in the Ruhr focussed on photovoltaics, this initiative quickly opened up to include the whole renewable energy sector. “Many Chinese companies have already chosen NRW as their investment location, there is a great deal of potential here in areas ranging from production facilities to R&D, from large modern power plant technologies to CCS. If you want clean coal, this is the place to come. Investors cannot see Gelsenkirchen simply as a city with 250,000 people, they need to consider what the area has to offer within a 100 km radius. If you want to be involved in renewable energies, you will find everything you need here in proximity,” boasted Dr Schmitz-Borchert. “There is a long term cooperation at state level between NRW and the Shanxi province, which also has a traditionally coal mining based economy, and we have our history to offer. The Chinese can learn from us how to build a future on old coal-mining sites once they close them down.”

SMS: A Chinese roll...

SMS Group, President & CEO, Heinrich Welss A Chinese delegation, sent to Germany by the Ministry of Metallurgy in January 1971 to search for someone who could build models of continuous casting of machinery and cold rolling, ignited a long relationship between Dr Heinrich Weiss and China. Dr Weiss had just about replaced his father as Chairman of the managing board of Siemag, which was one of only five sizeable builders of rolling mills for the steel industry in Germany. Together with Demag, a competitor that was later absorbed by Siemag, Dr Weiss made an offer to supply continuous casting and cold rolling machinery, and at the end of 1973 the Demag and Siemag consortium received its first Chinese order.

“During this period when political relations began opening up between China and the West it was very rare for business delegations to visit China, even members of foreign governments rarely travelled there, but following this order a delegation of the top management of Demag and Siemag visited China in early 1974,” Dr Weiss recalls. “Since the contract was already signed and there was nothing to negotiate anymore we intended to stay in Beijing for only two days, but the Chinese insisted that we needed at least two weeks to visit historical sites such as the Great Wall and the Ming Graves. As businessmen it was impossible for us to take two weeks off, and negotiated our visit down to one week during which we enjoyed Chinese culture and hospitality. It was a wonderful occasion.”

Since Dr Weiss’ first visit to China a lot has changed for both the Chinese steel industry and his company. “From early on, my ambition was to gain a leading market share,” explained Dr Weiss, who managed to safeguard the character of a family owned company throughout various mergers, joint ventures and acquisitions. “My strategy was based on pursuing market leadership in niche areas while running the company in a non-bureaucratic style, driven by high motivation of the people, and leaving approximately all of the profits in the company to have equity to grow. Since we were also good sales people we started our Chinese and Soviet Union businesses early on and received very large orders from both countries. In the mid-1980s we reached our first objective by becoming the largest builder of rolling mills in the world.” Dr Weiss is still running the business his father left him, but after almost four decades on continuous development his company is known as SMS Group and emerged as the world leader in rolling mills, pipe mills, and general plant equipment for the processing of steel, aluminium and other metals.

Dr Weiss steered his company through five or six recessions and is used to business cycles. “The pattern is always the same: there are four or five strong years followed by three or four weak years,” he explained. “This financial crisis was not such a big change; in fact, a recession was due as of early 2008. In 2007 and 2008 we received more than €5 billion in orders, but for this year I expect about €2 billion. Our company is structured in a way that allows it to breathe with these differences and retain our experts during the recession phase.”

While forecasting the next boom in the global steel industry not to begin before 2014-2015, SMS Group sees big opportunities in China when the three year moratorium for investment in the steel industry ends. “The money is there and the government wants to close the old, dirty steel plants, which brings us to the ecological and pollution question,” Dr. Weiss continues. China’s steel industry challenges the country’s efforts to enhance the energy efficiency of its economy and reduce its greenhouse gas emissions. Steel production in China consumes at least 8% of the country’s own energy, according to the Organization for Economic Cooperation and Development, and the country is destined to remain the world’s largest steel producer in the foreseable future. Investing in energy efficiency presents a great opportunity for China, and many technologies are available in the global market to improve the industry’s energy efficiency.

“There are two main drivers for environmental technologies: one is the rising price of resources or energy and the other is stricter environmental laws,” adds Christian Fröhling, General Manager for Energy and Environmental Technology at SMS Siemag. Currently, Western steel producers invest €25 in environmental technologies for each ton of steel produced. We assume that environmental standards as well as energy prices worldwide will continue to rise and we can already recognize a rising demand for environmental technologies, especially in China and other emerging countries like India and Brazil.”

“This is a big chance for us,” emphasises Dr. Weiss. “The Chinese are rapidly catching up on the engineering of metallurgical equipment, but they are still behind on all the ecological sides while we have a good market position both domestically and internationally in pollution-avoiding equipment. Due to the very strict regulations in Europe we are used to building cleaner plants and should be able to keep our market share in China for a while because we can offer this equipment. However I am quite sure that Chinese engineers will be able to do the same thing sooner or later.”

Germany´s Trade Fairs Make Trade Fair

Germany likes to present itself not only as Europe’s largest economy and an export success story, but also as the "land of ideas". One of the country’s most successful ones has been to make the “Made in Germany” a brand in itself, recognised as a guarantee of quality, through the use of the German trade fair industry as a global trade promotion platform.

“Without the marketing instrument of the trade fair, in particular, small and medium-sized German companies would have fewer opportunities to open up international customer potential. The participation at trade fairs is one of the key reasons for the export success of the medium-sized and smaller companies, which form the backbone of German industry,” explained Dr Peter Neven, Managing Director of the Association of the German Trade Fair Industry. Not only have the trade fairs supported the entry of German companies into the world market, the country’s rise as an export leader also facilitated the successful internationalization of leading trade fair organizers such as Deutsche Messe and Messe Düsseldorf.

Germany’s trade fair history started 845 years ago in Leipzig, which is home to the oldest exhibition ground in the world. Leipzig was officially founded at the crossroads of major trade routes from north to south and east to west after the first trade fairs were established on this location. In 1949, two years after Messe Düsseldorf was founded, the Managing Director from Messe Leipzig came to Messe Düsseldorf and started creating specialised trade fairs. Today, Messe Düsseldorf organises no less than 24 number one exhibitions in the world. “It is fundamental to have the most valuable exhibitions and a continuously good programme which fills the centre all year round nearly every year,” Werner Dornscheidt emphasized. As President and CEO of Messe Düsseldorf he takes great pride in the fact that his organization has achieved the highest turnover in the industry in spite of lacking the largest exhibition grounds.

Deutsche Messe faces a rather different situation since its venue in Hannover is by far the largest in the world, with nearly 500,000 square meters of indoor exhibition space. “Our venue has always been larger than most others since we organize the Hannover Messe, the mother of all fairs, which produced successful spin-offs such as CeBIT, Ligna and Biotechnica. In addition, considerable changes were made in terms of size and infrastructure for the EXPO 2000 that we hosted. Our challenge is now to fill this huge venue,” stated Dr. Andreas Gruchow. He was appointed to a newly created board-level position with responsibility for international activities at Deutsche Messe in 2008, 27 years after the company launched its international activities. On the contrary, Messe Düsseldorf was never a truly German operation and organized an exhibition in New York on behalf of the Ministry of Economics in 1947 in New York even before it began operations in Düsseldorf, which of course soon became its main business.

After joining Messe Düsseldorf in 1975, Werner Dornscheidt was placed in Moscow and the Middle East before moving to Messe Düsseldorf International Trade Fair Marketing, a very small company through which new trade fairs abroad were created. “The idea was to install product families of trade fairs in order to take our world leading exhibitions abroad as regional exhibitions because our customers needed to go to numerous countries around the world to exhibit their products,” he recalled. Many years later, he was also involved when Messe Düsseldorf took a defining step in its internationalization process: participation in the Shanghai New International Expo Center. As Deputy for International Business, Dornscheidt was in charge of the discussions with Messe Munich and Deutsche Messe, which resulted in the creation of the German Exhibition Corporation. The CEOs and their Vice-Presidents of the three participating German trade fairs then entered into negotiations with the Lujiazui Exhibition Development Corporation, which is owned by the Shanghai Municipal Government, and concluded a 50-50 ownership agreement that provided the framework for the development of the Shanghai New International Exhibition Centre, whose master plan envisaged 17 halls and 200,000m2.

“The Chinese recognised that the cooperation between these three big German players guaranteed that we could bring the knowledge, experience and capability to use our different networks to fill this centre. SNIEC has become a tremendous success story: exhibition space has been sold 31 times in one year and even the halls which we have no yet finished are sold out until 2014,” Dornscheidt underlined. Within the centre the three German trade fair organisers have become competitors again and are organizing their own shows. As soon as it became clear that the SNIEC would begin its operations in 2001, the Board of Management of Deutsche Messe called for a strategic move: all relevant shows in Hannover were to be exported to other regions of the world. This meant that HANNOVER MESSE, CeBIT, DOMOTEX, LIGNA and BIOTECHNICA would all be exported to China, too. While Deutsche Messe chose to build on the brand awareness of its leading exhibitions to drive its internationalisation process, Messe Düsseldorf decided to take its exhibitions abroad under different names. For example, its flagship exhibition for the plastic industry organized in Germany under the name K is called Interplastica in Moscow, ASIAPLAS in Asia, CHINAPLAS in China, and BRAZILPLAS in Brazil. “As opposed to other trade fair organizers, we never use the same names but create product families,” Dornscheidt confirmed. “The name K is a registered trademark for Messe Düsseldorf, and an exhibition with the size and quality of K is impossible to organise anywhere but Germany. We not only show our customers that we have the knowledge and experience to organize an exhibition on plastic machinery, but also that we are serious and realistic because we are not promising a world number one exhibition in every location. The product family approach has been our policy and we believe that we were right.”

Unlikely centre of the global solar industry

Schmid Group, President & CEO, Christian Schmid Although Germany receives fewer hours of sunshine each year than many other places, the country has become the epicenter of the global solar industry. The core of the remarkable rise of the German solar industry is the country’s favourable framework created by the Renewable Energy Sources Act, which came into effect in 2000 and has been adopted in various forms by many countries around the world. Germany’s feed-in tariff law, which requires grid operators to pay producers of solar electricity a fixed rate for solar generated electricity that is fed into the utility grid, triggered an unprecedented boom that created an industry with turnover of €9.5 billion in 2008, employing around 54,000 people, and exporting approximately 50% of its production, according to the German Solar Industry Association. Undeniably, this success story is due to the creation of conditions and Germany’s engineering prowess rather than the country’s variable weather.

Southern Germany is not only sunnier than the North – in summertime on a cloudless day in Munich the sun delivers approximately 1100 Watts per square meter – it has also emerged as one of the countries leading solar clusters outside former Eastern Germany and is home to companies such as Centrotherm Photovoltaics, Gebr. Schmid, Solar Fabrik, Applied Materials, M+W Group and Teamtechnik. While Germany’s photovoltaic panel manufacturers include both longstanding industry pioneers and newcomers eager to participate in the industry’s rapid growth, the vast majority of suppliers and service providers entered the industry based on core competences developed in hi-tech industries such as semiconductors and flat panels.

Gebr. Schmid decided to enter the photovoltaic industry in 2001 based on a benchmark study of the key knowhow available in the company at the time. “We found that the photovoltaic industry presented a great opportunity to use a lot of our technology and experience in printed circuit boards and flat panel displays to support the development of photovoltaic industry from typical niche products and laboratory-like factories to mass production,” explained Christian Schmid, who serves as CEO of the family owned group. Founded in 1864 in Freudenstadt as an iron foundry and mechanical workshop, Gebr. Schmid manufactured machines for the woodworking industry for almost 100 years and added brushing machines for the printed circuit board industry and systems for the flat panel display sector to the portfolio in 1965. Since its entry into the photovoltaic industry Gebr. Schmid has emerged as a world leader in production equipment for wafers, cells and modules by relying on transferrable expertise and technologies in combination with large R&D investment. Over the past 3 years, the company has invested around €80 million in R&D only, ranging from basic research for new cell concepts for customers worldwide to bringing this new cell technology into mass production.

Christian Schmid foresees a development of the photovoltaic industry in two different directions: technological advancement towards grid parity and vertical integration. “Everybody in the photovoltaic industry is moving towards grid parity. To achieve this one can reduce manufacturing costs by lowering capital expenditure; reducing the amount of consumables used in the final product or using different materials, upgrading the yield by minimizing breakage, or going in the direction of higher efficiency. On the other hand there is the vertical integration concept. This means that companies are involved in activities ranging from silicon production and cooler-wafer production to cell and module production with the objective of taking advantage of the synergy effects between these different activities. That means that companies could produce high efficiency cells by already influencing the silicon produced at the beginning,” he explained.

Centrotherm Photovoltaics, CEO, Robert Hartung Robert Hartung, CEO of Centrotherm Photovoltaics which provides process and manufacturing technology for turnkey production lines for both crystalline solar cells and thin film modules, adds the importance of tackling industry bottleneck to the vision presented by Christian Schmid. Having more than 30 years of experience in the photovoltaic industry, a long time in this relatively new sector, his company closely monitors the cost of the ownership model of solar cell producers and recognizes that 80% of the costs come from materials alone. Hartung takes the silicon price as an example. “In 2000 it was possible to buy silicon for below 30 euro/kilo, but by 2006 the spot market price had risen to above 300 euro/kilo. This bottleneck gave us two problems. Technological progress in solar cell production would not be sufficient to bring down the cost per kWh of solar power as long as we had this bottleneck. We analyzed how the existing silicon producers addressed this situation and the result was very disappointing. The majority did not consider photovoltaics as a viable market and as a result investment was minimal. In the background there was something else going on. For the managers of huge Chinese electronic companies that we supplied with semiconductor equipment the price of silicon had become a huge problem that drove these companies to develop a strategy to produce silicon in-house. Their decision to become silicon independent was a clear signal for us that the whole industry was in a very dangerous situation.” In 2005, Centrotherm started to cooperate with a provider of engineering and process technology for polysilicon plants, facilities which cover over 60,000 square meters requiring an investment of around €250-300 million. To drive costs down and solve the bottleneck problem, Centrotherm expanded its vertical integration by acquiring the company and became a provider of technology and equipment to produce silicon, a hugely growing market in Europe, South Korea, and mainly China. “In summary, there are the two things that we always do: invest in technological development and identification of bottlenecks. Companies who want to be future leaders must be technology leaders, and we solve bottlenecks for two reasons. First, we want to support cost reductions. Second, where there is a bottleneck there is a market,” Robert Hartung underlined.

In order to raise the cost competitiveness of solar power, suppliers and service providers strive to provide integrated solutions from silicon down to module. At each step there is significant cost reduction potential through higher efficiency, better technology, and reduced operational costs. “In the end, as an equipment manufacturer you have to optimize everything to minimize production costs,” noted Mr Schmid. “Nobody believed how fast costs of photovoltaic could go down, and we learnt in the past years that what seemed to be impossible is possible; the entire industry is learning how to adjust to these new parameters,” Explained Christian Schmid. “We are looking at a nearly unlimited market for the future. By looking at the role that photovoltaics can play in the global energy market, we can reasonably assume that capacities will grow by 40% to 50% in the next two years.” From a production perspective China has already become a major hub for Schmid, who draws parallels between the rise of China as a photovoltaic panel manufacturer and the shift of production from USA and Europe to China that the electronics industry experience in 2000 and 2001.

More than 60% of its employees are located in Asia, and Gebr. Schmid even considers China as a home market. Christian Schmid recognizes that Chinese photovoltaic panel manufacturers are already following the right track to become global players. “We can help them in setting up a high quality manufacturing environment, support them on the development of new technology, and upgrade their facilities, but of course they do not need our help to establish their name in the world,” he recognized. “As turnkey suppliers, we can provide our customers with up to 90% performance and the last 10% will come from the fine tuning of the production lines, qualification of the employees, and will be related to their management style and business strategy.“

Chapter 2

German engineering culture takes root in China

M and W Group, CEO, Jurgen Wild “At the end of the 1980s, M+W Group was a genuine pioneer when it came to transferring experience of designing and constructing high-tech plants to Asia," said the company’s Chief Executive Officer Jürgen Wild during the celebration of its 20th anniversary in Asia last October. Since 1989, the Stuttgart based group developed a large footprint in Asia and currently employs over 2000 employees in 9 Asian countries which together generated 51.8% of M+W Group’s €1.74 billion turnover. In contrast with the early days, when the primary focus was on the semiconductor industry, today the group’s customer base has expanded into many high-tech sectors including electronics, photovoltaic, biotech pharmaceutical, chemical, IT, telecoms and automotive companies, as well as research institutes and universities.

Having grown up with very sophisticated requirements for the semiconductor and flat-panel industry, M+W Group is nowadays basing its development strategy on a commitment to transferring its know-how to both new hi-tech industries and new geographic markets. “This mindset allowed us to access business areas like photovoltaic, which today is our second biggest global market segment,” explained Jürgen Wild. “For nearly ten years, M+W Group has been one of the market leaders in design and construction of new and upgraded photovoltaic plants for customers ranging from leading manufacturers to young startups.“

While the company has a firmly rooted German engineering culture, Wild is more than aware that the “made in Germany” mark alone will not win him a contract in China. “Our strength is that we cultivate our global spirit through the sharing of experiences of our 4.500 employees around the globe in order to create value to our customers. This allows us to pick up the excellent competencies in each country and to make it a best-in-class solution,” he explained. While M+W Group has developed its local operation as quickly as possible, Jürgen Wild still finds it amazing to see how fast words are followed by action in China. “A Westerner looking at China could learn how a focus on the development of key industries can really make a difference,” he emphasized. “This applies for instance to the photovoltaic industry, wind industry, or even electric car industry, which has been of particular interest to us recently.”

Since its entry into the Chinese market in 1994, M+W Group’s Chinese subsidiary managed more than 200 hi-tech projects. “It’s no secret that our Chinese organisation is becoming more and more important, and in a five years time we will almost certainly have more than 1,000 people in China,” Wild boasted. “M+W Zander will be looking for next generation in technology in China in the complete segment of green energies. The electronics industry is another possibility, with a market of more than one billion consumers. There is huge growth in health care and the pharmaceutical industry where a leading contractor like M+W Group has good prospects,” Wild analyzed. “The next step could be supporting Chinese customers when they go to other regions. Our global presence, with operations in Europe, Asia, the US, and the Middle East is enabling us to serve clients starting with feasibility and site selection studies with our comprehensive services all the way through design, construction and handover of projects. Suffice to say that in terms of our growth, China will play the most important role for us.”

Sweet spot for investors in solar energy

Flabeg Corporation, CEO, Axel Buchholz Converting sun power into electric power is the Achilles heel of solar energy, as, of all the original solar energy captured, only a fraction becomes usable energy. Once solar energy has been converted into electricity this in turn has to be transformed, at an energy loss, from direct current into alternating current for transportation and application. Ultimately, the incandescent light bulb receiving the electricity typically has an efficiency of 5% efficient, illustrating how the overall energy loss can reach tremendous levels.

To optimize the competitiveness of solar energy approximately 86% of photovoltaic solar panel manufacturers, including Q-Cells, Solarworld, Suntech Power Holdings, Sharp and Kyocera, rely now on multicrystalline and monocrystalline silicon cell technology. Technological advancement has brought the conversion rate of commercial crystalline silicon solar cells up to 18%, and soon the best cells available in the market are expected to have a conversion efficiency exceeding 20%. As things now stand, this technology will continue to dominate the market in the new future.

KACO new energy GmbH, CEO, Raff Hoffmann While the EU has already started the phasing out of incandescent light bulbs last year, shifting Europeans to compact fluorescent lamps which use up to 80% less energy, and solar panel manufacturers are on a constant quest to enhance cell efficiency and minimize cost per kWh, power conversion is easily overlooked in the overall effort to enhance the overall performance of the system. The inverter, which converts the direct current generated in photovoltaic cells into alternating current suitable for the grid, is technologically the most important component in any solar power system and has rightly proved to be a sweet spot for investors in green technology. Market leader SMA Solar Technology has seen its share price rise 137% in 2009 and continues to lead the pack of European inverter manufacturers that dominate the global photovoltaic inverter market: SMA Solar Technology (44% global market share) is followed by KACO New Energy (10%), Fronius (9%), Ingeteam Energy (7%) and Siemens (6%). While SMA Solar Technology has been able to steer through the industry's oversupply and financial crisis much more successfully than its customer base, the company's supremacy of the inverter business is destined to be challenged by both current competitors and industry outsiders such as General Electric, ABB and Siemens in the coming years.

Proud to be number two

The global number two, KACO new energy, cannot hide from the fact that SMA is the benchmark and will be mounting a challenge. “It is actually not bad to be in the second position,” stated Ralf Hoffmann, CEO and majority shareholder of KAKO new energy. “If you are in the number one spot, you are hunted by the second, third and fourth ranked companies, whereas in second place you can be much more comfortable. We set our own targets and we like to hunt.” Hoffmann, an energetic business leader with a passion for sports, likes to question traditional thinking. “An interesting difference is that SMA is a listed company so has to constantly keep in mind its shareholders. In fact, the logic behind the green industries does not really fit with the logic that runs financial markets. We are aware that there is just one planet which we want to conserve. Mathematically may be possible to work with 50% less atmosphere or buy a new planet on your credit card, and financial economics works with strict mathematics, but the laws of physics apply to real life. We have a saying in German which perfectly describes this scenario: “If you want to dine with the devil, you will need a long spoon.” KACO is a family owned company, our targets are not simply financially oriented and our motivation is in helping the world to get off coal,” he explained.

Given the fact that solar inverters currently on the market have already reached 98% efficiency, and some even higher, the technology is seen as relatively mature. The industry’s development focus will therefore primarily be on reliability rather than efficiency, a direction that Ralf Hoffmann anticipated in a timely manner. “Today, KACO new energy not only prides itself on manufacturing grid-connected photovoltaic inverters with the highest European efficiency ratings but also boasts by far the lowest failure rates in the market. We are not just debating over a fraction of a percentage difference in efficiency rates, we offer very reliable connections to the grid, which is what counts since only the kWh that you put into the grid is real, everything else is just talk,” emphasized Hoffman. He argues that the inverter market is a relatively closed market based on the fact that is definitely easier to sell no-name modules than it is to sell no-name inverters. “This is where track record and good reputation are definitely an advantage,” he stressed. “There are two sides of this coin. If the end user is not happy, the inverter bears the brunt of the blame, but at the same time it helps us. If customers are afraid of choosing the wrong inverter then they are more likely to choose a reliable manufacturer like KACO. A customer in China has to be wary of using an inverter manufacturer who is a startup, because for large and small companies alike the learning curve is always the same, you face the same problems and make the same mistakes. The good thing for Chinese customers looking for inverters is that KACO has already made these mistakes a long time ago, and learnt from them. One could even say that our German customers have already paid for our mistakes as we progressed through the learning curve!”

KACO new energy’s ambition is to take a large share of the photovoltaic market as it develops in China. “The country certainly has enough solar modules manufacturers, supplying high quality modules, but there is definitely a lack of high-efficiency, high-power inverters in the market, which creates a niche for us,” Hoffmann anticipates. Last year we entered the Korean market and during the first year we took 50% of this 200MW market. In the coming year I am sure KACO will capture at least 60% of this market. Our dear competitors have a problem since we entered the Korean market and I see similar possibilities for KACO in China.”

China’s domestic solar market, ready for takeoff?

Last September, a delegation of senior Chinese government leaders, led by Chairman Wu Bangguo, visited First Solar’s headquarters in the United States to learn firsthand how the company's low-cost solar technology can help contribute to China’s goal of achieving a low-carbon economic future as well as meeting China’s increasing demand for sustainable renewable energy.

First Solar Corporation, General Manager, Stephan Hansen First Solar’s vertically integrated, automated “Copy Smart” manufacturing system uses one continuous process to transform a piece of glass into a completed solar module in less than 2.5 hours. Its thin film technology, based on cadmium telluride as the semiconductor material, enables First Solar to produce photovoltaic panels that require less than 2% of the equivalent semiconductor content found in crystalline silicon PV modules. The combination of reduced material intensity and scaling of production enable First Solar to keep its per‐unit costs low, which is the critical factor for the competitiveness of any solar technology and panel manufacturer. By the middle of 2009, the company lowered its production costs to US$0.87 per watt and expects to reach US$0.65 to US$0.70 per watt by 2012, which would represent a en enormous step towards grid parity – the point where solar power is competitive with traditional energy sources that could unlock the accelerated mass scale deployment of solar power worldwide.

“Generous federal subsidies in European markets like Germany and Spain have historically driven the growth of First Solar, but as both countries are decreasing their subsidy levels the company is increasingly focussing on new customers outside its core markets,” explained Stephan Hansen, Managing Director of First Solar Germany. In 2008, the company’s international operations accounted for 95% of net sales, with Germany representing no less than 74% of total sales. To compensate the decreasing growth potential in European markets, First Solar has successfully shifted its attention to China and the United States.

The Cooperation Framework Agreement reached between First Solar and the Ordos City Government for the development of the world’s largest photovoltaic solar power plant marked a breakthrough in the company’s China strategy. The project is part of a planned 11.95GW New Energy Industry Demonstration Zone in Ordos City, Inner Mongolia, which will combine solar, wind, hydroelectric and biomass to generate renewable energy to the wider region including Beijing. Upon its completion 2019, the Ordos photovoltaic power plant will have a power generating capacity of 2GW, putting it on par with a nuclear power station. The feed-in-tariff under which it will operate will be critical the project’s success, which is scheduled to commence with the construction of a 30MW demonstration project in June 2010.

Approving a proven technology to broaden China’s energy mix

If the first solar thermal power plants in China prove to be successful, the country may soon compliment its photovoltaic power ambitions with a 10MW solar thermal power target. Both Chinese and international companies and institutions find themselves competing to establish the first reference projects in China and validate the competitiveness of this proven technology in a Chinese context. While the Chinese Academy of Sciences has designed China’s first megawatt solar thermal power station, the first international firm to sign an agreement to build solar thermal power plants with a total capacity of 2GW in the country was US-based ESolar. This milestone agreement – signed only four months after First Solar’s secured a contract to construct an equally large photovoltaic power plant in Inner Mongolia – has reinvigorated the determination of Germany’s leading solar thermal players Solar Millenium and Flabeg to step up their game in the Chinese market.

At the moment, the three most promising concentrated solar technologies are: parabolic trough, central receiver, and parabolic dish. Parabolic trough systems represent the most mature solar thermal power technology and are applied in a large number of countries in Europe, Asia, North America and Africa. This technology uses trough-shaped mirror reflectors that concentrate sunlight onto receiver tubes containing thermal transfer fluid that is used to produce superheated steam. Europe's first commercially operating solar thermal power plant recently started operation outside Seville in southern Spain. This technology, which will also be brought to China by ESolar, is based on a central receiver that is surrounded by a circular field of individually tracking mirrors that concentrate sunlight on the solar tower. From here, the generated heat is transferred into turbines to generate power. The third option, parabolic dish systems, primarily has potential as a source of decentralised power supply since it uses comparatively small units – consisting of a dish-shaped reflector that concentrates the sunlight, a superheated fluid and a small engine to generate power.

FLABEG is a technology leader in the field of glass finishing, and it’s CEO Axel Buchholz is a passionate advocate of both concentrating solar power (CSP) technology in general and parabolic through systems in particular. In the right environment solar thermal technology is approaching cost competitiveness with fossil fuels. Buchholz emphasizes that the political argument for his technology is also very interesting: “CSP is considerably greener than PV, which has hazardous chemicals in it. The coating of the mirrors is 100% lead free, so from the eco-balance side it is the greenest solution in the market. Another political argument for CSP is that the technology is easy to handle, even in developing countries, day-to-day operations need not take years to be put in place.”

Flabeg previously had photovoltaic activities but the company took a strategic decision to terminate its last PV activities in 2005. His main argument for trough technology is pretty simple: it has a proven track record of twenty-five years. At a first glance it seems that Flabeg is just delivering mirrors, but two elements are crucial to optimize mirror efficiency: consistently raising potential reflectivity, and optimize the ability of the panel’s curve to concentrate solar energy within a measurement of 7 milimeter. “We believe that we are the number one around the world in precise bending of different glass applications of all different sizes and thicknesses; this is our strength and core competence,” boasted Buchholz, who explained that the ideal geographic location for concentrating solar power is clearly the sunbelt, which consists of California, Arizona, Nevada, and New Mexico in the US, Southern Spain, Greece, and Italy in Europe. “The Sunbelt on the other side of the Mediterranean is certainly even better, the North African countries would be perfect; this also includes Turkey, the United Arab Emirates, Saudi Arabia, Iran, many of the oil producing countries, then of course China and Mongolia,” he noted. “Today the number one market is still Spain, the US will be the next market, and then there will be a tight race between India and China for third place. CSP will always remain a huge niche because there is only a limited area where the installation of a CSP plant can be economically viable, based on the intensity of the sun, the availability of water to cool the turbines and clean the mirrors, and, of course, proximity to the grid and electricity consumers.”

Spain was the first country offering the right environment for CSP, which is historically a European technology. FLABEG identifies two models for future development of the industry: the Spanish model which is today based on a feed-in tariff of 27 cents per kWh, and the US approach which leaves the price negotiation to the utility providers and the operators of CSP installations. “The US government does give a lot of tax relief through fast and lenient depreciation rates, but nowadays this is not the right way to introduce new technology,” explained Axel Buchholz. “During the first three or four years, after which companies first break even or start generating profit, tax relief does not provide the necessary push for the industry.

China’s decision on how to best support CSP technology will play a crucial role in both the development of the Chinese CSP sector and the success of international players who have set their eyes on the Chinese market. FLABEG signed three contracts with a large energy provider in China, and has installed a prototype loop near Beijing to provide measurable results within a year in order to obtain approval from the Chinese government in combination with a feed-in tariff. “Since this is not a new technology, which has been proven elsewhere, it is hard for me to understand why the approval process is so lengthy,” Buchholz pointed out. “The approval process in China is not a big issue if the state wants it, and if we are given ten criteria of plant location then we would be able to estimate very quickly, with 85% accuracy, what the cost efficiency of the plant would be. To conclude, once China gives the green light for such projects then they should happen tomorrow and on an unprecedented scale.”

Financial crisis as an opportunity to reshape global strategies

CENTA Transmissons, General Manager, Bemd Kirschey Increasing global competition, the globalization of supply chains, and the impact of the financial crisis guaranteed that the 2009 was a tough year for Germany’s wind turbine manufacturers. The beginning of 2009 showed a lot of insecurities in terms of financing – roughly 90% of Europe’s wind farm developers are using debt financing to build wind farms – and still today insufficient liquidity is available in the market to finance all the construction of the wind power projects that were shelved when the financial crisis hit the industry.

Nordex, Thomas Richterich, CEO However, the crisis is expected to only cause a brief slowdown for the global wind industry as the long-term growth trend is still intact with 17% growth per year predicted until 2012 based on ambitious renewable energy targets pursued by governments in the US, Europe, India and China. Therefore, leading wind turbine manufacturers such as Nordex used 2009 to reshape their strategy. “Having experienced an average growth rate of slightly above 50% over the 2004-2008 period, we now had the opportunity to capitalize on the ever increasing potential to industrialise and automate production,” reflected Thomas Richterich, CEO of Nordex. This strategic decision is particularly relevant since the main cost driver of wind energy remains the price for the turbine, still accounting for more than 50% of the total lifecycle costs, and cost competiveness is destined to be the critical success factor as competitors from India and China start to go global.

From 2004 and until early 2008, the global value chain was fully loaded and in order to grow at the breakneck speed achieved by Nordex and its main rivals these companies convinced their suppliers of the importance to build up capacities in key markets around the world. “On a general basis Nordex needs a local supply chain, but global suppliers of core components. When talking about core components, we are looking for suppliers who have facilities in all the three different regions since we believe that the Nordex facilities in Germany, China and the US must have a local supply chains,” explained Richterich. “Chinese law requires 70% local content, but Nordex is striving for 100% for Nordex since prices in China are around 20% cheaper than in Europe. These components will not only come from Chinese companies, but they could also come a subsidiary of European or American companies. We need it to be competitive and local Chinese production is crucial to have a competitive cost basis in the country, especially against Chinese competitors.”

System suppliers follow their customer base to China

SSB Corporation, General Manager, Gisbert Schulze As a system partner supplying specialized drive and control solutions to numerous wind turbine manufacturers, SSB is a perfect example of a supplier that has gone global in the footsteps of its customer base. Only three years ago, the company was not international at all. When GE Wind, a big customer of SSB, went to China and asked SSB to follow as a supplier this was the trigger for entering the Chinese market. “We started a small operation in Qingdao and analyzed the market, explained Dr. Gisbert Schulze. When its management realized what was going to happen in the Chinese market in the next three years SSB prepared for the growth. Today, its business in China alone is larger than its business in Germany, 150 of SSB’s 360 employees who are dedicated to wind activities are located in China, and the company also has important customers in India and Korea.

Soon after taking up the position of CEO in January 2009, he travelled to China to see SSB’s operations firsthand and was pretty amazed by the operation and how well it was run. “The managers who set up our operation in Qingdao had focussed heavily on operations,” realized Dr. Schulze, whose focus for the first six months was on identifying key talents to build up a second line of operational management. While the Chinese market is growing much faster than the rest of the world, SSB’s growth will be organic growth and the company is not planning to enter into joint ventures, which Dr. Schulze characterizes as difficult to manage, to expand production capacity.

While entering the Chinese market on the back of GE guaranteed a first customer in China, but SSB was quick to establish a Chinese customer base. “It is important that our customer understand we offer the best in world-class application engineering for pitch control systems that can be applied to any turbine in China. This is the core of our business and we are more than happy to work with both established and emerging wind turbine manufacturers,” Dr. Schulze emphasized. Given the fact that domestic wind turbine manufacturers have overtaken their international competitors over the past three years, SSB is now primarily focussed on keeping its current customer base. “It is reliability that drives the business because our customized pitch systems for the electrical blade adjustment are critical for the reliability of the whole turbine. Also, the level and quality of customer service is crucial to become a preferred partner, and last but not least the Chinese market is all about growth,” Dr Schulze spelled out his strategic priorities. “We have been growing in step with the industry growth over the past several years and there is potential for even more.”

Family business take their own road to China

Founded by Kirschey’s father almost 40 years ago, CENTA Transmissions started manufacturing flexible couplings for diesel hydraulic applications. Already in the early 1980, the company entered the wind industry and became one of the first companies to supply flexible couplings to the Danish companies Vestas, Bonus and NEG Micon, as well as German companies with a long tradition including as Nordex and Fuhrländer. “Frankly speaking, our internationalization strategy is not driven by a single market application or the wishes of large customers,” stated Bernd Kirschey, emphasizing that CENTA Transmissions is family-owned company, guided by long term thinking and a strong focus on our employees who have played an important part in its success. While its business development strategy is an internal affair, as a supplier of system components a lot of CENTA’s product specifications are defined by its customers. “Since wind turbine size reached the MW range, CENTALINK became the leading flexible shaft between the gear and the generator, allowing for significant misalignment in the drive train of the wind turbine, and has been integrated into more than 15,000 wind turbine applications over the past 15 years,” Kirschey boasted. His firm belief that there is always more than one solution to a problem, and also more than one application for a solution, ensured that CENTA’s flagship product became a long lasting application for the wind industry despite the fact that it was initially not developed for wind turbine applications.

“We successfully entered the Chinese wind industry by focussing on Chinese customers. Since many Chinese wind turbine manufacturers are using licensed designs based on German technology, our strategy is based on working with the design offices in Germany and manufacturers in China in order to cover both sides,” Kirschey laid out his internationalization strategy. “We have established our local production facilities in China, which we see as a necessary step to meet local content requirements as well as reducing freight costs, transportation costs, and lead times for delivery. We are well equipped for growth and we can certainly double our size without having to expand our facilities. In the last two years, CENTA Transmissions has already seen 100% annual revenue growth in its wind application business in China. Although we will not expand our business volume by 100% in 2009, we still anticipate nice growth in China. Kirschey’s entrepreneurial internationalization strategy, which contrasts the approach taken by suppliers taking the safe road of following their customers abroad, has proved to pay off: this year, China is destined to move up from the number two spot to the top of the table as CENTA’s number leading market worldwide in terms of sales.

A fresh take on the wind industry

Innovative Windpower, CEO, Khurshid Jamali Holding a Masters Degree in Industrial Engineering as well as an MBA in Finance, and having worked for a US agency for international development and a consulting firm specialized in development projects in the power sector throughout the Middle East, Pakistan-born Khurshid Jamali gathered a wide range of experiences before becoming CEO of Innovative Windpower, a German wind turbine manufacturer that is owned by a Dubai based energy group.

Innovative Windpower’s history started in 2006, when a GE sales manager from Germany visited Jamali in Karachi, Pakistan. The two developed a relationship and later he contacted Jamali again with the news that he had resigned from GE and had set up his own wind turbine manufacturing company in Germany together with two technical partners. “When he asked me if I knew someone who could invest in the company, I proposed to approach Innovative Energy Group in Dubai,” remembered Jamali. “Subsequently, Innovative Energy Group decided to invest in this company and in January 2007 our current organization structure was formed.”

The business model of Innovative Windpower is almost as original as Jamali’s career path. While leading players such as Vestas, Enercon and GE are all focussed on multi-megawatt wind turbines, systems, its main product is a 1.25 MW turbine that weights at least 20% less than its direct competitors. Also, unlike the products of other manufacturers this turbine can fit in a 40-foot container, it uses a unique integrated three stage planetary gear system, and the turbines include an integrated crane system that replaces the need for an external crane for maintenance. While a crane is still needed to install the system, the lower weight of the turbine allows the use of cranes with lower lifting capacity and therefore lower cost. According to Jamali, the power curve of this turbine when performing in different wind regimes compares very favourably with other manufacturers, enabling this new entrant to offer a lower price per megawatt than its competitors.

The company has developed two prototypes, one with an air cooled generator for cooler climates such as Germany or the Northwest provinces of China, and one with a water cooled generator for the tropical climates of countries such as India, Pakistan, Middle East and North Africa . “We are investing most of our money in developing intellectual property, which has led to 22 patents pending for new technologies invented by our experts. One of these patents is our water cooled design, which enables me to safely say that our machine is the only machine in the world that is designed for 50°C,” Jamali stated proudly.

Jamali forecasted that projects in emerging and developing markets requiring 15 to 20 turbines will be his bread and butter business. “At the same time, Innovative Windpower is trying to capture the European small turbine market that has been created by the height limitation of 100 meter that is in place for numerous onshore locations, which allows for a hub height of around 65 meters and 35 meter blades to meet the threshold. This height requires lower megawatt machines; you cannot have a 3MW machine unless you have a hub height of 80 meters which is not possible in most of the places in Germany,” Jamali says. Since Innovative Windpower understands that it cannot be another GE Wind in five years, the company expects to compete primarily with small producers in China and India. To optimize its competitiveness in this niche market, Innovative Windpower strives to enter into a joint venture in China which will rely on its own design and technology. “We don’t want to simply license our technology to a Chinese company, we want to participate as a joint venture partner,” Jamali confirmed. He has already hosted a Chinese State owned company with plans to manufacture its first wind turbine by September 2010 which would fit very well in Innovative Windpower’s manage growth strategy.

“We are currently building a manufacturing facility with capacity of about 250 machines a year; which could be extended to 320 if we are able to introduce a 4th shift,” Jamali elaborated on his future plans. “We are trying to replicate this facility in China. If our potential partner can convince the authorities to invest Chinese money in Germany, and we agree on providing the technology and design on a joint venture basis, then it is a done deal.”

Chapter 3

MOOG: High Pitch

MOOG, Marketing Manager Europe, Dr. Sherif El-Henaoui, “Wind turbine manufacturers traditionally developed every subsystem in-house, however, we have reached a level where manufacturers should concentrate on their core competencies and trust components providers,” started Dr. Sherif El-Henaoui, MOOG’s Marketing Manager Europe. Since his company’s pitch control systems represent no more than 2-3% of the total cost of the wind turbine, he expects that as manufacturers mature they will rely more on specialized companies like MOOG. “Obviously the pitch system has a critical function and protects the installation, but we believe that there is no real reason for manufacturers to in-source these components,” he noted. At the same time, wind turbine manufacturers have lost their strong grip on the sellers’ market that existed during the wind industry’s boom years preceding the financial crisis. Throughout this period market success was more based on operational excellence than technological superiority, but this situation is now changing and the balance between buyers and suppliers has been restored.

Instead of having different profit centres trying to optimize the sales of one component to reach the highest penetration possible, Moog wants to bundle the existing capabilities to solve the challenging problems of its customers, Dr. El-Henaoui explaines: “Moog’s R&D efforts are concentrated on this triangle of efficiency, safety, and longer lifetime of the turbine, and we have the right elements to succeed. For example, we talk about the Individual Pitch Control, which in essence optimizes the inclination angle of the blades to either be more efficient or reduce the load on the structure of the tower and therefore achieve a longer lifetime. You can even think of being safer in stormy weather by turning off the turbine.”

Moog tries to transfer developments made in one market its other markets, and does not use different designs in China and Europe. “Moog has learnt slowly but surely that in order to do business in China one has to play it the Chinese way,” Dr. El-Henaoui emphasized. “We entered the market with our European designs and are working with local suppliers to find alternatives for certain components make a real difference in the performance of the turbine to meet the local content requirement without affecting quality. Since volumes are much higher in China we can achieve the country’s low cost targets through measures such as local sourcing.”

Dr. El-Henaoui identified two kinds of competition in China. Domestic competitors who use the advantages of local sourcing to develop a competitive product create a healthy competitive environment for us. The other type of competition resembles reverse engineering. “The latter is not necessarily disruptive since customers do not only buy a Moog product because of its functionalities; their decision is also linked to our brand name and the cooperative partnership between supplier and wind turbine manufacturer,” he analyzed. “As a result, there is no need to push competitors out of the market if we address the needs of this very demanding market.”

As wind turbine manufacturers are getting bigger, they tend to diversify their supplier base. It is part of the game not only in China but in any market. “Therefore the idea is not to get the customer to choose our product, but to have a different value proposition from ranging from design to aftermarket based on which we can gain market share over our competitors,” Dr. El-Henaoui assessed. “The challenge is to choose the right customers, which in China are the local players. But which one to choose? Sinovel was not a market leader two or three years ago, and now it is. One could argue that these companies are state owned, so in the end of the day there is no real competition or leadership. Nevertheless the market knows better, and Moog has supplied most of the Top 10 wind turbine manufacturers in China with different designs.”

“The question is now to find the right partners who are ready to develop the next generation of wind turbine together with MOOG,” Dr. El-Henaoui outlined his long term ambitions. “No one can work in infrastructure and machinery in China by thinking short term; otherwise they should work in trading and not in value-adding industrial manufacturing!”

Winergy: Competing on top gear

Winergy, CEO, Stefan Tenbrock In 1981, entering the wind industry was a very long shot, almost the prophetic illusion of a few futuristic visionaries. At the company’s headquarters in Voerde, Germany, Winergy´s CEO Stefan Tenbrock reflected on his company’s early move. “Already in the beginning, even though the business was very small at that time, there were some people in our organization who saw the potential of the wind industry and realized that we had the right product at the time. We started supplying industrial gearboxes that were adapted to the specific requirements of a wind turbine. Later, when the volume of wind turbine construction increased rapidly, we started to design specialty gearboxes which are totally different from industrial gearboxes.” Nowadays, 26 years later, Winergy has supplied over 40,000 gearboxes worldwide and has become the world's only provider of complete drive systems for wind turbines.

The company is currently on track to expand its product portfolio from mechanical drive components into electrical equipment and control systems to further strengthening its competitive edge as the industry’s leading supplier of gearboxes. In the debate about the role that direct drive systems and gearbox designs are destined to play in the future development of the wind industry, the main argument for a gearbox is that the setup with a classical drive train, gearbox and generator is the most cost efficient design. However, the gearbox is often mentioned in the discussion on technical problems. “It is so often mentioned in connection with problems because gearboxes failures are expensive to repair, but statistics indicate that there are a lot of other components that have a much higher failure rate,” Tenbrock emphasized. “In the last years we have concentrated on increasing the reliability of our drive components. For example, the biggest portion of our investment has been spent on test equipment. Today, we have the world’s largest test capacity with more than 65 megawatt in test benches for gearboxes and generators. Each of our gearboxes has to undergo a thorough full load test before it leaves one of our factories, while our prototypes undergo even more extensive long-term overload tests to define if there are any potential weaknesses in the gearbox before it is released for serial production. Reliability is absolutely crucial for gearboxes.”

Winergy’s bread and butter business is still gearboxes for 1.5MW to 2.5MW wind turbines, which is also the area of focus for China’s upcoming wind turbine manufacturers. In 2006, Winergy entered the Chinese market by opening state-of-the-art production facilities. “We decided a long time ago to look for local customers in the Chinese market, and this production facility in China provided us with the opportunity to actually sell our gearboxes to Chinese wind turbine manufacturers,” Tenbrock noted. “Our strategy has been to develop a balanced customer portfolio consisting of international and domestic turbine manufacturers. This strategy has not changed over time because we expected that there would be a strong push for market share from the local Chinese wind turbine manufacturers.”

To keep up with the rapid growth in China, Winergy is currently constructing a second manufacturing facility in the country, which is expected to put into production in 2010. Siemens President and CEO Peter Löscher, who is bullish on the prospects of the wind power market, disclosed that the production base would supply wind power equipment not only to China, but also to other Asian countries.

“Although Winergy has clear technology leadership over its Chinese competitors, the local competition has to be taken very seriously,” Tenbrock warned. “As the Chinese wind industry matures both its quality requirements and cost level will inevitably increase. Currently, Chinese customers have to choose between just a gearbox and a gearbox with a very high reliability and quality standards at a premium price. While Winergy operates at high quality standards, Chinese gearbox manufacturers are quickly advancing on industry’s learning curve. This is not to our disadvantage: since we produce locally we will be on a level playing field with our Chinese competitors. There is no reason Winergy cannot be competitive in China in the future.”

Chinese wind turbine manufacturers growing beyond their borders

To close the technology gap and compete with the world’s leading turbine manufacturers – Vestas, GE, Gamesa, Enercon, Suzlon, and Siemens accounted for 70% of new installations in 2008, statistics for 2009 are yet to be released – Chinese wind turbine manufacturers have entered into joint ventures with European counterparts or acquired foreign technology by purchasing production licenses. While licensing agreements often involved proven technologies rather than cutting edge new designs, joint ventures offer access to the most up to date wind power technology. German wind turbine manufacturer REpower has been a frontrunner in taking multi-megawatt technology to China and over the past decade entered into licensing agreements with Dongfang, Windey and Goldwind. Similarly, Austrian based engineering consultancy Windtec transferred its 1.5MW wind turbine technology to Sinovel, which used it to become China’s leading wind turbine manufacturer. Both companies have entered into a joint development agreement for 3MW and 5MW wind turbines. Sinovel already started series production of 3 MW turbine and is scheduled to follow up with 5 MW systems this year. While Dongfang already manufactured well over 1,000 wind turbines under its licensing agreement with REpower, China’s third largest wind turbine manufacturer is currently cooperating with Windtec bring a 2.5MW turbine to the market this year. Dongfang and Windtec are also working together on the design and joint development of a 5 MW wind turbine for the offshore market.

Goldwind, CEO, Wu Gang Today, both Sinovel and Dongfang have firmly established themselves as leading wind turbine manufacturers on the Chinese market, and have aggressive plans to enter the global market with leading edge technologies to further expand their global market share. Goldwind, also a global top 10 wind turbine manufacturer has taken a different course by choosing to acquire its licensing partner and investing in the development of gearless generators using permanent magnet technology. “Goldwind realised that the gearless machine is the machine of the future, and wants to prove this to the global market,” explained Goldwind’s CEO Wu Gang, who has over 10 years of prior experience with the gearbox machine emphasized the impact that its maintenance and repair can have on the customer’s bottom line.

Being China’s oldest wind turbine manufacturer, Goldwind was founded in 1997 when parent company Xinjiang Wind Energy bought a license from REpower to manufacture 600kW wind turbines. In the following years, the Urumqi based company also obtained several other technology licenses from REpower before it acquired licenses in 2003 from Vensys to manufacture 1.2MW and 1.5MW turbines. Since then, Goldwind acquired 70% of Vensys and the companies are currently bringing a 2.5MW turbine to the market which will be manufactured in Germany by Vensys on a small scale while Goldwind will start large scale production in China.

“Our internationalization started in Germany,” explained Wu Gang. His long term vision is to transform Goldwind into a global company and a global brand. “If we combine the advantages of Chinese cost levels with German strength in engineering and design then we have something powerful,” he emphasized. “For example, Germans develop maybe thirty different prototypes of every part, all of which use very special software to illustrate a great level of detail, while in China five prototypes would be enough. This is illustrative of the German spirit and philosophy. We soon understood why our German counterparts didn’t want to change anything after the initial design: they strive to design every component to perfection the first time. Goldwind would like to use this concept in its expansion to the US and other markets.”

For Wu Gang, being a global company means not only selling wind turbines in a country, but also being involved in the local industry. To ensure that Vensys and Goldwind speak a common language, accelerate the learning process for both parties, and create value added, Goldwind constructed a manufacturing facility in Germany and supports Vensys’ initial manufacturing activities as this engineering consultancy transforms into a wind turbine manufacturer.

After having maintained 100% growth for 9 years in a row, Goldwind’s objective is to become one of the world’s top five wind turbine manufacturers in the near future, but the company’s business strategy is no longer purely focussed on market share and technological advancement. “Really, the culture in Goldwind has changed last year; we now pay more attention to quality and work towards sustainable development. Our philosophy is that if you offer good quality, you will win gain market share. If you are always thinking about the rankings, you will work too roughly and too quickly, which is risky. I learnt this from our competitors,” Wu Gang explained his vision. “We are not only cooperation with Vensys, we are cooperating with the German industrial background. From that, we not only learn how to design wind turbines, but we also learn from Germany’s experience as a technology exporter, we learn about international regulations, and we learn how to manage the company. We learn a lot, and that is crucial to become a global company.”

Smart grid or super grid to facilitate an energy revolution?

As installed capacities of solar and wind power continue to soar worldwide, Europe and North America face the need to upgrade their decades-old grids while China and India are constructing and expanding grid infrastructure for the first time in order to transport renewable energy and integrate it into the existing energy mix. While extensive power grids have brought electricity to virtually the entire population in developed nations for decades, the infrastructure was designed to link consumers and centralised power plants that relied on coal, nuclear, natural gas, hydropower, and petroleum. Today, the grid has to evolve into a more flexible power supply system that can support ever higher proportions of renewable energy, and the inherent volatility of solar and wind power, which requires the shift from the traditional ‘base-load’-driven power system towards a smarter interconnected system of smart grids which are the building blocks of a future super grid. Smart grid and super grid technology are not completely new. Converting existing grid infrastructure into smart grid simply means adding intelligence that allows for the monitoring of electricity flows in the system.

ABB Germany, CEO, Peter Smits ABB is a frontrunner in the development of smart grid technology and intelligent monitoring systems that keep track of all electricity flowing in the system. Peter Smits, CEO of ABB Germany and head of the company’s Central Europe region, explains the functioning of this technology: “The delivery of electricity is managed by the smart grid using two-way digital technology to track and manage energy use patterns, optimize storage options and group consumers together to create virtual batteries. ABB has developed communication gateways based on smart meters that can be applied to hundreds of devices. These smart meters will not only inform the utility on the electricity consumption of individual appliances or processes, but also whether these devices can be shut down or turned on at arbitrary hours. As a result, when renewable energy is available in abundance, and power is least expensive, a smart grid could turn on these selected home appliances or industrial processes, while at peak times it could turn off selected appliances to reduce demand. In certain cases, we could even see consumers receiving money to use the power that utilities need to get rid of. This means that the whole environment is changing entirely and requires new solutions.”

Over time, as the European smart grids expand and are integrated into networks, a super grid emerges. Superconductive transmission lines form the basis of the high voltage connections that could link renewable energy supply areas – such concentrated solar power station in Northern Africa and offshore wind farm in the North Sea – with high demand areas in Western Europe at a minimum power loss. Even though no new scientific breakthrough is required for the implementation of superconducting transmission lines using liquid hydrogen, the technology is still considered to be in the visionary stage. At the same time, high voltage direct current lines possessing the capability of transmitting similar voltages are being installed. A prime example is the 5GW High Voltage Direct Current (HVDC) transmission system that Siemens is currently installing between Yunnan and Guangdong for China Southern Power Grid Company. This 800-kV long-distance link is the fifth Siemens HVDC transmission project in China, and Siemens CEO Peter Löscher emphasized that energy highways such as high-voltage direct current transmission link (HVDC) systems are a key element of smart grids and a growth area for his company. “We commission the world’s largest and highest-capacity 800-kV HVDC transformer in China, which is intended for the next even larger HVDC system in China, which at 6400 MW will transport power equivalent to that supplied by twelve average-size coal-fired power plants over a distance of 2000 kilometers. Siemens also secured a large contract to supply a gas-insulated high voltage line with a total tube length of 12.5 kilometers, the longest of this kind in the world, for Xiluodu Hydropower Plant. As a backbone power source for “West-to-East Power Transmission” project, the plant will help reduce China’s CO2-emissions of about 150 million tons per year. This is not only good for the wallet of our customers, but it is also good for the environment,” Löscher stated.

NKT Cables, one of the major players in the European cables industry, also has the ambition to enter the Chinese high voltage cable market. “We have a factory in Changzhou and have started a joint venture in Hejian City, Hebei Province, so we have the manufacturing infrastructure in place. We have people with the knowledge and capability to sell our cable solutions, and I want to see the success,” announced Dion Metzemaekers, CEO of NKT Cables. “We have great ambitions, a high level of technological capabilities, and we will convince the Chinese market that what we have an offer will meet the expectations. Mindshare comes first and market share will follow automatically, that is my goal for the next year and a half in China.”

While Metzemaekers is bullish about his company’s future in China, his focus in 2009 was on surviving the economic crisis. “The crisis has been an important wake-up that emphasized the importance of teaming up with the right partners, with companies which not only have the ambition but also the strength to realize their ambitions, diversifying our customer base and thereby our risk profile, and being on top of your cash flow,” he reflected. “If you do business with customers who are ultimately not going to make it, then you are not going to make it.” Despite the challenging economic environment, NKT Cables identified growth opportunities and undertook large investment projects. “We are building a new factory in Cologne, we are setting up a joint venture in China focussed on the high voltage cable business, and we have invested massively in the production of railway equipment,” Metzemaekers boasted.

His optimism stems from the very good market conditions for electricity and railway infrastructure in the period between 2005 and the mid-2008, as well as a positive long term outlook for these segments. “If you take a long term perspective, for example the next thirty years, then I am convinced that we will see huge growth because of rising electricity consumption. We believe that in the next thirty years the total infrastructure for electricity infrastructure will undergo a major makeover. This will affect the infrastructure, it will affect the connections, and it will affect the transmission and distribution of electricity. We have to be very well positioned to participate. We are helping our customers to be more efficient in the transmission and distribution of electricity, which means reducing the losses that always occur when you transport energy from A to B. The way we set up our cable systems gives our customers the opportunity to halve those losses compared to historic performance.”

In 2001, NKT Cables became the first company in the world to manufacture, supply and install a cable employing superconducting technology in a full-scale operational environment in the public grid, but the company is no longer purely focused on individual performance of its cables. “It is essential to truly understand how the cable is operated. The generation capacity of the power plant, the setup of the network, the number of connecting devices; the monitoring software that follows the temperature development in the cable; and the daily variance in the load, all affect the solution that we will offer the customer to live up to our promise to help reduce power losses,” explained Dion Metzemaekers. “For example, by looking beyond the immediate requirements of a wind farm, we can identify potential bottlenecks and cooperate with our customers to offer cable solutions based on our understanding of the problems that they are facing. This is the name of the game we are trying to play right now.”

While physics is the same everywhere in the world, there is a difference in the understanding of problems and ways of responding. NKT Cables recognizes that operating with a Chinese management team that has full access to the company’s European technology is crucial to succeed in China and obtain critical mass. “In the railway business we are the market leader for electrification conductors, so we have critical mass, but in the high voltage business we are just getting started in China. Critical mass would be 10-15% market share, which is something that we strive to achieve five years down the road, coming from zero in 2008. The medium voltage market is so fragmented and competitive that we do not have a market share target; our goal is to focus on the market niches that are most suitable for our solutions rather than the commodity part of the market. We are not in the business of selling cable by the meter; we are in the business of selling cable solutions,” concluded Metzemaekers as he outlined his ambitions in the Chinese market.

A solar power supergrid connecting Europe, Asia and the Middle East

DESERTEC Foundation, Chairman, Dr. Gerhard Knies “Within six hours deserts receive more energy from the sun than mankind consumes in a year,” said Dr. Gerhard Knies, Chairman of the DESERTEC Foundation. “In order to meet today‘s global power demand of 18,000 TWh/year, it would suffice to install solar thermal power plants in 0.3% of the world’s deserts.” Last summer, Dr. Knies brought together twelve founding members from the business community to create the DESERTEC Industrial Initiative which will analyze the feasibility of creating an interconnected Europe, Middle East and North Africa in which huge amounts of electricity are generated in the region’s deserts and transported to consumers throughout the region via a solar power supergrid. Support for this initiative is not limited to scientists and the business community, also new European Union Commissioner (EU) for Energy Günther Oettinger believes that the DESERTEC project could be a great opportunity for Africa and the EU. "We need a global paradigm shift in energy policy with the aim of decarbonization, energy security and energy solidarity."

DESERTEC is designed to rely on concentrating solar thermal power plants to generate electricity in the North African desert. Heat storage tanks containing molten salt concrete blocks can be used to store heat during the day to power steam turbines when there is a peak in demand. In order to ensure uninterrupted service during periods of bad weather, the turbines can also be powered by oil, natural gas or biofuels. As an interesting side effect, waste heat from the power-generation process may be used to desalinate seawater to provide precious drinking water to desert based communities. High Voltage Direct Current transmission lines, which can limit the loss of power during transmission to only about 3% per 1000 kilometre, will be used to connect the energy producing regions with consumer markets across Western Europe. Although there would be transmission losses up to 15% between the Middle East, North Africa and Europe, these are more than offset by the fact that levels of solar radiation in the producing regions are about twice what they are in southern Europe. The technologies needed to realize the DESERTEC concept have already been developed and some of have been in use for decades. Concentrating solar power plants has been a proven technology for decades, and HVDC transmission lines have been deployed over long distances by ABB and Siemens for many years. Given the political will, and an investment of €400 billion, it would be possible to achieve the ambitions of the DESERTEC Industrial Initiative in less than 30 years.

ABB is very eager to contribute to the DESERTEC Industrial Initiative, of which it is one of the founding members. “DESERTEC has found an ideal balance between the return for investors and the development needs of the countries where it will be installed. Electricity is a start for any society, and DESERTEC will provide rural communities with access to light, heating, healthcare, and education,” stated Peter Smits, Head of Central Europe for ABB. “Of course, HVDC is the technology to make this project possible and ABB is a pioneer in this field. DESERTEC is a fantastic solution that can be applied all over the world, indeed 90% of the worldwide population lives less than 300km from a desert, such as the Sahara and the Gobi Desert, so the vision of DESERTEC can be used all around the world.”

Turning wind into profit for the shipping industry

SkySails, Executive President, Stephan Wrage Wind is cheaper than oil and the most economic and environmentally friendly source of energy on the high seas, but shipping companies are not yet taking advantage of its attractive savings potential. Already at age 15, while being dragged along the beach at maximum speed, the passionate sailor and kite flyer Stephan Wrage came up with the idea of propelling ships with a towing kite. He started working full time on developing and patenting a towing kite propulsion system in 2000 and one year later created SkySails, which has since developed the world's first practicable towing kite propulsion system for the commercial shipping industry.

The so-called SkySails-System consists of three simple main components: a towing kite with rope, a launch and recovery system, and a control system for automatic operation. The SkySails-System easily generate five times more propulsion power per square meter sail area than conventional sail propulsions. Another significant technological advantage of the SkySails propulsion is that the towing kites can operate at altitudes between 100 and 300 m where stronger and more stable winds prevail. Depending on the wind conditions, a ship’s average annual fuel costs can be reduced by 10 to 35% by using the SkySails-System. Under optimal wind conditions, fuel consumption can temporarily be cut by up to 50%.

Its universal design opens up an attractive market for the SkySails-System: about 60,000 of the worldwide approximately 100,000 ships listed in Lloyd’s Register and about 1,100 of the 1,900 newly built vessels joining the world's merchant fleet each year are suited for being fitted with SkySails propulsion. Ships with a length of at least 25 meters and an average cruising speed of up to 16 knots are particularly well suited for SkySails since the efficiency of SkySails propulsion declines as the vessel's speed increases.

Fast container ships are not a part of SkySails' target market, because the system's efficiency decreases as the ship travels faster . At today's oil price, using the system for ship speeds above 18 knots is only a sensible option in exceptional cases. The approximately 6,000 container ships make up a relatively small share of the world's merchant fleet. The vast majority of ships are tankers, bulk carriers, general cargo vessels, multipurpose ships and fish trawlers that ply the seas at speeds of from 10 to 18 knots.

SkySails has set itself ambitious production goals for the next few years and is planning to equip 1,500 ships by 2015. “The systematic and worldwide use of SkySails technology would make it possible to save over 146 million tons of CO2 a year, an amount equivalent to about 15% of Germany's CO2 emissions,” stated Wrage, who has already started to develop his next invention that will benefit both nature and business. However, this secret remains in the pipeline while SkySails sweeps through the shipping industry over the coming decade.

WAGNER: NOT JUST A COAT OF FRESH PAINT

Many German companies have been founded by inventors, engineers, fascinating people, and Josef Wagner was one of them. An exceptionally gifted engineer, Wagner pursued his ideas even in the face of doubt and resistance. “Let’s just give it a try” was a typical saying that his technicians got to hear quite often, when he came into the workshop in the morning with an idea born in the night and recorded right away in a sketch. Based on this attitude he developed the first certified helicopter in Germany and had the vision of the flying car over half a century ago, and laid the foundation of the present day Wagner Group. “He would seek a mix of opportunity, engineering and a very challenging environment. What he would do is not any different from what we are doing decades later,” explained Thorsten Koch, who serves as Group Chairman and Chief Executive Officer of the WAGNER-Group since 2001.

Wagner Group, CEO, Thorsten Koch From its entrepreneurial roots, Wagner Group has evolved into an internationally leading manufacturer of high-tech, high quality products and systems for the application of wet and powder lacquers, paints and liquid materials onto surfaces. Architectural icons such as the Sydney Harbour Bridge as well as objects ranging from cell phones, notebooks, and TVs, to truck trailers, washing machines and wind turbines are coated with WAGNER products, so the probability that you get in touch with WAGNER products without knowing it is very high. Over time, the quality of the surface coating has gained an ever greater impact on the function and performance of products and components, which has been extended from its protective function to also support aesthetics. “What would an iPod be without a perfect surface?” asked Koch. “Perhaps it would offer a great user interface and a good system, but it would not necessarily be something that you want to get in touch with because of its surface. That is something we feel responsible for, and we tend to believe that when it comes to the perfect surface you better talk to the specialist.”

Thorsten Koch argues that people often underestimate the complexity of what his company is doing. The integration of material and air with the complexity and geometry of products is a very complex issue, which is why there are very few dominating companies in the world mastering this process. As a result, a rather small company like WAGNER, with around 1400 employees worldwide and US$500 million in annual sales, is not seriously challenged by others. “It took us over fifty years to become a true specialist in surface technology, and we make sure that our paint applications are in line with the expectations of our customers, which all ask for solution for completely different environments, materials and technologies,” Koch emphasized.

Through its focus on high technology engineering Wagner Group tries to provide the technology loop to master all price points and different technologies for different customer and target groups ranging from fast moving consumer goods up to industrial applications and big projects. One of the benefits for his company’s wide product portfolio is that it does not need to talk customers into one specific technology. “We can provide each and every technology that is optimized for every individual customer. Our technology centres are like a laboratory where we prove that we can fulfil the requirements of each specific customer when it comes to layers, speed, efficiency and productivity to meet commercial requirements,” Kock boasted. To ensure Wagner Group’s ability to create added value when it comes to paint and adhesives, the company invests a lot of resources in research and development, as well as on cooperation and alliances with material manufacturers because the combination of material and technology is absolutely crucial. As a result, one-third of its turnover is generated by products that have been introduced over the past 24 months in a rolling cycle, which is a short life cycle for industrial products.

Thorsten Kock believes that environmental technologies are absolutely going to become key in his industry, not just to support tomorrow’s population and protect our world but also as an innovation driver. It is not accidental that a lot of these initiatives are born as a consequence of the current economic crisis, illustrating human being’s desire to adapt to problems and be most creating when facing challenges. “The so-called ‘greenobalization’ is going to be the fastest growing industry worldwide and I believe that German and European companies have a huge opportunity to be at the forefront of that industry,” he anticipated.

Let me give you some other examples of what environmental technologies are all about and where we come in, Koch continued. “Australian scientists are currently developing a dye that transforms sunlight into energy, so it basically mimics photosynthesis. Today walls are just walls and protect us from wind, cold, rain and sun, but try to imagine that walls get coated with this dye and actually create energy. By using different surfaces we could use this world’s huge wall space as a membrane and transform buildings into sustainable energy sources. Another interesting initiative is focussed on cool roofs in California. According to physics California could lower the outside temperature by 3°C by just turning black roofs into white roofs. Just to give you an indication of what we are talking about, 100m2 of cool roof compensates the annual CO2 emission of one human being, which is pretty substantial. While the international community failed to reach a binding climate agreement to ensure that global temperatures will not rise by more than 2°C temperature compared with pre-industrialized times, we talk about a 3°C reduction by simply turning black roofs into white roofs. Nobody talks about the potential impact of painting streets white, but do they have to be black? If we come up with the most efficient way of changing street colour then that would be fabulous.”

“We need to make sure that our people having the required expertise in-house always so that our organization stays at the forefront of industries such as wind, solar and cool roofs. Through cooperation with material manufacturers, we can turn these huge opportunities into reality and really bring fundamental change to how people think about surfaces while enhancing our ability to use energy in the most efficient way. As a company we have to make sure that we are part of these global trends and be present in China, US and any other fast growing market,” analyzed Koch. “I believe that meaningful technical innovations have always been driven by social needs and changes as a result dramatic events. The global financial crisis and climate change are such events, and the challenges they create bring out the best in human beings. It is not just about business, it is a really nice part of business with the kind of exciting technology and engineering challenges that Josef Wagner was thriving on.”

Chapter 4

The virtues of the European mindset

“The German business community may be missing opportunities in various industries, but is not missing the opportunity to develop in the renewable energy sector,” emphasized Hans Wagener, Territory Senior Partner Germany for PricewaterhouseCoopers (PwC). However, he did point out that there are definitely missed opportunities in the green technology domain despite the complementarities between Germany’s technological capabilities and expertise in renewable energy and energy efficiency and China’s green development ambitions. Wagener believes that German companies are only facing a mental barrier to doing business in China, which could be removed if the Chinese government shows that there is a business environment and clear legal framework in which foreign companies can operate and be economically successful. “It is all about demonstrating that investing in China is not a big adventure with unclear success,” he noted.

Roland Berger, CEO, Burkhard Schwenker PwC not only operates the largest globally integrated professional services network in the world, the company has also been operating in China since 1902 and today is the country’s largest professional services firm with 9,000 employees. While the big four firms – Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers – play a central role in Germany’s professional services landscape, the country is also the home market of one of the world’s leading strategy consultancies: Roland Berger Strategy Consultants. Founded in 1967, the company today has successful operations in all major international markets and takes a unique positioning. “As a European firm with German background, we are used to operating in a unique variety of countries, languages and political systems, cooperating and competing for best solutions,” started Prof. Dr. Burkhard Schwenker, who took over the function of CEO the company's founder Roland Berger in 2003. He is a great believer in Europe since it encompasses two main sources of power: diversity and creativity. “Diversity leads to creativity, which then leads to competitive advantages. This is true for entire economies and individual companies. In the end, this leads to strategic advantages of big European corporations compared, for example, to the US. This is not only analytical insight; it gives us also a competitive edge over rivals from the US and is one of the reasons why we have been successful in globalizing our firm.”

According to Dr. Schwenker, the financial crisis has highlighted the difference in economic ideologies between Europe and the US. “The financial crisis illustrated that the American management model, which has dominated the world's business thinking for ages, has in a way failed. One of the causes of this failure is its focus on short-term thinking, financial rewards and capital markets. European traditions in contrast offer are centered on long-term thinking. Over the past few years there has been a big debate about the business perspective, and the crisis has decided this debate: long-term thinking makes sense. We will have to tackle some long term challenges after the crisis and long term thinking is necessary when it comes to climate change and green technologies. Secondly, one source of European strengths is our traditional humanistic education because it aims at interdisciplinary thinking. It is an important way to create a platform for sound judgments in these complex times and sets us apart from the American approach. Thus, I believe that Europe can benefit from the crisis. Finally, in the years before the crisis many people believed that financial services were crucial for advancing the virtual knowledge society, which would change the world and the way we do business. Many people were saying that a country like Germany, with its large manufacturing industry, was somehow outdated and not competitive. The crisis has shown exactly the opposite. Industrial competence counts again and Germany is very well positioned since 24% of our GDP comes from manufacturing, and that figure is growing. The same goes for continental Europe, where manufacturing represents about 18% of GDP. It is simply not true that high-quality services are moving everywhere and anywhere in the world. They are still best developed in combination with industrial centers of excellence to create new high-value offerings and solutions. This is also important in green technology and it is why I believe continental Europe is very well positioned for the challenges ahead.”

Dr. Schwenker believes that the world can only return to sustainable growth if we find a way to positively combine ecological needs with future economic growth, especially in the BRIC states. The development of green technology so far has shown that at least in industrialized countries it is possible to gain economic growth potential by combating climate change. German industry is very well positioned with double-digit market shares in almost all important green technology areas, and this is exactly where Dr. Schwenker identifies its greatest weakness: German companies are much too small and far too local to really compete on the global scale. “About 80% of the green technology companies in Germany have annual sales of less than €20 million, which has been a strength for technology development but is becoming a weakness when tackling foreign markets. The question is how to grow our companies and create clusters that are big enough to really compete internationally and exploit the potential of the growing markets in the US or China.”

The German green technology industry has great strengths based on the fact that it draws on manufacturing, electronics and services, all three of which are traditionally strong industries in Germany. Nevertheless, many German companies have experienced difficulties in conducting business in China. “They saw a huge market with tremendous growth potential and a need for advanced technologies, but were somewhat naïve in entering the Chinese market and underestimating the country's business culture. As a result, not too many corporations have successfully turned opportunities into profit, which is the reason some companies are now afraid to move into China,” Dr. Schwenker explained.

Five or ten years ago the strategic question for many European corporations was how to enter China, but today the real strategic question is how to compete when China comes to Europe. “Of course some politicians are threatened by the idea that China is investing great amounts of money in Germany and is trying to take over the country. That is not true. Trade and investment goes in both directions, and we can bring more knowledge about Germany and Europe to China and the other way around. We can bring people together to create a common understanding of culture, business needs and opportunities, and support companies in tackling them. Based on that platform, more business can be developed,” Dr. Schwenker concludes. “A major mistake that many firms made when entering China was not taking enough time to understand how China works.”

Brainpower for Berlin

After the official closing of the inner German border in 1952, the border in Berlin remained relatively accessible and Berlin became the main route by which East Germans left for the West. The emigrants tended to be young and well-educated, leading to the brain drain feared, and the loss was disproportionately heavy among professionals such as engineers, technicians, physicians, teachers, lawyers and skilled workers. In less than ten years over 3.5 million East Germans had left for the west, totalling approximately 20% of the entire East German population, and the brain drain of professionals had become so damaging to the political credibility and economic viability of East Germany that its political leadership decided to erect the more than 140 kilometres long Berlin Wall in 1961. The Berlin Wall, a concrete barrier built that completely enclosed the city of West Berlin, separating it from East Germany, became a symbol for the ideological East-West divide during its existence from 1961 to 1989. Today, twenty years after the fall of the Berlin wall, Germany’s reunited capital city has become a major centre of culture, politics, and science in Europe.

Berlin Partner, Managing Director, René Gurka “One of the most important points is that probably 70% of our economy is less than twenty years old. Berlin is a brand new city,” René Gurka pointed out. The first decade after the wall came down was a struggle since there were great expectations about what Berlin would become but there was no master plan. There was just a common sentiment that Berlin would be the country’s number one city soon since it is the capital city of a reunited country. “Ten years later, everyone realized that we needed to do more than just say that Berlin will be number one; we needed to work to become number one,” recognized Gurka, who serves as Managing Director of Berlin Partner. Operating as a public-private partnership – 55% of Berlin Partner is held by representatives of the private sector and its supervisory board is made up primarily of business leaders – Berlin Partner is working to stimulate the development of Berlin into one of Europe’s leading business hubs. Not only does it help Berlin-based companies tap foreign markets, Berlin Partner also serves as the first port of call for foreign companies with in trade and investment opportunities in Germany’s capital city. Since 2001 Berlin decided to focus on four competencies of the city. The first area of focus is ICT, media, and creative industries. Secondly, Berlin is positioning itself as a logistics hub and centre for clean transportation technologies. The third and most successful cluster so far is life sciences, which is an old cluster that has seen the development of new activities in areas such as biotech over the last fifteen years. Finally, one of the most important sectors Berlin is the services industry, which supports the ministries and administrations at the city and federal level and has therefore developed into a large industry.

Over the past decade, Berlin also developed its clean technologies industry. “I have to admit that the clean tech area is not just Berlin but also includes the surrounding areas in East Germany. Mostly this development in Berlin and its surrounding belt is based on the combination of Germany’s feed-in tariffs in combination with the high subsidies are available in Eastern Germany,” Gurka explained. “Adlershof Science Park, one of the most successful technology parks in the world, has been at the core of the development of Berlin’s green technology sector. This former East German technology park, where Chancellor Merkel was working as a scientist before the wall came down, has become a hub for universities and research institutes and the centre of Berlin’s solar industry.” René Gurka does not believe that Berlin is competing with neighbouring Solar Valley. “No, we are complimentary as one region. There will only be a couple of areas where R&D is done in the world, and we want to be one of them,” he emphasized. While Germany might not be the world leader in the production of solar panels in the future due to higher labour costs, Gurka is convinced that his city will have some of the world’s newest and largest research, development and test facilities. His key argument is that Berlin combines the best of both worlds: a global metropolis with a leading edge solar industry. “The brains and the talent of international scientists will no longer need to go out to unappealing rural areas. This is a big advantage for us, since few others can offer a global metropolis in the middle of their industry. Most of the CEOs here share my vision on that,” Gurka boasted.

Solar is only the first big green-tech test balloon, our vision for Berlin will be centred on renewable energy, energy efficiency, e-mobility, and water management,” explained Gurka, whose dreams go as far as turning Tempelhof Airport and Tegel Airport into clean tech business parks right in the city after the new Berlin Brandenburg International airport will be opened later this year. “I don’t believe there is another brand new, vibrant technology park in a global metropolis which is only two miles from the airport,” he concluded.

From East meets West to past meets future

Aside from doing business, Berlin is an outstanding tourist destination. Despite roots dating back more than 700 years, Berlin is considered a rather young city that has reinvented itself numerous times throughout history. Present day Berlin has developed since the fall of the wall on November 9, 1989, which ended the city’s division into East and West. While the city is at the cutting edge of music, art and lifestyle trends, Berlin has not forgotten its rich history which is reflected in its outstanding museums, orchestras and theatres. Today, the most up-to-the-minute trends emerge from Berlin and the city has become a magnet for young, creative minds and famous artists alike who are transforming Berlin into one of Europe's most innovative metropolises. In short, one of the most diverse, vibrant cities in Europe remains a work in progress.

When visiting Berlin make sure not to miss the following hightlights:

Brandenburg Gate – Berlin's only remaining city gate is the true symbol of the city. Because it was situated in the no man's land just behind the wall, it also became symbolic of the division of the city. After the Fall of the Wall, the Gate was reopened on December 22, 1989, and became a symbol of reunited Germany.

Alexanderplatz – Berlin's most famous square and was the heart of the East German city centre. The square is dominated by the 368 meter high TV tower which is the highest building in Germany and the second highest in Europe. In just 40 seconds, the lifts take you up 203 meter to the panoramic floor where you can enjoy a fantastic view over the city and its surroundings.

Checkpoint Charlie – The former border crossing point between East and West Berlin was the place where Soviet and American tanks stood face to face, after the construction of the Wall in 1961.

Tiergarten – Originally the hunting grounds for the Prussian princes, today Tiergarten is the largest park in Berlin and a popular outdoor oasis for Berliners. Because the grounds border directly onto the Reichstag, many embassies were found here before the war. Today, several embassies are being restored or newly built in Tiergarten, lending renewed splendor to the former "Diplomatic quarter".

Reichstag – The colorful past of the German Parliament reflects the turbulence of German history since the 19th century. The dome of the Reichstag had been blown up in 1945 and the building was not reconstructed until the German Federal Government decided to use the building as a parliament once again after the reunification of Germany.

Schloss Charlottenburg – The largest and most beautiful palace in Berlin, is a shining example of baroque architecture.

Gendarmenmarkt – One of the most beautiful squares in Europe where two cathedrals and a concert hall create a beautiful architectural ensemble.

KaDeWe - The largest and most magnificent department store on continental Europe, built in 1906, drew the shopping crowds in from the very start. During the Second World War, the building was almost completely destroyed, but it was opened again in 1950 and completely rebuilt six years later. In the 1950s, the Department Store of the West became the symbol of the market economy.

Finally, the choices for eating out in Berlin are endlessly varied. Traditional Berlin cuisine tends to be rustic and hearty, with local specialties such as Berlin meatballs and currywurst (sausage with a curry sauce), Eisbein (knuckle of pork) and "Berliner Weisse" (a speciality white beer), which are known well beyond the city's boundaries.

Every year more than 250 million people worldwide are affected by natural disasters such as hurricanes, floods, droughts, heat waves and wildfires. While the climate has been changing throughout the history of our planet, this time the change is man-made and takes place at an unprecedented pace. According to numerous scientists, climate change has already started and is very probably contributing to increasingly frequent natural catastrophes. This not only affects the lives of people around the globe but also the balance sheets of the world’s leading insurance and reinsurance companies, where the impact is multiplied by the fact that the world’s largest concentration of value is in exposed areas such as coastal regions. As a consequence, the insurance industry has long been a strong voice in the international call to tackle climate change.

Allianz, Europe’s biggest insurer, has witnessed Europe warming 40% faster than the world as a whole and attributes the severe damage caused by events such as the storms in 1999 (cost €13 billion), floods in 2002 (cost €13 billion), and a heat wave in 2003 (cost €10 billion) to climate change. According to Allianz, 40% of insurers’ losses are due to climate change effects and the company itself has seen a 15-fold increase in weather-related insurance losses over the last 30 years. Although no precise estimate of all future costs can be made, a European Commission paper puts the future cost of all the potential cumulative global damage at €74 trillion at today’s value if effective action is not taken. Enormous investments must be mobilized to fight global warming and, provided that stable political conditions and a sound legal framework are established which will facilitate the accurate pricing of investment risk, investors and financial markets would be able to finance most of the investments to reduce CO2 emissions, restructure the energy sector, and enhance energy efficiency around the world.

Allianz Climate Solutions, CEO, Dr Armin Sandhövel In 2007, Allianz established Allianz Climate Solutions as a subsidiary with the explicit aim to develop new products and identify investment trends related to climate change. “Allianz Climate Solutions is a gatekeeper for all Allianz entities in several business sectors. We are both a risk management team for all climate related products and a brokerage firm specialised in renewable energy and clean tech insurance,” explained Dr Armin Sandhövel CEO of Allianz Climate Solutions. His unit is also a procurement unit for renewable energy technologies. After several years of investment in renewable energies, the company holds wind power assets worth over €500 million and plans to expand its renewables portfolio by €1 billion in wind power as well as photovoltaic and concentrating solar power investments until the end of 2012. Another main reason for the founding of Allianz Climate Solutions was to advise not only the most important CEOs of the industry but also Allianz’ own Management Board.

Dr Armin Sandhövel, who worked for six and half years for the German government before entering the financial sector, is developing a team of experts from both the political and financial world to address the crucial issue of financing the required investments to fight climate change. “Politicians are very familiar with questions about political, legal and tax issues, but more or less draw a blank when it comes to bringing ideas to the table for acquiring private money with public donations, which for example was the ultimate question in Copenhagen,” he expanded. “By 2050 we need an annual investment of €800 billion worldwide in order to avoid dangerous climate change. So how are we supposed to finance this? It is unimaginable that we could bring this money to the table from the public sector. What we need to do is to find a way to acquire €10 of private sector investment for every public sector euro invested. At the end this is done through risk transfer. By hedging the risk for the private sector we can facilitate the investment in technologies and sectors that do not have a proven track record. This is the main question for which we need an answer, and this answer has to be provided by the financial sector. We have the experience on both the political and financial side to translate these ideas in both directions, as well as between the key players in the different branches of the financial services industry. The core team at Allianz Climate Solutions is a risk management team, so first and foremost we look into the risk of a project. Of course, if we can then hedge the risk or deal with the risk then it becomes an opportunity.”

Time for a big wave of Chinese investment in Europe

While most of Germany’s green technology companies are noticing that China is paying attention to green solutions, which was not the case years ago, some of Germany’s top managers still have a lack of knowledge on the green technology movement in China and do not realize the country already is a frontrunner in setting new policy and technology standards in this field,” started Thomas Wu, who together with four partners founded Mandarin Strategy Management (MSM) Consulting, one of Europe’s leading strategy and cross-border M&A consultants with focus on China.

“Germany is in a position to benefit now from all the activities in the past 20 years focused on transferring German environmental standards to China. It is time for German industry to encourage more installations and upgrades of its equipment in China, and for both governments to work closer together in order to promote technology,” announced Thomas Wu. “Two years ago, German companies were mostly afraid of losing their technology, but today they are afraid of missing market opportunities in China. We are now seeing the first signs that big German companies are not only thinking about producing in China, they are starting to form joint R&D centres because they realize that there are a lot of funds available from the Chinese stimulus package and that there is a supportive R&D environment in the region. At the end of the day the Germans are doing a good job in China but there is always room for improvement.”

Thomas Wu emphasized that German companies have to look at the bigger picture as well: the future is not only about the Chinese market, Chinese companies will export their technologies sooner or later. Quality and technology in China are improving every day, while European companies have consistently focused on the premium segment. The moment a European company sets up a European facility in China it is already too expensive for the local market. This is why we have been promoting European companies to take over Chinese competitors or form alliances to expand in the middle segment of the market based on cost competitive technology an production processes, not only because it is suitable for China but also for other markets. The focus must not only be to grow in China but to grow with China in other emerging countries.

While MSM Consulting focuses on providing strategic advice to multi-national companies from Europe,and particularly Germany, the recently created MSM Capital division’s main activities are M&A and corporate finance.”In this field 80% of our activities involve Chinese companies trying to make investments in Europe, while only 20% focussed on European companies trying to acquire companies in China. We clearly see the impact of the economic crisis as the majority of the cross-border M&A is nowadays coming from China,” Thomas Wu emphasized. “We are seeing large opportunities for Chinese companies in Europe; there could not be a better time to enter. We have never seen such openness by Europeans towards true global strategic partnerships with Chinese companies. This opportunity needs to be considered in China, and we are already seeing the beginning of a big wave of Chinese investment in Europe.”