George Kerevan: Energy is renewable but lost market share is not

Published on Tuesday 19 May 2009 21:55

THE chairman of Spanish-owned ScottishPower, Ignacio Sanchez Galán, will be in Scotland today to switch on his company's Whitelee wind farm.

With 140 big turbines capable of producing 322 megawatts of electricity, Whitelee is Europe's largest onshore wind power generator. There are plans to make it even larger, virtually doubling capacity. Covering 55 square kilometres, Whitelee is one of the largest building sites on earth.

All this sounds very exciting and bodes well for so-called "green" jobs in the future. But let's examine the numbers more closely. Whitelee is costing 330 million to build. Of that, 72m has gone to a joint venture led by Morrison Construction to prepare the basic site.

However, the bulk of the contract (235m) goes to a German company, Siemens, to manufacture, install and maintain the turbines themselves. Here is the issue: Siemens builds the turbines at its Aalborg factory in northern Denmark, not in the UK. In fact, UK production of wind turbines is in a state of crisis. Last month the Danish company Vestas, the world's leading supplier of wind turbines, announced it was closing its remaining UK factories, wiping out 625 engineering jobs. That leaves the UK with only one small producer, another Danish firm called Skykon. In other words: the UK has virtually missed the boat when it comes to manufacturing wind turbines.

Yet for the decade before the recession hit, global wind turbine sales were growing at a cracking 29 per cent per annum. The downturn might slow that for a time, but only temporarily.

However, there are caveats for potential UK-based turbine manufacturers. First, the truly growth markets are in the USA and China, with their huge land mass. Exporting from a UK base will be costly and problematic, especially to the US west coast.

Second, competition among wind turbine manufacturers is intensifying. For instance, Vestas is quitting the UK in order to expand activities in America and protect its (dominant) global market share from the likes of Alstom Ecotecnia and Gamesa in Spain. At the same time, European companies are being challenged by local start-ups in the core US and Chinese markets. Expect developing economies, with their engineering bent, to enter the global market in a big way. Already, Suzlon in India is the world's fifth-largest wind turbine producer.

What has strangled the UK turbine industry, despite a promising early research lead? Most significantly, the delays inherent in getting planning permission in the UK to install wind farms have made ordering turbines a risky business. So the market went to countries prepared to install quickly, especially Denmark and Spain. Now the global market is opening up, UK industry has been left trailing in the… er, wind.

What are the options for catching up? Our one remaining UK onshore turbine manufacturer is the Skykon plant near Campbeltown. Skykon bought the site from Vestas in March, securing 100 jobs. It was desperate for new capacity and enticed by public money. At the start of May, Skykon (trading as Welcon Towers) confirmed it was starting work on extending the plant.

To be a success, Skykon/Welcon needs to break into the UK market but that is not easy. ScottishPower seems committed to Siemens, which should grab the lion's share of the 1 billion the electricity utility is spending on wind farms in Scotland. Siemens also has the contract for the 341 turbines for the London Array, the world's biggest offshore wind farm project. The company is already the biggest supplier of wind turbines in the UK, pushing Nordex (another German manufacturer) and Vestas into second and third place.

Of course, the renewables market is about far more than building turbines – as can be seen at All-Energy, the UK's largest renewable energy exhibition and conference, which opens in Aberdeen today.

But there is a lesson here: pouring cash into renewables R&D is a very different thing from building a global manufacturing base.