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 With issues like energy independence, climate change, and $100 oil driving legislation that mandates and subsidizes the use of renewable energy sources, wind energy is cheaper than it has been in the past. Accounting for subsidies for wind farm construction, the installation cost of large wind farms rivals that of traditional gas and coal plants, giving the wind market an advantage over other renewables. Without subsidies, wind is still more expensive than cheap coal in low-regulation regions; for this reason, Vestas was forced to abandon its Australian operations. Based in Denmark, Vestas has a strong arm in the European wind market, and is looking to the U.S., where legislation in favor of renewable energy sources has greatly expanded the market for wind, for its near term growth. With most of the long-term growth in energy demand expected to come from emerging markets in Asia, however, the company could be missing out on the opportunities in this region, though competitors like India's Suzlon might reduce the region's appeal. The strength of competitors GE in the U.S. and Gamesa in Spain have not stopped Vestas from claiming the two countries as its largest customers. [edit] Business and FinancialsIn 2007, Vestas increased its revenue by around €1 billion, from €3.854 billion to €4.861 billion. Its operating profits grew from €201 million to €443 million. The company has stated that its goal is to drive the wind energy industry to a level of competition, both internally and with other forms of energy, that allows it to rise from 1% to 10% of the global energy mix by 2020. In Vestas' home country of Denmark, 20% of the energy mix is now wind powered; Spain and Germany follow with 9% and 7%[2]. For Vestas to make a real impact on the world's energy mix, however, wind will have to take hold in large markets like the U.S., as well as growing markets like China and India.
In 2007, most of Vestas's operations occurred in Europe, with Spain, Germany, Italy, the Netherlands, France, and the United Kingdom making up over 80% of the region's revenues. Nearly 50% of the company's Asian revenues came from China, with growth in India stifled by the region's wind powerhouse, Suzlon, taking most of the available contracts. Vestas' backlog rose from €4 billion to €4.8 billion over the course of 2007, of which 49% came from Europe and 40% came from the Americas. The strong backlog position of customers from the Americas, as well as increasing legislative support in favor of renewables and the sheer amount of wind in areas like the Midwest, could explain why Vestas is putting most of its expansionary energies into the region. [edit] Trends and Forces[edit] Though Many Emerging Markets are in Asia and Africa, Vestas is Focusing on the U.S.Vestas plans to have 13,700 employees in Europe, 1,700 employees in North America, and 2,600 in Asia and the Pacific by the end of 2008[4]. These represent 14%, 66%, and 15% increases, respectively, with real number increases of around 1700, 700, and 300 employees. It's clear that Vestas favors the Americas, especially the U.S., in its growth strategy. This makes sense, given the growing legislative support for renewable energy sources in the area. Furthermore, though only 6% of the U.S. has strong wind resources, these resources could supply 150% of the current U.S. energy consumption - but only if they were fully developed with turbines (IE 6% of US land mass would be covered with wind turbines)[5]. The International Energy Agency has estimated that world energy demand will increase by 50% in the next 22 years. 74% of this increase is expected to come from developing countries - out of which China and India will make up 45%. Vesta's approach is appealing to social investors, as the company's motto, "People before megawatts", would seem to preclude it from taking advantage of low-cost workers; however, by expanding operations disproportionately in the U.S., where labor is more expensive and demand growth is less rapid, Vestas is missing out on opportunities in the Asian marketplace. Also, without expanding in Asia, the company will have difficulty achieving its goal of increasing wind power's contribution to the world's electricity generation to 10% by 2020. [edit] Wind Energy is the Most Economically Competitive Form of Renewable EnergyVestas, as the largest wind turbine and system manufacturer in the world, is in position to take advantage of wind's competitive economics. Wind turbines have the lowest installation costs of any of the renewables, especially with large wind installations, which take advantage of economies of scale to reach lows of $800 per kilowatt installed[6]. Small wind farms and individual turbines can cost up to $3,500 per KW installed[7], which is a bit higher than the average geothermal plant, at $2500 per kilowatt installed[8], but still less expensive than the $8,000 per kilowatt installed[9] associated with photovoltaics. Wind farms also have the capacity to generate much more electricity than geothermal or solar installations. Wind rivals natural gas ($1200 - $1600 per kilowatt installed[10]) and is much less expensive than a coal plant that has all the emissions retrofittings ($2,200 - $3,700 per kilowatt installed[11]), though gas and coal plants generally take up much less land than wind farms with equivalent capacities. [edit] Renewable Energy Legislation Gives Wind Companies like Vestas a Strong Cost AdvantageThus far, governments have been major drivers of the wind industry. Legislation recently passed that supports wind development includes:
These renewable energy standards are all supported through tax breaks and subsidies, both for installers and buyers. In the U.S., for example, a subsidy worth 63% of the capital cost of renewables (like wind) is active through 2008, and is expected to be extended further[13]. With wind energy already far cheaper than alternatives like solar, a 63% subsidy would drop a large wind farm to $500 per kilowatt installed - nearly three times cheaper than a gas power plant. This cost advantage would give electric utilities an incentive to invest in wind turbines; companies like Xcel Energy have already started to enter the field. As the wind market leader, Vestas has seen and will continue to see benefits from legislative support of its technology. [edit] Coal Stands in the Way of Vestas' ExpansionIn August of 2007, Vestas announced the closure of its Australian branch. Australia, the largest coal exporter in the world, looks to the "other black gold" for 85% of its domestic energy production[14]. Because coal is easily accessible from any of Australia's populated regions and is one of the country's main exports, legislators are loathe to support the development of another source of energy, especially one financed abroad. Vestas could face similar troubles in the U.S., where oil companies are firmly entrenched in the nation's economic and political spheres. Furthermore, the U.S. is in the top three coal exporters AND coal consumers in the world (now vying for position two with China)[15]. With such strong vested interests in coal, the U.S. government will debate whether or not to switch to wind energy and other renewables, despite the looming threat of climate change and the environmental degradation coal has caused in the past. [edit] CompetitionVestas estimated that its worldwide market share fell from 28% to 23% in 2007, primarily because of the entry of Chinese competitors into the wind market.
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