Vestas Wind Systems, is Denmark's surprise industrial champion. Vestas to Denmark is a bit like Nokia to Finland with a 28% world market share. A few years ago, back in 2004, it looked like Vestas, along with a handful of German turbine manufacturers were about to head South into the red, with declining margins (2.4% for Vestas in 2004 after its merger with NEG Micon) and an end to the wind boom. And after all, who would bet on manufacturing continuing to succeed in high-cost Western European nations?



Since then, there has been a spectacular turnaround. As this article points out, " . . . Vestas shares, which trade on the Copenhagen stock exchange, more than quadrupled in price over the past 20 months, as the company cemented its No. 1 spot in the industry".

It would be quite mistaken though to assume this happened because of the genius of the management. In fact, I do recommend reading "The Origin of Wealth - Evolution, Complexity and the Radical Remaking of Economics" by Eric Beinhocker - who reveals that quite often, that's one of the least likely causes.

Margins rose because of a world-wide shortage of turbines. Together with steel shortages and a rise in construction costs, this has translated into the installed cost per megawatt rising by about 40% in 4 years. A few years ago I was convinced that wind turbine prices would keep falling. How wrong that turned out to be. This has also been made possible because the price of other energy sources has gone up too, so the ranking order has not changed. All the same, the assumption that increased production leads to lower costs can only happen if supply exceeds demand.

It just goes to show one must never allow oneself to be beholden to the distortion of wishful or prejudicial assumptions.