Not the least bit put off by quality control issues of its wind turbines in America, Suzlon continues to be on a mission to gain market share through acquisition and foreign expansion. The latest news is that the firm has just bought a $500 m stake in the Chinese wind development company, Honiton Energy Holdings. They also plan to develop wind farms on five separate areas in China, representing a total of 2,244 square kilometres to develop 1,650 MW by 2012. Indeed, according to the same article, Suzlon's financial partners will spend another $2 billion by 2012 to develop a 1,650 megawatt portfolio of wind farms in the Inner Mongolia region of China.

This strikes me as shrewd for three reasons;

i) Chinese assets when priced in dollars are going to look a lot more valuable before long because an upwards revaluation of the renminbi has to be on the cards

ii) China is now the world's second biggest wind market - at 17% - and the targets for wind energy if anything, are increasing. According to the same article, a staggering 38.5 GW is to be added between 2008 and 2012. A couple of years ago, approx. 40 GW was the target for 2020. The Chinese government would much rather see this business go to a home company, or at least a joint venture than a totally foreign one.

iii) Mongolia. Because it is such a windy place, Mongolia, or more specifically, inner Mongolia, accounts for 40% of  China's wind potential. And it's a lot more exploitable than the 40% figure usually bandied about for the UK. The oft-repeated claim that the UK has two-fifths of Europe's wind potential usually comes with the omission to mention that it is mostly offshore.  Suzlon with this purchase is getting in to the onshore Mongolian market - arguably, the ultimate sweetspot of the nascent Asian wind boom.

I was quite disturbed the other day to learn from the FT Energy Survey the other day, that the price per megawatt of wind turbines is continuing to climb. As the article says;

Shai Hill, division director of climate change at Macquarie Capital Securities, predicts that the price of turbines - which has risen by more than a third in the past two years to about £1.5m - will rise by 10 per cent this year and with a rise of the same amount expected next year. This is even without taking into account rising steel prices - most turbine manufacturers build a clause into their supply contracts stipulating that steel price rises can be passed on to customers.

Steel prices by the way, have risen six times since 2000. To get some idea of how big a jump in the installation per megawatt cost of wind turbines we've had over the last few years, take a look at this paper "European Wind Power: Thar she blows !" published by Augusta Finance in April 2003. Back then, the price was EUR 1 million per megawatt - which was itself a big fall from EUR 1.7m per megawatt in 1996. For those of you who think more readily in dollars, it's even worse. In April 2003, the EUR:USD exchange rate was around 1.04 rather than the 0.63 you get now.

So you could say since 1996, we've followed a V-shaped curve - wrongly assuming it would continue - and have had a rough ride on the way up. The big question is though, when will prices come down again?

Well, on the face of it, if Mr Hill's forecast is correct, you'd have to say, not for a few years.

All of this makes me think that the wind farms erected in 2003 at 2003 costs, now selling into record highly priced electricity markets, must be the most profitable wind assets out there.

The growing pains of the wind industry have been covered here in detail on this blog a few times, most recently here. But some firms appear to be less able to deal with it than others and Suzlon, following a report in today's Wall Street Journal, appears to be exhibit A. 

Specifically, there seem to be two problems with their export models to America;

• The turbine blades - some - are cracking
  
• The turbines are having trouble running at the US power frequency of 60 hertz - different to India's of 50 hertz

The first point is a big deal because only one turbine blade has to go for the whole turbine to go out of action. Lost availability like that is lost money. People are also starting to wonder if the lifespan of the modern wind turbine is anything like as good as the 25 years the trade bodies like to quote. In the next two decades, we are going to find out and the manufacturer with the greatest reliability is going to win big.

The second reminds us that there is a whole world of technical connection issues with wind power that can't be glossed over. The power supply in India meanwhile is said to be so unreliable, wind turbines are obtained by factories as backup power.

All this matters because as the article says;

Three years ago, 90% of Suzlon's sales were in India; today, international sales account for 60% of the total. Suzlon's presentations to investors predict exports will jump to 75% of total sales next year, with the U.S., China and Europe accounting for an equal share. Since it began its push into the U.S. in 2005, Suzlon has secured an 8% share of the U.S. wind market, the world's fastest growing.

For all that, these problems are not insurmountable but the damage to Suzlon's reputation is serious. Whilst we'd all like to see windpower costs going down, that doesn't look too likely in the next few years. I question then if the industry has missed a trick by not building turbines that can genuinely last say, 35 years?

That just might deliver the kind of cost breakthrough in wind - cheaper than coal - that google.org has been fantasising about.

Most of the time, this blog focuses on big listed companies. And yet, whilst they tend to be the most relevant to alternative energy investors, in so doing we are missing out on something crucial; innovative small companies that just might one day deliver the game-changing invention that will BE BIG. It may be a cliche, but my admittedly partial anecodatal evidence is that when alt. e. companies become large blue chips, the corporate culture takes over and the innovation goes out of the window. The question is why?

Arguably, because they have a much greater fear of failure. Silly really, when if you've read Why most things fail: evolution, extinction and economics by Paul Ormerod, you understand that failure is the natural order not only of the economy but of the biosphere. You have to budget for failure to succeed. Roughly 99.8% of all species and companies that have ever existed do not do so today. But that's ok because we have superfecundity - as Eric Beinhocker argued in a similarly excellent book, The Origin of Wealth: Evolution, Complexity and the Radical Remaking of Economics, i.e. a surplus of players in the biosphere and the marketplace who are destined to fail but in so doing provide competition, and a learning mechanism for the survivors.

So after that rather long introduction, I'd like to introduce you to three players who have emerged into the light over the last few weeks, who have very novel innovations to their name.

First of all, Broadstar Wind Systems who have developed a turbine that looks like it fell off the back of a paddle steamer called the Aerocam.

This is potentially exciting not only for the aesthetics (!), or even for the lower avian mortality rates, but more seriously because  Broadstar believe they can deliver this technology at an overnight capital installation cost of $1 per watt - roughly where it was a few years ago before the ramp up in steel prices, construction costs and various supply constraints kicked in. I've tried squinting at the power curve (can't they and everyone else just give us the underlying numbers so we can overlay them with others on the same chart?) on this machine compared to a conventional horizontal axis turbine with inconclusive results - you may do better. It has the added advantage of requiring shorter towers and a possibility to infill on existing wind farm sites.  All that' s quite exciting, novel and still has a high risk of failure because as far as I can see, there is as yet, no working example, displayed on their website.

Here's another wind turbine which is vertical axis - quiet revolution - and beautiful to behold.

On the face of it, it looks pretty expensive but that's not a reason for it not to succeed, just look at Ferrari. If you fancy a trip to a less desirable corner of London some time - Elephant and Castle - you can see one of these perched on top of a block of flats at the opposite end to a conventional Proven wind turbine and draw your own conclusions on the horizontal axis versus vertical axis wind turbine debate.

Finally, Raw Solar. Students at the Masachusetts Institute of Technology have come up with this;

I meant to flag up this article in the FT a while ago when it first appeared in the orange newspaper. It's well worth a read. A few choice points the article - or people quoted in it - mentions;

1) Grid parity will be reached first in Italy by 2011 or 2012 - (for that I'm afraid Italy can thank it's own bureaucratic incompetence in failing to license the building of adequate power supplies!)
2) Germany has 55% of the global solar market, Japan 17% and the USA, just 5% (which makes you think of the growth potential of the United States)
3) the current price of $3.80 per watt of solar capacity equates to a power price of about $0.245 per kilowatt hour - about double the European average wholesale electricity price (which I would suggest will probably go up a bit faster than solar will come down)

I keep thinking though about Texas and how wind power there has actually started to become a deflationary force, lowering the price of electricity to consumers,  as it has become cheaper to produce than gas-fired electricity since 2006. Better than wind parity in other words with gas, or as www.google.org would put it RE<G.

As this article in Renewable Energy World makes clear;

Bringing new wind energy online is critical to protecting Texas consumers from increases in the price of fossil fuels, wind energy advocates point out. Texas currently depends on natural gas to generate 49% of its electricity, and natural gas plants make up 71% of the state's generating capacity. From 1998 to 2006 natural gas prices in the state tripled, which caused the price of electricity for the average residential consumer to increase from US 7.6 cents per kWh to US 12.9 cents per kWh.

A fascinating result - what economists like to call an unintended consequence - from the Sichuan earthquake. It is making windpower look relatively much cheaper. Why?

Adding wind-energy capacity is cheaper than other alternative forms such as hydroelectric, solar or nuclear - said  Maggie Lee, lead manager for Invesco Hong Kong Ltd.'s $4.6 billion Asia Infrastructure Fund.

Unlike some alternative energy advocates, I really have no objection to large hydro or nuclear. But they take a very long time to build and finance and for an economy growing at over 10% a year, that matters. Bloomberg however have focussed on Dongfang Electric Corp (a stock I shall shortly add) because the May 12 event flattened their factory and killed 500 of their workers. This seems to have created something of a sympathy wave of orders for the firm for wind turbines . . .

A very detailed and useful piece in Renewable Energy World by Elize de Vries yesterday. It highlights the supply chain pinches of the wind industry in the face of excess demand - which have led to rise in wind turbine prices these last few years.

Some of the chronic shortages or limited supplier choices are in;

• Turbine blades - LM Glasfiber of Denmark have a worldwide market share of over 27% on a MW basis, while it delivered rotor blades to nine out of the Top10 wind turbine suppliers. This market dominance allows them to call the shots on other blade suppliers and dictate a semi-standard in the blade root bolt circle
  
• Bearings - particularly the larger ones with outer ring diameters of 200-250 mm
• Gearboxes  - they are breaking down too frequently particularly in the larger turbines and many windfarms are operating well below par whilst they await replacement
  
• Generators, main shafts, control cabinets - enough said
  
• Complex steel castings such as hubs and mainframes which require up to 6 weeks to forge and cool to prevent cracks - hence a typical steel foundry can only produce 6-8 a year.  Added to rising steel prices, this is a bit of a nightmare.
  

So how long will this continue?

Apparently, "according to wind industry sources, the shortage situation is unlikely to be fully resolved within the next two or perhaps even three years".

A sobering prospect - I can't see this not having some effect on the sometimes overly rosy growth predictions of the wind industry. This is definitely something to keep track of over the next few years.

A great couple of articles in this week's Economist - under the Technology Quarterly section. The two pieces are;

i) A new twist for offshore wind - on the progress being made in deploying wind offshore to deeper water locations and the points of interest were;

• there are still only 300-400 offshore wind turbines deployed in the entire world, so this is still relatively  unproven, experimental technology
• floating wind turbines are evolving that can be moored to the bottom up to 150 metres deep at the same cost as the conventional limit of 40 metres. Theoretically, that opens up vast tracts of seabed real estate for offshore wind business - according to average depth figures here - the entire North Sea (average depth 94m), Hudson Bay (101m), Baltic Sea (55m), the Irish Sea (60m) and the English Channel (54m).
  
• Italy's naval-certification agency demands that a floating wind turbine must be strong enough to withstand a "100-year wave" of 9.7m high. That's what I call a tall order.
  

Sometimes I wonder why if the argument in favour of offshore wind is higher wind speeds and bigger turbines,  the entire offshore wind industry doesn't just go vertical axis - whose higher cut-in speeds will be offset by self-stabilising turbines with longer lifetimes, no military radar interference, lower avian mortaility rates, higher cut-off speeds and able to capture wind energy from any direction.  A case in point is the  Aerogenerator, which can be situated at up to 150m depth and crucially, has an impressive design life of 35-40 years. See details here and here and ask for a brochure here. Offshore wind needs something game-changing like this if it is to deliver on the industry hype. But as far as I can see, apart from them, no one is doing it. Sadly, almost all of the innovation seems to have gone out of the wind industry over the last few years. No wonder people like Professor Dieter Helm are calling it "mature".

ii) The coming wave - a survey of what's happening in wave energy technology. This is even more experimental but progress is being made. And naturally, I  was alerted to the words "... several wave-energy companies are thought to  be planning stockmarket  flotations in the coming months".

When all is aaid and done though, I'm struck by how the potential of the oceans - the greater kinetic energy in  wind, currents and waves - is for the time being cancelled out by the enormous cost of engineering machinery that can withstand the forces of a hostile, tough and unforgiving environment. Sing along now, For those in peril on the sea . . . !

One day, with stronger, cheaper materials, these barriers will be overcome - but don't hold your breath, just yet.

News that Q-Cells AG, one of many alt. e. stocks over the last few years which once claimed to be the largest by market cap.in the world, is investing $1.6 billion in a new plant in Malaysia gave me pause for thought. Will it be the first of many German solar companies to go east of East Germany?

If we were to view the semiconductor industry as a taste of things to come for solar manufacturers, then Western, Japanese and Korean firms started shifting production rapidly in the 90s away from Western Europe towards the less wealthy parts of the Pacific Basin. At the moment, most of Germany's solar firms are independently owned and quite happy where they are. A bit like the Mittelstand cadre of small and medium sized businesses. The difference though is that Germany's solar firms have a global future and are often publicly quoted on the Stock Exchange. So as the solar industry expands and giant utilities and multinational white goods manufacturers choose to buy them out - that is going to change pretty rapidly.

That's why yesterday's news about Ersol Solar Energy AG, which closed up a staggering 63%, because washing machines et al behemoth Bosch agreed to buy a majority stake, offers portents of the future. I doubt this will be the last German solar firm to be bought into by the white goods industry - solar is becoming commoditised. And utilities, will also be buying up a lot more operational windfarms.

Hansen Transmissions International, the Belgium-based manufacturer of wind turbine gearboxes, has just turned in an 18% growth in full-year earnings. As has just been reported on Reuters, in the year ended March 31st, the company's earnings before interest, tax, depreciation and amortisation (EBITDA) rose to 61 million euros and revenue rose 26 percent to 421 million euros. Actually, whilst that's good, I'd say that that was a rate of growth in line with the global wind industry.

Where they start to look much more impressive is in their projections for next year. The company said it has a strong order book until December 2009 and is targeting revenue growth of about 50 percent in the 2009 financial year. I doubt that wind industry will be growing that fast in the next 12 months, so how are they going to achieve that kind of revenue growth?

Belgium may not be the world's most exciting country, but since its acquisition by Suzlon, Hansen has become a a company with the finances to think big. Of note in particular, are their expansion plans in China and India - something most West European wind firms have been slow on the uptake with.  Hansen, or rather Suzlon Energy, has made - and is making - big  investments to expand capacity as measured in megawatts of gearboxes, both at home and abroad;

In Lommel, Belgium

Hansen has just finished is expanding the facility’s manufacturing capabilities to up to 6,000MW from 2,200MW.

In Coimbatore, India

By April 2011, this new site will have a yearly production capacity of 5,000 MW of gearboxes

In China

by April 2011, Hansen's plant is expected to have a yearly production capacity of up to 3,000MW.

Margins in European wind turbine manufacturing are quite high at the moment, until the strong euro starts to bite into those exports. But Hansen's USP is that it is in the sweetspot of a component shortage for which there are very few competitors. That's why Suzlon's purchase of Hansen looks smarter and smarter as times goes on.