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.

Few disagree that with current technology and costs, there are limits - although in most cases, very far from reached - as to how big an impact wind turbines can make to a nation's electricity supply. In brief the decisive issues are;

• energy storage or the lack of it


• relative cost of rival electricity generating technologies


• the availability of international cross-grid stabilisation


• the liquidity of the electricity spot market to cope with fluctuating supply, 24 hours a day, 365 days a year


• the extent of the regulatory support mechanisms


• and perhaps most of all, the average annual windspeed

None of that is to say that this industry will not keep on growing - it will. But global electricity demand, I'm pretty sure, is still outstripping the rate of wind power electricity consumption growth and certainly for now, the rate of technological change that could make it cheaper.

So this story here "Wind fires desalination plant", got me thinking . . . has there not been too much emphasis on wind power providing electricity to the grid, when it can provide a much less time and market sensitive contribution, either pumping water or desalinating it?

The latter idea has particularly caught my interest. If you follow the link above, you'll see that this wind-powered desalination plant will be in Australia - a nation that is going through the longest drought in living memory. As per the article, " . . . the AUD $1.7 billion project will demand almost one-fifth of the country's wind-generated energy, providing the biggest ever boost to the state's green energy industry . . . because the plant will need 400,000 megawatt hours per year."

Global demand for freshwater is at least as great as the world's demand for energy. Friends of mine in the think tank world seem to think that the problem lies in not pricing all of the earth's freshwater and that desalination is a waste of money. Lay down big pipelines say from Scotland and Wales to London and the problem is solved - which strikes me as quite naive. If the biggest source of water nearest to you is the sea and you need it yesterday, then use it now. Don't wait for the planning bureaucrats to approve 100s of miles of pipelines up and down the country, wherever you are. So no wonder Thames Water wants a desalination plant.

The point is this; growing energy and water consumption are highly linked. The average world citizen still only makes $7000 a year and more than a few of them aspire to shower twice a day and drink a few beers, whilst sitting by their own swimming pool.

This 5 megawatt wind turbine, the world's commercially largest available made by Repower Systems . . .

will before long be eclipsed by a 7.5 MW monster, to be made by Clipper Windpower. Who said wind turbines had reached their maximum physical size?

A 50% increase in theoretical peak power is a big deal and these new giants will almost certainly only be placed out at sea. I have heard that plans were drawn up for the contruction of a 10 MW model, a few years ago and we are only just now scaling up in size again after a good 5 years of stagnation. A more sceptical reading of this story though would suggest that Clipper Windpower is tapping into what many in the UK regard as one of the softest touches for nearly free money - a tax funded Regional Development Agency. The quango in this story is called One North East. I'm always suspicious of companies seeking money from government bodies, particularly in my home country, Britain. And isn't Clipper in cahoots with BP, an oil major hardly short of cash - why can't they fund this turbine's development?

Still, business is business and I don't doubt that Clipper thought about this new partnership very hard. All investors worth their salt intuitively understand that capital generally flows to where the return is highest. Yet we all to readily overlook that businesses will always seek capital where the cost is lowest; low regulation stockmarkets, junk bonds and I suspect, in this case, government-funded quangos.

Conergy AG, down nearly 9% today, has for a German solar company some astonishing news;

According to Forbes, "under Conergy's blueprint, 500, 2 megawatt turbines will be placed near the hamlet of Silverton, New South Wales, from 2009".

Conergy is taking two bets here;

1) Australian Conservative John Howard will lose the forthcoming general election - a pretty safe bet. As remarked on this blog previously, the opposition Labor party is far more willing to throw subsidies at alternative energy and no doubt will.

And now for the point that Forbes did not pick up

2) Australia pretty much has the cheapest electricity in the world, thanks to its vast coal reserves. But the price of coal has been rising very fast, even in Australia. This is apparently all to do with supply bottlenecks, fed by the vast demand created by China - currently building 70 gigawatts of coal-fired power generation every year yet not enough coal to fire them.

So of course, the price of coal is going up - and that starts to make alternative energy a lot more viable, especially if you go in big, like Conergy, right from the start.