With a sharp decline in per-MW costs and substantial growth in installed capacity projected over the next few years – from about 12 GWe now to about 30 GWe in 2003 – the wind power business has been enjoying something of a boom in recent times.
About 1300 MWe (ie the equivalent of one modern four-loop pressurised water reactor) of new wind capacity will be installed in Germany by the end of 1999, compared with 781 MWe in 1998. In the USA, the Clinton administration is promoting a plan that would amount to adding an astonishing 80 000 MWe of wind capacity by 2020. The 12 months to end June 1999 saw the addition of 895 MWe in the USA, a major driver being the expiry of the wind production tax credit on 30 June.
Around 300 MWe of this new capacity was on two large (by wind standards) sites, Lake Benton II (104 MWe) and Storm Lake, which at 193 MWe, is the biggest wind power project to date. Enron Wind, one of the largest wind turbine manufacturers in the world, through its subsidiaries Zond and Tacke, marked the inauguration of these Mid-West facilities in September with a giant barbecue and a “wind fest”. But over in Denmark, at NEG Micon, another major supplier of wind turbines, the mood has been far from festive. At a time of unprecedented growth in the wind power market the company, one of the industry’s longest established and most important players, has found itself engulfed in a profound and quite unexpected financial crisis (see p 11).
Paradoxically, the success of NEG Micon in winning orders, notably in the USA, has been a key contributor to its current problems. More prosaically, another major factor has been defective gearboxes.
In a statement to the stock exchange on 19 August, NEG Micon first intimated that it had run into problems, revealing half-year results much worse than expected and leading to the departure of the managing director. The statement cited difficulties with gearboxes, with the glut of US projects, and with inadequate infrastructure to handle growth. The new management team then launched an investigation, which revealed problems to “a completely unexpected extent.” A brief announcement on 30 September indicated that the problems unearthed were so substantial that there was a “risk of losing the company’s equity”. Within 45 minutes of this announcement the share price dropped from DKK 278 to DKK 50, lopping $317.4 million from the company’s value. Since then NEG Micon’s statements about the unfolding fiasco have been similarly frank, a refreshing departure from PR strategies sometimes adopted.
The gearbox problem is confined to 600 kW and 750 kW turbines supplied since 1996 (about 1250 out of the 7700 NEG Micon turbines installed worldwide). The bearings on these post-1996 machines, less robust than those used in previous generations of turbines, are proving prone to damage. The short term solution is an upgrade of the lubrication system, while in the longer term, NEG Micon and Flender, the gearbox supplier, will replace the planet gears and high-speed bearings on all the affected gearboxes with the heavier duty bearings used before 1996, “as these have a proven track record.” The replacement programme will be performed over the next two or three years at no cost to customers. Both companies feel, understandably, that “it is essential that the air of doubt present in the market at the moment as a result of these gearbox problems is dispelled.” Another cause of the difficulties has been involvement in high risk projects. In recent years the company has been enjoying “almost explosive” growth and has been very acquisitive, with eight companies bought outright (including NedWind of Holland and Wind World in Denmark). The company’s growth has far exceeded that of the burgeoning wind market itself. But NEG Micon now admits it was overly ambitious, growing “too far and too fast.” Reporting and management systems could not keep up and decisions were taken with insufficient detailed knowledge. This led to particular problems in the USA, where it has become apparent that certain major orders were “considerably high risk”. Meeting the demand for turbines (452 units) created by the 30 June tax credit deadline proved onerous, particularly when it turned out that some of the turbines had to be replaced because of the gearbox defects. The mammoth effort drained resources from activities in Europe, leading to problems there.
These management defects combined with the gearbox problem proved very nearly fatal. The company is projecting big losses this year (around $ 80 million) and is cutting its workforce by about 15 per cent. But it is hard to avoid the conclusion that NEG Micon and its wind power technology is salvageable, and this presumably is attracting interest from potential preadators (Enron Wind springs to mind, or even Vestas, Denmark’s other wind turbine compony). However the impact of the gearbox problems on the fortunes of NEG Micon and the wind business in general demonstrates once again that while the market is playing an ever bigger role in the energy sector it must be underpinned by reliable technology and good engineering.
James Varley is the managing editor of Modern Power Systems