5th August 2019
In three factories located along the North West coast of Europe different pieces of the largest wind turbine ever produced are being constructed. The individual pieces are so large that they need to be constructed near the sea for ease of transportation. The 107m long turbine blades are being constructed in Cherbourg, on the North French coast, [1] and the 600 ton nacelle, which sits atop the tower and houses the gearbox and generator, has been recently unveiled at a factory in Saint Nazaire on the West coast of France [2, 3]. Both these parts will be shipped to the Netherlands, along with the tower, which has already arrived from Spain. Eventually all the parts will come together at the test site near Rotterdam and, once assembled, the 12 megawatt giant will be rigorously tested [4]. This latest design is a big step up for the company building it and demonstrates the risks which renewable energy companies are now having to take in order to compete.
This turbine is being built by General Electric (GE) and it is the latest attempt to scale up the size of wind turbines. Named the Haliade-X, this behemoth will stand 260m at its max blade height and it’s annual electricity output will be able to supply up to 16,000 European households [5]. As we have written about before on Green Finance Guide, scale is king when it comes to the energy business and bigger is very much better. The larger the turbine, the greater the amount of electricity generated, as well as lower installation and maintenance costs per unit of energy generated. Increasing the size of the turbine seems like the natural thing to do, however, it is not without risk and GE has fallen foul of risk a lot recently.
Background to General Electric
GE epitomised the American technical revolution of the 20th century. It was founded by Thomas Edison and others in 1892 through a merger of individual companies, many of which were originally formed to commercialise Edison’s electricity related inventions (primarily lighting and electricity generation). Thomas Edison’s focus on research and development pervaded the company, leading to a proliferation of invention at GE, as well as two Nobel Prizes. During the middle to late 20th Century, the company was led by a series of influential CEOs who steadily built the company into one of the largest in the world. By the end of the century the conglomerate was the world leader in rail locomotives, jet engines, power generation, medical equipment, oil and gas equipment, finance, and more. GE was a stalwart of the stock market, reliably producing a profit and returning a consistent dividend to investors. Then in the 2000-2010s things started to go sour. A bloated financial arm and a series of bad acquisitions hobbled the company. One of the standout deals during this period was the 2015 acquisition of Alstom’s gas turbine business, which makes critical components for gas power stations. The timing could not have been worse for GE, as increasing use of renewables shrank the gas turbine market and effectively left GE with a stranded asset. The company has been able to carry on, due to the diversity of sectors that it operates in (of which renewables is one), but it has had to make deep structural changes to survive [6, 7].
Supersized Risks
Whilst the bulk of the 2015 Alstom deal focused on GE acquiring fossil-fuel burning gas turbine assets, GE also acquired Alstom’s offshore wind turbine assets. As a result, GE merged its existing wind turbine manufacturing unit with Alstom’s offshore wind assets [8]. GE has been manufacturing onshore and offshore wind turbines for almost 20 years and in 2018 they were the 3rd onshore largest wind turbine manufacturer in the world [9], but the 2015 merger turbocharged their capacity to produce offshore turbines. By 2016 they started mass manufacture of the Alstom-designed Haliade 150-6MW offshore wind turbine, which is able to produce enough electricity to meet demand from 5,000 European homes annually [10, 11].
However, GE is not alone in producing offshore wind turbines. Its two largest competitors are Siemens and Vestas MHI, who have supplied the majority of offshore wind turbines in Europe – selling, manufacturing and installing hundreds of units. In comparison, GE have sold very few offshore turbines – with just 5 in Rhode Island, 66 off the North German Coast (plus a handful of demonstration units) of the latest Haliade 150-6MW variant [12].
Furthermore, Siemens and Vestas MHI have steadily increased the size of their turbines. In 2014, Siemens started series manufacture of their 6MW variant [13] and their turbines currently stand at 8MW [14], with a 10MW variant planned for introduction in 2022 [15]. Similarly Vestas MHI installed their first 8MW variant in 2016 and since then have been slowly increasing the turbine power output and size [16], with a 9.5MW variant being produced and installed in 2019 [17] and a 10MW variant planned from 2021. GE, however, wants to leapfrog both these companies with the 12MW Haliade-X turbine in 2021.
As described above, the benefits of a larger turbine are well known and GE can have confidence that there is a growing worldwide market for offshore wind turbines. But jumping from a 6MW turbine to a 12MW turbine is a gamble. The gamble is not necessarily technical, the engineers at GE will be able to make a turbine that works. The gamble is due to ‘unknown unknowns’, as sudden jumps in blade, generator, and tower size not only come with technical challenges, but logistical and commercial challenges too. There are many steps between cutting the first steel and successful installation. Siemens and Vestas MHI have experience in this sector, as they have been producing and installing offshore wind turbines for years now. Each iteration of their design can build on the previous, ironing out kinks as they present themselves, and turning ‘unknown unknowns’ into ‘known unknowns’. GE has mass manufactured and delivered offshore wind turbines before, but not at the same scale as the other two companies. Even if the production and installation can occur relatively smoothly, can they do it at scale? Can they do it profitably? Last week GE Renewable Energy announced they made a $371m loss in the first half of the year. Orders have risen by 17% but underlying profitability was severely hit [18].
Summary
The message here is not that GE have done the wrong thing, it is that in order to produce energy at scale some commercial risk will have to be expected and managed. GE will be investing approximately $100m per year to support the development of the Haliade-X [19]. This project should serve as a good case study going forward on how to take material risks investing in renewable energy and low emission technology. GE’s main advantage is that they are entering a growing offshore wind market, which they expect to grow from 14GW today to 100GW+ in 2030 [20], but challenges remain. Green finance and sustainable finance will need to recognise the challenges facing the commercialisation of ambitious technology, especially as there are so many technologies yet to be rolled out. Electric aircraft, fossil-free heating, low carbon agriculture, zero emission shipping will all need their version of the Haliade-X and green finance will have to quickly learn from current experience in order to fasttrack them into reality.
Time will tell if the Haliade-X project is a commercial success. Larger offshore wind turbines reduce costs and increase the amount of energy produced for a given area of sea. Plus they start to address wind energy’s Achilles heel, by producing more even energy flows throughout the year (The Haliade-X has an estimated capacity factor of 63%! – see glossary for a definition of capacity factor). GE and others are taking up the mantle finding scaled up solutions to our energy needs, but risks need to be acknowledged.
References
- https://www.offshorewind.biz/2019/06/21/first-giant-haliade-x-12mw-blade-rolls-out/
- https://www.windpoweroffshore.com/article/1577816/haliade-x-uncovered-ge-aims-14mw
- https://www.genewsroom.com/press-releases/ge-renewable-energy-unveils-first-haliade-x-12-mw-worlds-most-powerful-offshore-wind
- https://www.offshorewind.biz/2019/06/11/haliade-x-12-mw-tower-sections-head-to-rotterdam/
- https://www.ge.com/renewableenergy/wind-energy/offshore-wind/haliade-x-offshore-turbine
- https://fortune.com/longform/ge-decline-what-the-hell-happened/
- https://www.nytimes.com/2017/06/15/business/ge-jack-welch-immelt.html
- https://www.timesunion.com/business/article/GE-moves-renewable-energy-headquarters-from-6642452.php
- https://about.bnef.com/blog/vestas-leads-break-away-group-big-four-turbine-makers/
- https://www.youtube.com/watch?v=D-ZR92x0zEI
- https://www.windpowerengineering.com/projects/offshore-wind/alstom-haliade-150-6mw-first-utility-scale-wind-turbine-work-u-s-waters/
- https://www.4coffshore.com/windfarms/turbine-ge-energy-haliade-150-6mw-tid71.html
- https://www.siemensgamesa.com/en-int/products-and-services/offshore/wind-turbine-swt-6-0-154
- https://www.siemensgamesa.com/en-int/products-and-services/offshore/wind-turbine-sg-8-0-167-dd
- https://www.siemensgamesa.com/en-int/products-and-services/offshore/wind-turbine-sg-10-0-193-dd
- http://www.mhivestasoffshore.com/innovations/
- https://www.offshorewind.biz/2019/07/19/offshore-construction-starts-on-northwester-2-wind-farm/
- https://renews.biz/54591/ge-renewable-energy-sees-red/
- https://www.ge.com/renewableenergy/wind-energy/offshore-wind/haliade-x-offshore-turbine
- https://www.ge.com/renewableenergy/wind-energy/offshore-wind/haliade-x-offshore-turbine