Navigant Research Blog

Wind Industry Poised to Benefit from Intellectual Property Court Ruling

— August 5, 2015

Intellectual property (IP) is a double-edged sword in every industry. The marketplace rewards companies with the best innovations. In aggregate, these technology advances accelerate competitiveness and improve the offerings to the marketplace. However, companies pay princely sums and engage small armies of attorneys and experts to vigorously pursue and defend IP advantages over their peers. These battles churn out winners and losers on a regular basis and can often stifle the broader progress of an industry.

The wind power industry has had its fair share of IP battles. One of the latest fights is over so-called de-rated operation. Late July saw a U.K. court rule in favor of Siemens over ENERCON. ENERCON has been defending its IP over its Storm Control solution, which is its name for de-rated operation.

De-rated operation is the ability of a wind turbine to operate below its maximum capacity during times of high wind speed.  Traditionally, when a wind turbine reaches its threshold for maximum wind speed (around 25 meters per second), it will enter a cut-out shutdown mode to protect the turbine from damaging high winds.

The traditional process takes the electricity production offline, which can destabilize the broader power grid.  As the commercial-scale deployment of wind turbines increases, this becomes a larger concern.   To address this concern, de-rating allows a turbine to remain online, using a range of control methods from pitch control of blades to generator torque control to operate a wind turbine at below its maximum capacity.

For example, instead of a 2 MW wind turbine shutting off once it encounters its threshold cut-off wind speed parameters, it can reduce its output to 50% capacity, or 1 MW.  This ensures that the wind plant remains operational, balancing the electrical grid, and that kilowatt-hours continue to be produced instead of lost due to a full shutdown.  There are also economic inefficiencies associated with stopping and restarting wind turbines that can be avoided by running at reduced load.  This approach can also be used to continue the operation and revenue generation of a wind turbine that is experiencing high operating temperatures within the turbine drivetrain. De-rating can allow power production to continue while temperatures are reduced to acceptable levels without entirely shutting the turbine down.

ENERCON said that Siemens’ High Wind Ride Through (HWRT) infringed on ENERCON’s Storm Control system. Judge Justice Biress of the London High Court ruled the challenge invalid in favor of Siemens. Some of the technical aspects of prior art, or known technology, that bolstered Siemens’ case are well-cited at Windpower Monthly. In short, the judge accepted submitted evidence that previous technology existed–and was even obvious for de-rated operation, ramping generation down as wind speeds went up.

Making an Appeal

ENERCON says it is considering its options for appeal. In the meantime, the U.K. decision may sway how the issue is interpreted by the European Patent Office (EPO), which would have reverberations across the European market. Should the U.K. ruling stand, and the EPO meet a similar conclusion, this ruling will produce a broader benefit to the wind industry, allowing de-rated approaches from Siemens and other vendors.

ENERCON is among the most highly respected wind turbine companies, with solid performance and reputation, and it has always been on the leading edge of innovation and should be lauded for it. But if this case means more efficient and cost-effective wind technology is available for most or all wind turbine vendors, then wind plant owners, electricity consumers, and anyone with a vested interest in more clean generation are winners.

 

Momentum Builds for Reinstatement of Wind Tax Credits

— July 24, 2015

The legislative effort to renew the expired wind energy tax credits took a big step this week in Congress as supporters of wind energy secured a 2-year extension of the wind credits. The Senate Finance Committee voted 23 to 3 to extend roughly $95 billion in 52 tax breaks for various industries and interests, including wind.

The Production Tax Credit (PTC) provides $0.023/kWh in tax credits for a 10-year duration to wind plant owners. A 30% Investment Tax Credit (ITC) is also included as an alternative. Both are comparable in value, offsetting around 30% of the installed cost of a wind plant.

The package also includes a 2-year extension of the 50% bonus depreciation, which allows an owner in a new wind plant to deduct 50% of the tax basis in wind turbine capital costs and depreciate the other 50% over the normal depreciation period. The PTC/ITC extension also includes geothermal, biomass, landfill gas, and ocean energy projects. Notably, solar energy was excluded from the package, but intense lobbying is underway from that industry to get it included.

The tax credits for wind, which expired in 2014, must be renewed to prevent the U.S. wind market from collapsing, as it does from time to time when Congress fails to renew them. The wind industry is currently in a build cycle, with over 8,600 MW expected to be brought online this year of more than 13,600 MW under construction. This momentum, however, is riding on special start construction and other safe-harbor regulations provided by the Internal Revenue Service (IRS) that allows wind plants to qualify for the tax credits if construction is finished by the end of 2016.

The new 2-year extension would re-enact the PTC and ITC for a 2-year period through the end of 2016, and wind projects would have to begin construction during this 2-year window to be eligible. IRS guidance to the wind industry in recent years has allowed a 2-year window for wind plants to be built, and this is expected to be applied to this new extension. In practice, new wind plants that meet IRS guidelines for either starting construction or meeting other safe-harbor regulations will have 2 years to finalize construction. The ultimate result would be securing stable wind turbine installations in the United States from now through 2018.

Promising but Uncertain

The path forward for these tax extenders to be signed into law is promising but uncertain. It is promising because the wind industry tax credits on their own could be a hard sell in today’s polarized Congress, but when rolled into a larger package that appeases broad industry interests, Congress is more likely to approve the package. Also, the well-known but not well publicized reality in the wind industry is that most U.S. wind plants are majority owned by so-called tax equity financial firms, usually large banks, all of whom have the large tax bills necessary to fully monetize the tax credits. These companies have enormous lobbying power that can help get their interests over the finishing line.

Passage by the full Senate is required, plus a reconciliation with a House version of the bill that has yet to emerge. Importantly, lawmakers are moving ahead with this extenders package now instead of the end of the year when a last minute rush can doom even the most straight-forward and uncontentious legislation. Allowing the extender effort to fall into next year would be even worse, as the effort would become entangled and politicized by the 2016 presidential and congressional elections. All eyes in the wind industry will be on this effort going forward.

 

Wind Turbine Manufacturers Shuffle Market Share in a Record 2014

— May 20, 2015

Each spring, Navigant’s annual tally of previous-year wind turbine installation market shares are a closely watched barometer of how all the major wind turbine vendors are progressing in the global marketplace. This analysis is a key part of the 20th annual World Wind Energy Market Update 2015, produced by BTM Consult, a part of Navigant.

Last year was a high water mark for the industry overall, with 25,474 wind turbines installed, representing a record of 51,230 MW. Cumulative installed capacity climbed to 372 GW by the end of the year. China again held the title of the world’s largest annual market with 23.3 GW of new wind power installed in 2014, and Germany remained a distant second with 5.1 GW, followed by the United States with 4.9 GW.

The revival of the U.S. and German markets caused a significant shake-up in the rankings of the world’s top 10 wind turbine suppliers in 2014:

  • Vestas remained the No. 1 supplier after strong sales both onshore and offshore.
  • Siemens jumped two positions to second in 2014 due to strong sales in the offshore sector and the good shape of the German market. Interestingly, had more planned 2014 offshore wind been fully commissioned and grid-connected, Siemens would have challenged Vestas’ position for the first time in wind power history.
  • GE Energy recovered after a renewal of wind tax credit support in its home market in the United States and rose from a ranking of fifth to third in a technical draw with Goldwind. Only 31 MW separate the companies in 2014.
  • Goldwind dropped from No. 2 to No. 4 despite its strong performance at home. Its small footprint outside China means it did not benefit from the good year in Germany, Brazil, and the United States.
  • Enercon moved down two places to No. 5, as it relies largely on the growth of its home market Germany, in which it supplied nearly 40% of the turbines installed in 2014.
  • Suzlon Group rose one position to No. 6, supported by its then subsidiary Senvion (its divestment has just been finalized) and its operations in India. Navigant Research expects that with the division of the group, both Senvion and the remaining part of Suzlon will drop from the top 10 rankings in 2015.
  • United Power moved up one position as the world’s No. 7 supplier on the rush to install capacity in China in 2014.
  • Gamesa had a strong performance in the Americas and India, which allowed it to remain as one of the top 10 suppliers globally, coming in eighth place for 2014 installations, down from sixth in 2013.
  • Ming Yang remained in ninth position in 2014, pulled by the growth of its home market, China.
  • Envision crept into last place in the top 10 supplier list in 2014 thanks to the spectacular growth in its home market, becoming the fourth Chinese manufacturer in the top 10 chart. In 2013, Envision was No. 11.
  • Nordex had a record year, installing nearly 1.5 GW, up from over 1.2 GW in 2013, when it made it into the last spot in the top 10 group. However, it slipped out of the top 10 ranking based on the huge volume of wind plants installed by the other major vendors, particularly those in China. The next five in line after the top 10, in addition to Nordex, are all Chinese: XEMC, Sewind (Shanghai Electric), Dongfang, and CSIC. Acciona and Alstom are ranked a distant 23rd and 24th.

For more information, see World Wind Energy Market Update 2015.

 

Vestas, Mitsubishi Settle on Offshore Turbine Design

— February 24, 2015

In 2014, Mitsubishi Heavy Industries (MHI) formed a joint venture with Vestas called MHI Vestas Offshore Wind. The strategy behind that joint venture is now substantially clearer. MHI’s decision to stop the commercialization of its 7 MW SeaAngel offshore wind turbine, to focus instead on the Vestas V164-8.0 MW turbine under MHI Vestas Offshore Wind, makes sense given Vestas’ expertise in the offshore market and the need to move forward without confusion or conflict between the two turbine platforms.

Technology-wise, the SeaAngel’s novel Digital Displacement Transmission Technology (DDT) looked like the more advanced drivetrain system. It employs a sophisticated series of hydraulic pumps, values, and motors to transfer the energy from the constantly varying rotor speed to a fixed speed generator, without the use of a gearbox. No other wind turbine employs a hydraulic drivetrain like this.

That novel technology, however, adds uncertainty to the construction and operation of offshore wind farms.

Risk Avoidance

The increased construction and turbine servicing costs and associated risks for offshore wind increase the rate of return that investors expect to up to 12% compared to an onshore wind farm’s 7% to 9% in developed markets. Once you add the risk of employing a completely new transmission technology system, you likely outweigh the benefits offered by the new drivetrain design. The joint venture with Vestas provides access to a similarly sized turbine based on a proven and more conventional, medium speed geared technology, eliminating the added risk.

Although Vestas’ turbine is also new in the market, the company’s offshore turbine reliability has dramatically improved since 2004, when it had to replace the transformers and generators in all 81 of its then new V80 machines at Horns Rev offshore wind farm. Much refinement and advancement specific to offshore has been achieved by Vestas and its peers.

No Confusion

It’s also important to send a clear signal to the market that the Vestas V164-8.0 turbine is the primary turbine offering of the joint venture, without a separate Mitsubishi-branded product offered outside or within the joint venture. Although the SeaAngel turbine will disappear as a stand-alone brand, testing of the hydraulic technology will continue.

Onshore testing of the full-size 7 MW turbine officially began on February at a test center in the United Kingdom for validation of the drivetrain design. A similar hydraulic-powered turbine may be installed later in 2015 in Japan on a floating platform,  depending on the results from the U.K. tests.

Ultimately, the aim of the effort is to focus on refinement and validation of the hydraulic drivetrain for possible future use under the MHI Vestas joint venture. The floating platform may, in coming years, become part of the joint venture’s offerings as well. For now, though, the V164-8.0 turbine using proven Vestas technology is marching out to sea, having recently landed its first order of 32 units for the 258 MW Burbo Bank Extension project on the west coast of the United Kingdom in the Irish Sea. Hiring has just begun to build the 80 meter turbine blades.

Roberto Labastida contributed to this post.

 

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