The Blog - Wind energy market analysis

Posted 25/10/2019

Ilaria Valtimora

   

Interview with MHI Vestas CEO Philippe Kavafyan

MHI Vestas chief executive Philippe Kavafyan is speaking at Financing Wind Europe 2019 in London next Thursday, and the company is headline sponsor of our debut European Wind Investment Awards. Ilaria Valtimora has caught up with him to talk about the UK's latest CfD auction, the offshore supply chain, and Brexit.

Philippe Kavafyan

What was your reaction to the UK's latest Contract for Difference auction results?

The latest CfD auction has shown another reduction in offshore costs. Offshore wind’s competitiveness had already remarkably stepped down from the view that offshore wind was a renewable energy niche with high costs. But this last round has been a clear signal that we have both significant volume and an effective mechanism in place. And the trend confirms that the cost reduction is not over.

Also the results come at a time where 7GW of offshore wind capacity have already been identified for the next round. The UK is confirming a deliberate, established plan for offshore wind and this is going to prove good, not only because it’s clean energy, but it will also have a social benefit by creating a growing number of jobs.

What pressures are the race for zero-subsidy projects putting on the supply chain?

Our machines are becoming bigger and more powerful, and the technology improvements are enabling a reduction of the infrastructure costs. We have been first movers in that game: we created a 8MW turbine when the market was at 6MW, now we are moving to 10MW and as you know machines of 12MW are now considered.

That trend is continuing. Since we reduced the costs of foundations, the costs of cabling, and the costs of installation, all of this continues a trend that we know very well because it is the same trend that led us to the installation of the largest offshore wind turbine in operation. I’d say that I’m not worried about pressures on the supply chain, because we will find responses through technology and experience.

Technology is the first factor but the second factor, which is expertise or simply experience, is what puts the UK at the forefront of the global offshore wind market. The UK has substantial expertise in offshore wind. The country has professionals, technicians, and experienced industrial players who are able to install offshore wind projects very effectively.

It isn’t just about how you can progress that technology, it’s also how quick and efficiently you can install those projects and the scalability of the operations that would make costs continue to fall.

Philippe, last year you told us that Brexit didn't worry you. Has your view on this changed at all?

Well, I think no one in the world, including in the UK, ever expected the saga of Brexit to unfold the way it has. So it’s difficult for me to say that Brexit doesn’t get our attention at all. Of course we are paying attention.

We still see the importance of the UK offshore wind market for the targets the country is aiming to achieve - 30GW by 2030 and net neutral carbon emissions by 2050 in particular. I don’t think we should have any concerns that offshore wind will be good for the UK in the coming years.

However, you have to consider that Brexit is creating a transitional situation where we would need to accommodate import tariffs, export tariffs and things like that.  The industry has a foot in Europe and a foot in the UK. And I think it would be beneficial for both sides to rapidly find a solution that matches our industry’s needs and would enable us to continue construction and operation of our wind farms.

We have facilities in the UK, and we have just expanded, so we are of course thinking about the measures to ensure continuity of our operations and to enable us to come up with a sustainable model to continue production and preserve jobs.

Our first duty is to make sure we were ready to manage the transition. Our industry has lot to offer and I’m sure we will find a way to operate under the new terms.

You're turbine supplier to Vineyard Wind. Should we be concerned about the delay to the project and the growth of US offshore wind?

Since we met last year at Financing Wind Europe 2018, the US market has been extremely positive. At that time there was only one project announced, and if anyone would have told me that the US market was in the range of 24-25GW by 2035, that would have qualified as super optimistic.

We have been seeing the potential of the market emerge in the results of the auctions in Massachusetts, in Connecticut, in New York, in New Jersey; as well as continuous interest and engagement from the major players in our industry, including Ørsted, EDF, EDPR. The market has the same potential as the UK. That’s extremely positive.

We are at the forefront with Vineyard Wind and we are already mobilising to start training technicians for installation. So for us, the challenge is to quickly get to the same level of efficiency that we have in the UK. 

Now there is a delay for a cumulative environmental impact study. This is a requirement that isn’t necessarily an obstacle - it’s actually a fair requirement if you look at the potential of offshore wind in that area and at the potential impact of projects in that area.

We consider this a healthy step for the long-term success of the industry.

Where are the most exciting emerging markets for offshore wind?

Our joint venture started with projects in the UK – and the UK is still 50% of our business – so, for us, Europe plus the UK are two strong markets. We see sustained demand in Denmark, Germany, now Poland is coming, but we see also very strong dynamics in Asia Pacific. In Japan, we see significant potential on fixed foundations as well as floating foundations. There is still a question on when the market will kick off in Japan. We are very confident about the market development there. It will require, of course, a good balance between local partnerships and global experience.

Then there is Taiwan. When we met last year, Taiwan was already on our agenda. Of course, there is some complexity there we need to address, some adaptation we need to identify and implement to make sure that we can operate in this specific industrial environment. But with the volume at stake, we don’t see anything that would be difficult to overcome. As in all new markets, Taiwan comes with a learning curve.

Even excluding the significant volume to come in China, there is approximately 25GW coming in APAC countries by 2030. When we spoke one year ago, offshore wind was a 60-80GW global market and now we’re looking at 120GW. This is due to a significant acceleration of demand and of the potential of offshore wind globally.

To respond to that, we need a supply chain able to adapt to different environments – but not many can say that their global market grew over 40% in 12 months.

What is MHI Vestas doing related to this Women in Wind initiative and diverse workplace?

For us, diversity has three dimensions. Diversity of the geographical experience we can bring to bear for our customers. Gender diversity, which comes from a very simple observation: we are in a fast-growing industry, we need people to come onboard, why would we consider not accessing half of the population? We cannot afford not to welcome a diverse working environment if we continue to grow.

And then there is age diversity. The offshore wind experience has had ups and downs in the past so, if we look at experienced people, there isn’t a perfect pyramid of demographics. We don’t have many baby boomers, we have many Gen Xers, but we don’t have too many Gen Y and so on.

We like to think that we are an industry with a purpose, but it also means that you need to ask yourself that if you need 200 or 300 more people, are they going to turn up? There is a combination of what we do, how we do it and the perception the public has of our industry. A diverse workforce is needed to fill all the jobs in order to continue the growth. Our aim is a balanced working environment. When I say balanced, I mean geography, gender and age.

We try to be very active on making this happen when selecting candidates because diversity doesn’t necessarily happen by itself. We need to be proactive to make it happen.

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