Welcome to Zero I am Akshatrati. This week wind Industry's history and recovery. The world desperately wants to build more renewables, but a mix of factors is causing the companies at the heart of the energy transition to struggle. Few have suffered as much as the big players in the wind industry.
Still there are notable exceptions. On last week's show, Jakab Barruel Poulsen of Copenhagen Infrastructure Partners told me about the one hundred and fifty gigawards of clean energy projects that his company has in the pipeline all around the world. For context, that number represents more than the electricity generation capacity of the UK, and most of those projects are
wind farms. On this week's episode, we look at the story of Vestus, another wind giant that has survived a difficult period and is finally back to making profits again. Vesters was founded more than a century ago. It went all in on making wind turbines in the nineteen eighties, but it operates in a volatile energy market and that's made the job of the company's CEO anything but easy. When Hendrik Anderson first joined vests as a board member.
A decade ago, the company had just recorded its biggest loss. Shareholder confidence seemed shaky, Anderson's work to bring stability to the company eventually led him to be made CEO in twenty nineteen. Since then, WESTERS has experienced even bigger ups and downs. In twenty twenty two, the company lost more than a billion dollars. To make the company profitable again, Hendrick was forced to make many changes, including raising prices
for wind turbines. For the first time, I spoke with Hendrik about new ways to harvest wind more efficiently, the barriers a company like Vestus must navigate, and why he doesn't like the word subsidy. Henrick, welcome to the show.
Thank you so much, Thanks for having me.
Now, it's been quite the journey for Westus since eighteen ninety eight, from making household appliances to agricultural equipment and cranes to now making wind turbines. What I find remarkable is that Vestus, even though it first made a turbine in nineteen seventy nine, has been exclusively making wind turbines since nineteen eighty nine. That's very early in what now we call the energy transition, and it was a period when climate change wasn't really even the biggest motivation to
try and go down the clean energy route. So tell us why Westerns made that pivot so early.
No, and I think many many parts of Europe from the time was at an agricultural level. With today in talks and language we talk about either sort of minigrits or enterity independence. But at that point in time, the turbine in many ways was the one that helped the farm have access to its own power. So for that it's been almost developing through societies and especially also the development from farming towards organization, and of course in today's
world it's very much now back to the climate. So I think it has developed a.
Lot, and that pivot, even though it was that early, you think that's been the right one because it's been as profitable all through that period, even though really we are now going through the energy transition today.
We went through a long period of time, especially the nineties, the cerus and to some extent around twenty ten, the industry was building, the industry was coming together. There was many players in the industry, but they also disappeared again because in those couple of decades, if you didn't get a government subsidy. The levelized cost of entity was not competitive. So that is, as I always say, the real thing where the decade became a real game changer was actually
from twenty ten to twenty twenty. In those ten years you reduced levelized cost of entity of the termine, which somewhere between fifty to sixty five percent in major markets.
And so through the nineties and two thousands, those two decades you required sort of subsidies coming from Denmark the state to ensure that VEST is stuck around.
Yes, and you can see that it was from Denmark, partly in Germany, partly in Spain, which are some of the orittinenally founding members of it. And I think in those decades it was also the decades where the countries of Spain, Germany, Denmark actually made technology transfers to other parts of the world and not least to China, which was interesting that when you transferred to China it was
part of building, greening, transforming China. And today I can probably say that technology transfer works quite a bit against some of the originally thinking because now the competition through the technology comes back to its origin.
And your entry into the wind industry is much more recent. You've been on the board of Vestas since twenty thirteen, you've been the CEO since twenty nineteen. But what brought you to the wind industry and what from your past helps you in your job today.
When I was invited into Vestas in twenty twelve, it was on a little bit of an oblique background because Vestas was throughout ten, eleven and twelve through a very challenged financial time. You had in those years government away the subsidies, and that meant that the Vestors was continuing its capacity and had multiple factories and couldn't create the scale.
So how did I join the board? Probably because I was known for doing restructuring, being part of executive teams that put not so good order into order, and that was what I joined the board for. And within thirteen we changed an executive team. I think Vestors a great company, but probably needed a bit of a stop and go and reset when you do a turnaround. From that, since then, executive management and board investors have always been more like one team. No filters, what is good, what is bad?
Get six change between board and an executive team, and I think that has been one of the strength in also considering what we have now gone through in recent times, that we find a solution, we all commit to it and then we give management the time to execute. So that was my part, and I always loved working in global companies and you probably can't find a more global company than Vestus.
Well. Also, you would expect an exciting industry right the world is behind on its clean energy goals and by a big margin, and you would expect renewable energy companies right now would be going through a boom, but instead the wind industry has had big problems in recent years, especially around profitability, which is required if you want to scale this industry as much as we need it. As one of the largest wind turbine makers in the world, if not the largest, you've had a front row seat
at this saga. When did you first think things had started to sour and why?
I think from an industry point of view, I think the industry is still developing into a maturing industry. I think in some of our key markets we are still relatively immature, and you can take the offshore as another part of a market that is about too mature. We're building scale and as long as there is not that maturity,
then you always will fight around the next project. What started with the cod and the Old Sous crisis and the lockdown of the global community, those bottlenecks in supply chain probably show an industry very strongly that there is no easy target and there is no easy fix to your backlog, and that we can see today it has questioned also the survival of some of the companies within the wind industry, and that's what happens in the last
eight to ten years. Companies have come into troubles and disappeared.
So to be able to understand the troubles, let's just talk through what's a little weird about renewable energy industry in general, but wind industry specifically, is that most wind farms even today are built by developers who sign long term contracts generate electricity at a fixed price, and it takes a few years before the wind farm is actually built,
and things can change in that period. Of course, what you're hinting at is you had inflation, you had high interest rates, and that caused you as a wind turbine maker, but also developers to just have a much higher bill to build the wind turbines and the wind farm, but then they still had to sell the electricity at a fixed price. Is there a way to fix this problem, which is to renegotiate contracts when things change, and have you tried to do that? Yes?
I think one of the things we always appreciate is it's a solution that generates green electricity, which we all want more for the next thirty years. But as you're also pointing to and alluding to it, it doesn't come overnight.
So typically in an auDA backlog industry like hours, we get to a customer developer, we see the permitting and planning often goes on many years before you actually get to the final So when you have the permitting, then you try to apply for the project organization and you get a binding offer from us, and then from a binding offer to a full finance project and here comes
to thing. Sometimes you have to appreciate that the product goes into an auction where you then with the government agree on an electricity price for the coming ten twenty years. You sometimes in countries say, yep, I now have a great access and permitting and that means I can now sell my electricity to a private company or anyone who
wants to secure the green electricity. The ramp up until you have the first killer water hour generated from the turbine solution is in many cases two or three years, and it's in those two or three years, of course vestors and the customer that our developer is exposed to the year volatility, and the world saw volatility like the
world have never seen. Between end of twenty nineteen and probably to around mid year twenty three, that was where the society was open again, and we could see that the backlock of bottlenecks in the supply chain took one or two quarters to ease as well. So by end of twenty three we seem to be back to a society we can recognize that sat before twenty twenty.
But those kinds of things might happen in the future. You know, we're going into a period where not just climate change, but there are all sorts of other crises in the world geopolitics that could bring another period of this kind. Is there a permanent solution to deal with it or are we stuck with the old way of doing business, which is have these long term contracts and then just deal with losses as you might have to make.
Sometimes I think the world has become a lot wiser and probably also trusting each other, at least from our industry. I generally meet most of our customers and partners around the world, and I haven't met anyone who says we will actually will actually be missing vestors if you were
not there. And therefore, of course for that reason, I think it's fair that we spent a lot of time in generally understanding where is it we have our risk, and where is it we add the value and how do we create that respectful partnership and contractual obligations so we avoid having a situation where in reality in twenty two we lost one point two or one point six billion euros and by putting up thirty years renewable solution,
it's not great. So I think that we have learned, and I think the parallel work tracks today as a developer is that you work in parallel with the permitting, You work in parallel with your partner in the turbine solution, and you work in parallel with your financing partners, which means you are literally concluding on the parallel tracks within one or two.
Months after the break. I ask Henrik whether there is a solution to the wind industry's long running woes. By the way, if you find zero informative and helpful, please do give us a rating and review on Apple Podcasts or Spotify. Thanks right now. This is capitalism one oh one right. Shareholders' perspective is that any big loss for any substantial period of time is a bad thing. But it is possible to convince shareholders to bear through some
losses because in the future you'll get greater returns. I'm just going to pick two examples here. Just look at shareholders of Tesla for the first decade of its existence, or look at the shareholders of shale oil and gas companies in the US. Wall Street absorbed those losses with gritted teeth. Nobody was happy, But having done that, they are now seeing the profits. So why is it that you couldn't convince your shareholders that, look, this is an
industry that has a big future. Bear through the losses. It will be worth.
It to some extent. I think shareholders will support you through difficult times if you communicate that there is a current status of where you are, but there's no shareholders that will support you. If you're not able to pick a pretty clear track of where is it you're going to be in two or three years from now. And I think that is probably one of the things I
appreciate most Throughout these difficult years. We have been able to carry most of our top twenty five shareholders with us, and they of course welcome today that we stock to the plan. And the plan, by the way, worked, so I wouldn't necessarily say that yearholders won't support you, but I think it's important when you ask for a shareholder support, for instance, of an understanding of losing one point six billion that I've met no shareholders that didn't ask me,
so when is it going to stop? What are you doing about it? And what prevents you from ending there again in the future. And I think that's the positive of where we are today. The plan worked, and of course it is nice to sit with scheerholders today and saying we're safely back in profit. But it's also now start stage two because now we need to repay the one point six billion we're born in twenty two from shareholders, and that I'm adamant that we will also do.
So.
I think you're right. You create transparency, you avoid the fields that gives seerholders confidence. There's nothing not to like the industry maturity and the lack of discipline is probably what we'll question shareholders and also force shareholders to do their individual both stock and leadership pick.
But you also said, in this world, what the world wants is clean energy and winterbines to make it, they won't miss vest as if vesters are not making them. But of course you have turned a corner and now you are profitable again, but your competitors take semens or
g they're still losing money. Does that make you happy or do you see that to be a problem given the industry as a whole does require more than one supplier for it to actually have the reliability to deal with what's going to be a big industry as it grows.
Yeah, I think whenever you look at industries, they'll always be industries where you will have different cycles. Often comes by either change in management or different management approaches, or different sizes of the business. We are late comer in to offshore. We offshore business bag in in of twenty when the world was almost close fully down, and I think that's a testament of strengths of what we are
and how we operate vestas. So I think companies will choose differently to their discipline, and we shouldn't forget to
talk about the customers. The customers still want more of the solutions, and I think the governments of course want more of the solution because they want to come closer to their COEO two neutral targets, and they also for other reasons today they also want to have a energy independence and they want to build a more national endy supply, which of course speaks highly for the turbine solutions.
So there are things that companies can do to make sure that there are efficiencies. There's the right management, there's the right vision, there's the right execution. But then there are things that are outside your control which also make a material impact on the industry. Just take the example of what happened here in the UK where an auction for your wind was run last year and no bids
came in because the price was too low. Government had to learn from it, go back to the board and this year they've committed to a higher price than last year. In November twenty twenty two, in a Bloomberg interview, you said some people made the wrong assumption that energy and electricity should become free. We created that perception to some extent, so we are to blame for it. That was a mistake.
Do you still stand by that observation that the renewable energy industry made a mistake of promising ever following electricity prices.
It's not something that is going away easily overnight. And I think the language still reflects it in many ways because when we talk about the electricity coming from either offshore solutions, the government always labeled it as subsidy. Interestingly enough, that represents a market price for you and I as consumers that are substantially higher. Maybe we should stop talking about a subsidy because you and I we pay price plus the VAT pros, the transmission plus all the other things.
But the base price coming from the turbine is not a subsidy. It's actually a penalty to the developer that are building it because the market price is substantially higher. So we should stop talking about it as a subsidy, because if we treat it and talk about it as a subsidy, we assume that it starts from zero, and
electricity from a wind turbine is not cost zero. You need to build and you develop a technology, you construct it and you maintain it for thirty years and it is not zero cost, and there are no desperate companies that would take that chance to build something and give the electricity for free to the government.
Well, let's break that down. So the CFD, the nice thing about it is that it's a contracted price for the long term. In the subsidy from the government side is basically missing you. Regardless of what the market price for electricity will be. The government will ensure that you get at least forty four pounds per megawat are, which is what the industry said it's not profitable. So now they're coming back and they're saying, well, we'll give you
seventy one pounds per magowatar. Please bring in the bids and maybe this year. There's already noises showing there will be bids because the price may be right this time. But the subsidy part is real because they're committing to a fixed price plus inflation in that long term, right years to come. So why do you think it should not be a subsidy.
No, I think we should just talk about it as a price of electricity rather than a subsidy, because if you call it a subsidy. It gets a expression that immediately in our ears to our brain tells us that this is something that somebody else paying for, and it's not a subsidy.
You don't want to call it subsidy, But that is only being called because it's committing to a fixed price for the long term and the government is involved. Are you saying we are at that place now where pays the market price because we understand we wind industry can now produce electricity at a cheaper price than other alternatives, and we will provide that and we will actually profit from being market players. We don't want these contracts for differences,
these long term contracts. Just let us be pure market players.
I can show you the levelized cost of energy comparison of against cold fossil gas, nuclear. We can show that levelized cost of energy across country continents, and we can show there is no cheaper alternative than to build renewable So therefore, let's talk about the price of building new entity sources and exploring new enity sources. Then just talk
about subsidies. So I think here we can happily conclude and I will quote and no name politicians in the UK who said it's really interesting now that ramping up the capacity within renewable it is cheaper to save the planet than it is to destroy it. And that's a pretty pretty cool way of playing with levelized cost of energy in saying this is what we want to achieve, and actually we can say money in doing it. Hey, what's not to lie?
Well, I'll take a compliment that you quoted my book to me. But going back to it, are you saying no long term contracts are needed now and the wind industry can just be a market player like the gas power plant industry is.
I don't know if we're saying it shouldn't be long term contracts. I don't think anyone either fear or require short or long term contracts. I think the merchant market works well because we are also developing technologies that makes the requirement or the storage opportunities, for instance, of electricity. So the storage opportunities of electricity is substantially different today than it was ten years ago. In twenty ten, the turbine reality required some of the support in ninety nine
of the global markets. Today it's less than one percent of the global markets where you required.
Now looking at the history of wind turbines few people would know. But even today turbine manufacturing is kind of a bootique industry, and that's not the case with solar or batteries, for example, where if you walk through the industry making them, there's so much automation. There's just robots everywhere. So in your industry, what are the innovations that you've seen in manufacturing and in technology that will help make wind turbines even cheaper.
First of all, part of it is the ramping of turbines and the parts of a turbine, whether it's the blades or it's the nasil and other things, and there are still so many things where it has to be manual, and I don't think any future soon changes that because there are parts of this where we are also now embarking in dimensions where the small weak point in a blade that is one hundred and sixteen meter makes a
blade either crack or being under that load. It's substantial a challenge and sometimes compare a little bit between industries. The Formula one cars are designed to run maximum two hours and then three hundred kilometers an hour, but a turbine is designed for thirty years and the tip speed of a turbine is often in exist of three hundred kilometers an hour, and they are out there and have
to be designed for that. So the load and the pressure on some of these assets enormous, which I also think is probably also why you will find still so many hand carried things. But that doesn't mean that when you do the first prototype and you see their turnover time on either blades, on our selves, we are able to bring that quite far down over a industrialization of the process, So that's positive. So instead of only focusing on the direct employee here, Yes, it will be nice
to do some uptimization. Tried many parts of bulls. We won't stop innovating on it.
And what about technology innovation in making turbines bigger, more efficient and the streaper.
Yeah, I think that's how we do the levelized cost of entity down and we haven't stopped doing that. In the last few years. We put up a new prototype for offshore that is now a fifteen megawater, and our previous largest turbine was a ten megawat, so that's a
much bigger one. I know industry players had maybe at twelve or a thirteen megawatt turbine, so I think the industry is constant changing, So now we will start talking about what is in grid and what is potentially off grid as solutions as well.
Now, one of the reasons why you've been able to turn a corner is your order book has grown and has exploded in the last year. Of course, it's on the back of a lot of governments that are still behind on their targets. I mean, if you just look at Europe, by twenty thirty, Europe wants to build more than one hundred gig awards of offshore wind. In the past, when governments set those targets, they actually were underestimating and
the renewable energy industry was able to over deliver. But now do you think governments are setting targets that are just too ambitious and the industry won't be able to deliver.
Yeah, no, I think that the say and they do gap unfortunately seem to widen rather than to narrowing in the past couple of years. And I don't think voters anymore will not have climate or for that match the progress in energy as one of the key topics. So therefore politicians are of course up for reelection, and most
politicians want to be re elected. And that's also why you often see that target setting gets a little bit of a kickoffwards every time you're in election mode, because if you take the targets in EU, in the last couple of years, we have had target setting that indicated we should put up more than first GIGABO, and in reality we have done just around half. We won't get to carbon neutrality by fooling each other with targets that
are not being fulfilled. That I know the word green washing, and no one wants to hear it, but please let us not do that. I know one of the countries I probably in the past have always given a little bit of a hard time, which is Germany. The German government has changed gear dramatically within the last eighteen months. New government came in. They saw an energy dependence suddenly becoming overly towards a gas from the east. They retired
nuclear without necessarily having exactly the resources available. But within eighteen months they have re established first of all access to terminals from liquid gas. And of course now they're building and permitting a renewable entity at a rate I've never seen before and I never thought was possible. And we came from something where they were doing less than a giga what a year, and when you now listen to the run rate, they are in excess of probably
five giga wort this year. And that's something I would have said eighteen months ago, and now it's impossible they will not get to that. So, as I said, to every EU twenty six countries, with Germany as the good example, make a study trip to Germany and see how things could actually work when you consider that, yes it is in respect for the country, Yes it is in respect for also the society, but it also sometimes have to have that we do permitting at a faster pace.
And this is something my colleague Will Matis and I have written about, which is that permitting has been a real issue, especially in Europe, but just generally around the world. I mean ten years required for permitting is not unheard of, which seems ridiculous. But now you're saying some governments are learning. Could you just talk through what are the things that the German government got right and what others should learn from what the Germans did?
Yeah, and I think sometimes change comes out of that.
You are getting into a difficult situation, so you are forced to do something radically because I think here, when you want to have access to energy, and you want to have and you're maybe even on the brink of saying, whoa if we potentially run the risk of not having electricity available, which is called blackout, and under those circumstances, you are actually threatening your own society, and that's where then the balance tips towards Hey, now we need to
find that solution. And the good thing in Germany is they have united the delegated local regional state with central government, so there is not the central decentralized conflict that we still see in many many countries where you over the last couple of decades you decentralize the authority to mandate or permit any disaucing. And actually any disourcing for any country is a national matter, so you delegated to permitting regionally or locally to municipalities, but your innerity dependency is
actually a national matter. So something has to give. I'm usually encouraged to see how Germany Man is getting things done.
Now we are going into a year with a ton of elections. Let's just talk about two of them this year, which is the US, and then one next year, which is Australia. And I bring those up because you've got a big order book from US and Australia. What happens if you get the Republican Party coming into power in the US and then next year the Liberals in Australia, both of them not particularly interested in climate goals. Maybe
they're interested in energy as long as it's cheap. But do you think you'll have again those external factors weighing down on an industry that's just back to its state of growing at the rate needs to.
There's always a risk for that. There's always a risk for what comes in an election. And I also think there are some factual positives in the track we on for the world, because I think the world is aligning more and more about getting proper things done. And if we go into the US, it is fair saying that the US has contributed positively today. It's called IRA because it's a bigger package of many things that got rolled in as renewable energy, which.
Tax credits to build lots and lots of solar and wind.
It is meaning that you and I, if we were living in the US, we would on average have a more stable electricity price at a much lower level than we will be experienced here in Europe. So you've actually gained a huge thing. And if you go to Australia, there is an approximately further giga of coal fired one way or the other power plants in Australia. They have, for obvious reason now set out attract to at least
start planning and retiring that. I think it's maybe more a question around will it be with a different pace. But for somebody to say we will just replace ferty giga of coal fired power plants within six or seven years is also an enormous steep curve. So maybe in their election, I hope the topic to be discussed and agreed on would rather be that the Parliament in the election would agree on whomever wins will get the transition done at a speed that is more the likely of the.
Actual One thing you mentioned was the conversation between the industry and the UK government that allowed you to come to a new place, a reset, so to speak. If you look at another part of the energy industry, the oil and gas industry, they've been very powerful in coming together lobbying for outcomes that they want. Do you think the renewable energy industry as a whole as industry groups is strong enough to make clear what its demands are for building out all this clean energy.
First of all, no is the right answer, because I think too often we end up being either non representative as an industry group. But I also think that comes a little bit back to come on, we in the early stage timing wise, of scratching the surface, you portrayed it nicely. I mean we just come into out of the first decade where we actually become a competitive alternative.
If we look at the energy demands and supply cycle of the world, when energy is still one and a half percent of the total energy supply, but as the electrification increases, it's obvious that we will have a more vocal voice and probably become a more mature industry. And part of that is also that we will see a further consolidation of fewer players in the industry, and I think we are getting and we are fast approaching that, and that will probably raise what you're calling a little
bit more. The insight too, that you don't have to speak to many people, but you speak to a fewer that can then get things done. Because it's not rocket science to sit down and talk about what it takes to get things built out.
Now that you've made vest as profitable, are you going to quit now? Never?
For me, I have two daughters at twenty one and twenty four. That will be too easy, as they say, but it's a big milestone to get back. There's no fun in working in a company that is not making any money. The real journey starts now. This has been two mots of emergency cure and trying to get it
back now also starts part of it. How do we build the foundation to get vestors to the performance that is reasonable for a company of our nature so far, if I have the choice, I will continue for some years yet to come.
Thank you, Hendrick, You're welcome, Thanks for having Thank you for listening to Zero. If you liked this episode, please take a moment to rate or review the show on Apple Podcasts and Spotify. Share this episode with a friend or with a Don Quixote fan. You can get in touch at zero pod at Bloomberg dot Net. Zero's producers are michy Le Rao, Magnus Hendrickson, and Somersadi. Our theme music is composed by Wonderly Special. Thanks to Kira Pindrim and will mathis I am Akshatrati back soon