Robust, Mature Wind Business
Vestas - Hungry Yet Humble
Chris Brown has been steering Vestas Wind System's North American operations as it pivots to thrive in a more mature wind industry by being both hungrier and humble. He joined the company in late 2012.
Brown has known challenges, having served as chief operating officer for the City of Detroit, which filed for bankruptcy in 2013. Earlier, he was executive vice president of DTE Energy, running the non-regulated side of the business and trading.
EnergyCentral sat down with Brown for an extended conversation about his company and the future of wind energy. His comments, edited for length and style, follow.
EnergyCentral: What is the state of wind generation in America today?
BROWN: We're going to probably see some of our highest manufacturing and construction of wind projects in the next two years. We've had kind of record orders in 2013 and we're on pretty good track for 2014. We're driving the cost of energy down. You can't produce electricity at a gas generation plant at below $20 a megawatt-hour. If you include the production tax credit value to the third party investor and look at $40 or $45 per megawatt-hour, that's economic in 75 to 80% of the jurisdictions in the United States. There are places in California where PV is probably beating wind. I'm not worried about that competition. I'm thinking about what's going to be the future of the U.S. Environmental Protection Agency 111-D regulations on greenhouse gas emissions. Where does that go as we go forward? How does the Southeast look at power? Do we take the windy areas of the country and provide transmission in large scale? What's next in generation?
EnergyCentral: What innovations are you looking at in your business?
BROWN: We've peeled off service and said that's a separate business. Service on the asset management side has continued to grow.
EnergyCentral: What are some of the negative perceptions of wind generation?
BROWN: There is a perception perhaps that wind is not cheap. That's a wrong perception, too. Every energy source has been incentivized. If we start to make a level playing field, wind can compete with anything. Unfortunately, wind tax subsidies have to be renewed every two years. But if you look the next 10 years of run-life, we're still decreasing our costs. Other generation industries aren't. Those industries are actually going up in cost as a result of mine issues, violations or potential carbon taxes.
EnergyCentral: Does wind still need to have a production tax credit?
BROWN: I would certainly be in favor of not having a PTC if we have a level playing field. Let's have that debate about what the national energy policy is. Are there incentives for nuclear or are there incentives for solar? Do we need certain subsidies in certain regions? Let's not say, "Okay, we'll do a two-year extension but we won't review the other mechanisms."
EnergyCentral: Let's say we get a level playing field. How much will wind generation grow as a percentage of total power generation?
BROWN: In Denmark, I think, wind is at about 30 percent. In most jurisdictions in the United States we are at 6 or 7 percent, maybe going to 8 percent of generation production. Xcel Energy, based out of Minneapolis and Colorado, are at 30 percent. Wind blows from Texas all the way up to Minnesota. Let's figure out how to get the most productive yield out of that. Some policymakers may say the amount of wind ought to be 22 percent in California. Really? It ought to be, "Here's where we can get the 38 percent penetration because it's economic when the wind is at 9 meters a second. And in the states that don't have any wind but they have sun, okay, let's use solar." Maybe they don't have either and need to use nuclear. But we haven't had that conversation. It's been very public utility commission and state-centric.
EnergyCentral: What's been your biggest problem with the last few years at Vestas?
BROWN: Currently it's getting enough qualified manufacturing talent in our factories.
EnergyCentral: You've downsized and now you can't find the employees?
BROWN: Yes, we're been really challenged to get the numbers to ramp back up. We're aiming to have 2,800 employees in Colorado at our four factories.
EnergyCentral: Who are you biggest customers: utilities or independent power producers?
BROWN: Well, it's both. We also supply to developers, people that are selling to utilities. We sell to pretty much everybody.
EnergyCentral: Is transmission being built at the pace that you'd like to see?
BROWN: In some jurisdictions it is and in some it isn't. The Anschutz Exploration Corporation is interested in building a large wind generation facility in Wyoming that puts power into California. That requires transmission. Clean Line Energy is trying to put power into the Southeast and Northeast, but from Oklahoma windy areas.
EnergyCentral: What is your view of microgrids?
BROWN: They are not enough. They may be sufficient in 50 years, but they're not sufficient now.
EnergyCentral: There is a move toward microgrids to increase reliability.
BROWN: There is a lot of hype around battery and storage technology. Elon Musk wants to put in a $5 billion dollar facility. That's fine, but what percentage is that going to be of the total installed generating capacity in the United States? Very small.
EnergyCentral: What do you think state regulators least understand about wind?
BROWN: The cost of wind energy. It is coming down. It will continue to come down. There's a perception that we're still in the 1980s and 1990s of 40 cents per kilowatt-hour. It's just not true. That's where I don't think the regulators have totally embraced it. Some of the regulators totally get it.
EnergyCentral: What kind of business innovations are you seeing?
BROWN: The financial side of the business is starting to mature. You see it with yield cos. There are great companies that are saying, "We're going to pay this much of a yield out, and we're going to distribute it all to shareholders and they're going to get it straightaway." I think that as an instrument has been very effective for people that are developing projects in the wind space. They've gotten to scale, and they've gotten to a return for their investors that's been material. If you didn't have the scale of what we're doing now, you could have a yield co. A yield co has to have assets to feed.
EnergyCentral: Any other innovations?
BROWN: We're now saying we will guarantee megawatt-hours at a price. We didn't do that 10 years ago. Now we're financially underwriting these contracts. That's different.
EnergyCentral: Do you see an opportunity to bring wind power to the 1.5 billion people without electricity?
BROWN: Yes; "Wind for Prosperity" is a program we've been working hard at for quite some time. If you're paying 52 cents a kilowatt-hour for diesel generation and you're having pirates steal the diesel generation, and you're polluting your local environment, how do you figure out how to put a smaller generating facility in and be economical? How do you take some of the inefficient installed wind capacity that you have in mature markets and transfer them to emerging markets? There's a real opportunity in some of the emerging markets.
EnergyCentral: What's the Vestas' corporate culture today, and has it changed over the years?
BROWN: We're learning how to compete. I'd say we're trying to be hungrier and more humble. I think that in the past we were growing revenue without profitable growth. We are going to change the world, and we're going to do it in a way where it can make money. When you see the variability of energy and demand going up and down, it required us to be much more mature. So we've grown up some. We've become better business people. We've gotten closer to the knitting of our business. I think we've been more commercial. Three of the values that are important to us are accountability, collaboration and simplicity. We've tried to make the business simple to understand. We used to have some pretty lofty revenue and profit targets. We've been humbled on some of that. When you get kicked, you got to get up and say, okay, here's how you're going to make it happen on a day-to-day basis. I think we've increased maybe that little bit of fear, and that's been good.
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