Opportunities in wind power value chain
The ambitious capacity addition target will lend impetus to sectors from supply of raw materials to power transmission, says Narasimhan Santhanam.
The development of wind power in India began in the 1990s, and has progressed steadily in the last few years. The short gestation periods for installing wind turbines and their increasing reliability and performance have made wind power a favoured choice for capacity addition. Currently, India has the fifth largest installed wind power capacity in the world. Wind power accounts for 6 per cent of India's total installed power capacity and it generates 1.6 per cent of the country's power. It was estimated that 6,000 MW of additional wind power capacity will be installed in India between 2010 and 2012, taking the total installed capacity beyond 15,000 MW.
While the growth of wind power was largely driven by tax incentives until recently, it is expected that more independent power producers (IPPs) will be interested in investing with the recent announcement of generation-based incentives.
Status and trends
While Tamil Nadu is in a leading position in installed wind capacity, attention will quickly shift to Maharashtra, Gujarat, Andhra Pradesh, Karnataka and Rajasthan where the gap between available potential and installed capacities are much higher than those for Tamil Nadu.
However, many locations in these zones may not be as efficient as those in Tamil Nadu, due to lower wind speeds.
The total potential for wind power was first estimated by the Centre for Wind Energy Technology (CWET) at 45 GW and was recently increased to 48.5 GW. This figure was also adopted by the government as the official estimate. At heights of 55-65 metres, the Indian Wind Turbine Manufacturers Association (IWTMA) estimates that the potential for wind development is around 65-70 GW. The World Institute for Sustainable Energy (WISE) estimates that with larger turbines, greater land availability and expanded resource exploration, the potential could be as high as 100 GW. A 100 GW potential for wind energy significantly widens the attractiveness of the segment, given that the total installed capacity for electricity is about 160 GW.
Industry value chain
The wind energy value chain consists of a number of specific and distinct steps - from the supply of raw materials to the transmission of electricity, which are mentioned below. The illustration (below) provides a bird's-eye view of opportunities available along the entire wind energy value chain.
A detailed analysis of the various stages presented and the products and services applicable for each stage will also show how opportunities exist for a range of entrepreneurs at each stage. Except for "wind turbine companies" stage, which is a relatively concentrated original equipment manufacturers (OEMs) market with the top 10 players cornering a large share of the market (over 80 per cent of capacity installed during 2009), the rest of the stages could present ample opportunities for small and medium players.
A trend that entrepreneurs should be aware of is the move by incumbents towards vertical integration along this value chain. And there is a reason for the vertical integration efforts. Turbines have been doubling in size every four years and technology has been developing at excellent speed but the suppliers with the right expertise, facilities and capacity to deliver increasingly challenging orders have been thin on the ground.
With the constant threat of supply-chain bottlenecks, many large wind firms have responded by buying out suppliers of critical components such as blades, generators and gearboxes. By bringing suppliers in-house, they ensure that they get products they need on time and at an acceptable price.
Vertical integration of the supply chain has been a gradual process over the last decade. Today, most turbine manufacturers make their own blades after a rush to bring them in-house four or five years ago.
OEMs have in-house supply of generators and controllers, although they still source some of these components from other suppliers. But vertical integration has not always been a smooth process.
Business opportunities are available in manufacturing, services and trading but the widest range of opportunities are present in the manufacturing sector, followed by services.
Manufacturing opportunities in wind exist in:
1. Raw material production
2. Original equipment manufacturing (OEM)
3. Component manufacturing
Raw material production
A wide range of materials are used for wind turbine construction. Steel is one of the most important materials due to its strength and durability. Turbines are primarily made of steel, which accounts for 90 per cent of the machine by weight. A single 1 MW utility-scale wind turbine tower is constructed from an estimated 100 tonne of steel and larger turbines use a significantly greater amount of steel. The rotor is constructed from approximately 45 per cent steel with the hub being made of 100 per cent steel and the blades being made up of 2 per cent steel and a combination of fibreglass (78 per cent) and adhesive (15 per cent). Steel accounts for between 87 and 92 per cent of nacelle components. While steel is perhaps the most important material, a diverse list of raw materials are required to produce the vast number of components that comprise a wind farm as seen in the illustration (See next page).
There is a move to indigenise turbine component production, which could lead to significant opportunities for raw material suppliers. So material producers should explore how they can
ORIGINAL EQUIPMENT MANUFACTURING
In the sector, turbine manufacturers represent the predominant OEM segment. Typically, the project developer's contract with OEMs for delivery of turbines includes the nacelle, blades and turbine towers, which are transported from the manufacturing facility to the wind farm construction site. Competition among turbine OEMs has increased substantially as the industry has expanded. In addition, there has been a trend towards vertical integration in the industry and this could see OEMs producing more of the components themselves.
There is intense competition from large global companies and entering the OEM domain will require significant capital and marketing investments. Acquisitions could be one of the ways for a medium or large business group to enter the OEM market.
Component manufacturers produce a wide range of mechanical and electrical components, including generators, hydraulics, sensors, hardware, drives, power distribution, composites, cabling, castings, forgings, bearings, gearboxes.
The primary components in a wind energy generating system are:
A modern wind turbine consists of about 8,000 unique components. Such components and related services are supplied by an estimated 25 to 30 highly specialised companies in India in addition to a large number of international suppliers.
- Rotors and blades
- Nacelle and controls
- Generator and power electronics
- Tower components
Many components used in wind turbines are "generic" components - examples of such "generic" components include brakes, ladders, bearings, shafts etc. For Indian firms that are already producing components that could be supplied to the industry with minor customisations, component manufacturing could be a very attractive avenue, as these firms can use their existing skills and assets to quickly diversify to become suppliers for the sector. Interest shown towards higher indigenisation for turbine components also makes the component manufacturing segment an attractive one for businesses here.
Services and support
While manufacturing opportunities are most prominent, there is a range of service opportunities that can broadly be categorised into:
- Feasibility studies and project development
- Geotechnical services
- Logistics support for wind farm
- Construction opportunities
- Operations and maintenance
Wind farm developers develop projects from concept to commissioning and undertake all the planning, design and project development work. After commissioning they provide operations and maintenance support, establish access to capital for investment and also assist in the construction of roads and related infrastructure that can accommodate the transportation of heavy industrial equipment and components.
Depending on the nature of contract, the project developer sometimes has a managing interest in the project when it is complete but in most cases real ownership lies with the wind farm owner.
Feasibility studies and project development for commercial-scale wind farms is a multi-faceted, lengthy process, often requiring collaborative efforts among several companies. Project developers perform the following:
While some integrated wind energy companies provide most of the above-mentioned services, opportunities are available for other businesses to be sub-contractors to such companies for some of the services.
- Wind power feasibility analysis
- Site selection
- Wind farm design and layout
- Wind turbine selection and acquisition
- Obtaining state permits
- Construction contracting
- Acquiring wind rights and leases
- Energy production estimates and
- Project financing
Transporting wind turbines presents unique challenges and opportunities. Transporting them involves handling components that have an unusual weight, length and shape so companies should have equipment to transport very large and heavy cargo. The nacelles, blades and turbine towers must be transported from the manufacturing facility to the wind farm location.
There are considerable opportunities for transportation since a single wind turbine may require up to eight hauls and for a large project of 150 MW, transportation requirements could be as much as 689 truckloads, 140 railcars and eight ships. As the industry grows, demand increases for firms that are capable of transporting heavy and large loads, which could lead to the emergence of a specialised sector in the transportation industry.
Companies involved in large-scale project construction generally offer turnkey arrangements, as per the contract. Turnkey construction contractors provide engineering, procurement and construction services including civil works, laying cables for electrical infrastructure and installing turbines. Over the past decade, a number of construction companies have contributed to and benefitted from the sector's growth and this trend is expected to continue in future as well.
Operations and maintenance
The reliability of the turbine system is essential to a wind power project so operation and maintenance (O&M) services are critical. Operations include scheduling of site personnel, observing turbine operation, dealing with equipment failure and co-ordinating with the utility to respond to curtailments or outages. Maintenance includes both scheduled services such as periodic equipment inspections, oil and filter changes, calibration of electronic sensors, blade cleaning and unscheduled services to repair component malfunctions.
When wind turbines are installed and the wind farm is in use, routine maintenance is important to ensure maximum efficiency and lifespan of the machines. Generally, turbine manufacturers' service the turbines in the first 2-5 years while turbines are still under warranty. Thereafter, wind farm operators may perform maintenance on their own or subcontract the service to independent service companies. Some companies focus on offering only repair and maintenance services to existing wind farms as they see a potential in this focus.
Currently, opportunities are limited due to the way the supply chain is structured - most of the parts procured are business-to-business transactions with OEMs procuring them directly from component manufacturers. If a market for micro-wind turbines emerges in future, opportunities may arise for traders and small system integrators. Just like what is happening in the solar PV industry in India where rooftop solar systems are set to take off soon.
Opportunities to trade in power produced are, however, likely to expand significantly.
Currently, it is possible for wind power producers to sell electricity to the grid, use it for captive consumption or sell it to third parties. With the emergence of independent power exchanges and with the likely streamlining of power distribution across states, the opportunities to trade in power are likely to increase and become more lucrative.
Opportunities in R&D
Tremendous progress have been made in the context of gearless wind turbines, attempts at vertical axis wind turbines for utility scale, innovation in wind towers resulting in significant reduction in the amount of materials used, innovations that are attempting to increase the efficiency of generators and interesting innovations in wind turbine blades like the shape-shifting blades designed by Purdue University and Sandia National Laboratories.
Some other opportunities in the value chain are:
Leasing land: When you lease land to a wind energy developer, you receive compensation for the commercial-scale project on your land.
Training: Opportunities exist in wind energy training and education, hands-on workshops in renewable energy system design and installation.
Software tools: Opportunities exist for developing information and tools for evaluating wind energy contracts, landowner options and economic development impacts of wind energy.
Financial services: There are companies which provide financial services and business tools. They assist investors in financing renewable energy generation projects.
Legal services: They play a role in development, financing and acquisition of projects.
Significant opportunities are expected to open up in the manufacturing segment, especially for the manufacture of turbine components with a move towards greater indigenisation in the industry. Attractive opportunities are available in the services sector as well and these opportunities are available for diverse entities such as small businesses, landowners and entrepreneurs. Trading opportunities for products are currently limited due to the structuring of the industry supply chain, but with the opening up of the power sector, wind power producers can expect more options available for the trading of power produced by them.
The author is Director, Energy Alternatives India (EIA) and can be contacted at: firstname.lastname@example.org.
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