27 March 2015 was a day filled with numerous insights for the students of BSM Scandinavia 2015. Class that day began proper with Mr Naveen Balachandran, Senior Director, Head of Business Development at Vestas Wind Systems A/S – the world’s only global energy company dedicated exclusively to wind energy.
Knowing the purpose of our study mission, Mr Naveen began the session debunking certain myths related to Scandinavian business culture and shared what it is like to work for a Danish company. Having been with Vestas for slightly over 13 years, he affirmed our preconceived notions and assumptions regarding the openness, transparency and non-hierarchical structure of Scandinavian companies. Mr Naveen even professed to addressing Vestas’ Group’s CEO by his first name – something many of us Asians would find disrespectful, given our culture and upbringing.
Our guest also shared with us what gets him to come in to work every day and what keeps him at Vestas year on year. Explaining how he found the culture of Vestas unique and appealing; the impartiality of communicating one’s thoughts and ease in approaching senior management were what he was looking for in a company. Motivation and satisfaction were other key factors Mr Naveen mentioned, pointing out their importance in ensuring happiness within the workplace. He also expressed how “doing something good for the world via renewable energy”, whilst plying his trade was rewarding.
Next, Mr Naveen explained Vestas’ position as the industry’s current market leader. Making it clear that despite Vestas being the largest in the world, global competitors had shrunk its market share to 28% in 2007. Ending the portion, stating that despite having tragically lost its leading position in 2012, Vestas regained top spot again in 2013 with a 13.1% market share.
Moving forward, present issues were discussed, with Mr Naveen mentioning that many wind turbine manufacturers have shifted their focus towards China, where 50% of the global market is, in the hopes of expanding and capturing a larger market share. However, with half of Vestas’ competitors based in China, a high barrier of entry exists due to the ability of Chinese companies to provide cheaper alternatives that easily adhere to local government regulations. Fortunately, for Vestas, these Chinese companies themselves have been unable to venture out of China and tap into the global market due to certain inherent characteristics – unproven technology, poor branding and a lack of expertise within the field.
What worries Vestas the most – apart from their Chinese counterparts – are the Koreans, who have been making a name for themselves globally in other industries. Examples are Hyundai’s sponsorship of the recent FIFA World Cup and Samsung’s rivalry with Apple within the mobile handheld devices sector. Their ability to market brands reputably and achieve resounding manufacturing success is Vestas’ greatest fear as it competes to capitalize on the currently untapped Asian market.
Following which, Mr Naveen then went into the technicalities of the products and services that Vestas provides its customers, which surprisingly includes high-net-worth individuals (HNWI). To quote, “Vestas can no longer afford to be seen as a company merely producing wind turbines; instead it has to be seen as a wind energy service provider.” It is now common for Mr Naveen to pitch to potential investors the specific returns that wind turbines could generate financially in addition to their primary role of producing clean renewable energy. Additionally, the increasing interest by HNWIs in renewable energy comes from their desire to have exotic assets within their portfolios, consequently shifting away from non-renewable sources of energy – coal, oil and gas.
Hence, begets the question: “Why wind?” Between 1986 and 2009, the cost of harnessing wind energy has dropped substantially – by 186%. Future costs are estimated to drop even further, at a rate of 2% yearly, as technology improves and allows for the construction of bigger and more efficient turbines. Comparatively, wind turbines do not require as much water as coal or nuclear power plants – they use only a fraction of what these plants use. Furthermore, the ramp-up period for wind turbines is between two to five years, the quickest amongst all available energy options. Hence, wind energy is touted as a “quick-fix” and as “the solution” for our world’s energy woes.
Our session with Mr Naveen concluded with Q&A, where we embraced ourselves for a hurricane of answers and insights from our well-informed guest.
The first question encapsulated most of our thoughts towards the mentioned untapped market within Asia, specifically China. Mr Naveen was asked how Vestas intends to compete in the Chinese market since he clearly stated that local companies are able to undercut all of Vestas’ product offerings. Our guest was quick to answer, mentioning clearly that it would cost Vestas 20% more in costs against all of its Chinese counterparts. Therefore, to compete, Vestas intends to further brand itself as a manufacturer of premium products, capturing 1MW of the assumed 10MW market. Instead of seeking customers who are interested in a quick-fix for energy troubles, Vestas seeks customers who are looking at viable long-term solutions with highly positive internal rates of returns.
The next few questions related to the effects that governments have on Vestas’ business activities. Mr Naveen said that most governments want to adopt clean renewable energy because of the increasing costs of natural gas and coal.
One classmate asked what Vestas looks into before proceeding with the sale and assembly of its wind turbines within a country. Mr Naveen shared two main issues that Vestas has to overcome in facilitating the entire process from purchase to the production of renewable energy. Firstly, there are fees and tariffs in any country, restricting most companies from simply setting up large-scale projects wherever and whenever they want to. Secondly, land availability and the presence of a grid connection have to be evaluated for the proposed project to be feasible. For example, India is seen as a wind-friendly country, however, due to the lack of available space and proper infrastructure for relaying the harnessed energy, projects tend to be rejected.
Before our session with Mr Naveen came to a close, he was asked about the future of wind energy and what Vestas currently has in its pipeline for the coming years. Mr Naveen explained that with the market seemingly highly saturated, companies such as Vestas turn to technology for improvements. He mentioned the possibility of harnessing Class 4 winds – the weakest and slowest class to-date – through longer and more efficiently shaped blades. This technology would open up new locations worldwide for Vestas’ services and products, ensuring its position as the market leader for years to come.
The possibility of storing and transporting harnessed wind energy was then questioned. Could areas such as the Gobi desert produce enough wind to power the entire Asian region? Would it be possible to sell energy in one location to wind-deprived locales? These questions were then answered simply and justified strongly with the fact that storing such energy was difficult.
Mr Naveen then briefly mentioned Gobitec to exemplify such progresses within the space of wind energy (alluding to the Gobi desert in Mongolia and Northern China), a project with the goal of renewable energy production of wind and solar energy through photovoltaics, concentrated solar plants and wind farms in the desert of Gobi in Mongolia and China in Northeast Asia. With the overall potential of solar and wind energy in the Gobi Desert estimated to be around 2,600 TWh, a 100 GW project is planned to harness it. This energy would be transported via high-voltage direct-current (HDVC) electric power transmission lines through an “Asian Super Grid” to China, Korea, Japan and Mongolia, areas experiencing high demand for energy.
All in all, Mr Naveen’s presentation was akin to a breath of fresh air as would be the future of renewable energy.