Market Demand for Small Wind Turbines

Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind Turbines Task #3 and 4: Success Factors for Companies in the Small Wind Turbine Business Arena August 2003 Prepared for: Lawrence Berkeley National Laboratory Berkeley, California 94701 Subcontract #6703903 Principal Investigator Lawrence Schienbein Prepared by: Global Energy Concepts, LLC 5729 Lakeview Drive NE, Suite 100 Kirkland, Washington 98033 Phone: (425) 822-9008 Fax: (425) 822-9022 www.globalenergyconcepts.com Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind Turbines Task #3 and 4: Success Factors for Companies in the Small Wind Turbine Business Arena Final 1.0 Introduction and Background The small wind turbine business has been termed the “Cinderella” of the renewable energy business arena. However, so far “Prince Charming” has not arrived. Nonetheless, a number of very small companies have survived and even grown modestly. Four U.S. companies (Southwest Windpower, Bergey Windpower, Wind Turbine Industries Corporation and Atlantic Orient) were reported to have 1/3 of the total global market for small wind turbines (roughly 400W to 100 kW) with $20 million in sales in the U.S. in 2001 and worldwide shipments of 13,400 turbines. Along with a handful of companies outside of the United States (including the better known firms such as Vergnet, Westwind, and Marlec Engineering) these industry “veterans” have demonstrated staying power in a market that has been slow to grow and one which major multi-national companies have not entered. The latter is in sharp contrast to the make-up of the solar photovoltaic (PV) industry where very large companies dominate the manufacture of the modules. Because of the nature of the manufacturing process, the materials used and the large capital investment required, small companies simply cannot manufacture PV modules. On the other hand, it is relatively easy to enter the small wind turbine manufacturing business. It has been demonstrated repeatedly that it is possible to design, manufacture and sell a respectable small wind turbine using a combination of off-the-shelf components and easily fabricated components (perhaps with the sole exception of the blades). Manufacturing requires few special tools and fixtures, a moderately skilled workforce and very little space. Hugh Piggott’s “brakedrum windmill” is an excellent example of what appears to be a good homebuilt wind turbine in the 300 to 400 W size range that uses readily available parts and subassemblies. This publicly available, and apparently well proven turbine design, emphasizes the relative ease with which a competitor could emerge and enter the market. The comments by Gipe1 below also point to Piggott’s evident emphasis on extensive operation of the prototype at a very robust wind site (an essential part of development and commercialization). Furthermore, the turbine includes most of the key and proven approaches of the conventional commercial small horizontal axis wind turbine configuration – upwind rotor, three-blades, permanent magnet generator and selffurling system. …the plans in this booklet are for a wind turbine that really works from someone who lives with and depends on wind energy. The brakedrum windmill is a proven design that Hugh has operated at a remote, windswept headland in northwest Scotland since 1993. His site on the Scoraig Peninsula is so windy in fact that several commercial wind turbines failed within a few years (some, unfortunately, much sooner). Hugh's prototype of the brakedrum windmill in these plans has operated so reliably that he substantially increased its output within a few years after installation. And it continues to run to this day. The beauty of these plans can be found in Hugh's use of conveniently handy scrap yard parts. The design is based on rear brake drums used by Ford trucks widely available in both Britain (the transit van) and North America (the F250). Another plus is Hugh's elimination of slip rings and yaw bearings. Slip rings often bedevil the design of commercial wind turbines as well as home builts. They're not necessary and seldom found on many wind turbines built in Europe. Hugh wisely avoided them, instead substituting a 1 Brakedrum Windmill Plans Year 2000 Edition, Foreword, Paul Gipe, http://www.picoturbine.com/HPBRAKE-description.htm. Global Energy Concepts, LLC 2 August 2003 Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind Turbines Task #3 and 4: Success Factors for Companies in the Small Wind Turbine Business Arena Final simple pendant cable. This greatly simplifies this design as does Hugh's use of pipe-on-pipe for a simple and hardy yaw system that allows the turbine to respond to changes in wind direction. Hugh's brakedrum windmill also incorporates the durable "inside out" alternator design found in the popular--and successful--small wind turbines built by Bergey Windpower and World Power Technologies. With this alternator configuration there's no need to build a complicated hub that attaches the blades awkwardly to a small diameter shaft as in some other designs. Instead a simple plywood sandwich holds the blades tightly to the rotor and this assembly is mounted directly to the generator housing: the brake drum. In wind turbines it doesn't get more straightforward than this. And like all reliable commercial wind turbines today these plans use "self-furling" to protect the product of your labor in high winds. Hugh's an expert on this technique to limit the speed of the wind turbine's rotor and the simple design found in these plans would be helpful to not a few commercial wind turbine companies who haven't quite mastered the art. 2.0 Objective and Scope Because the size of the small wind turbine industry is very limited (in terms of sales and manufacturing volume), it is fair to say that companies that continue in business today and that have more than 20 years of operating experience can be considered successful. Why have these companies survived and even seen modest increases in sales over that period? A second important and related question is what aspects of their business models are valuable for a new venture in the small wind turbine business area? The objective of this report is to set out and discuss the “success factors” (or, the “best practices” and “lessons learned”) of wind turbine design and manufacturing companies. That is, the factor, practices, and approaches that have been shown to be critical to success. The report emphasizes product definition and market positioning; business strategy as it pertains to technology and product development, and manufacturing planning. The characteristics, drivers, size, and growth forecasts of the small wind turbine market have been discussed in preceding reports and will not be discussed further here except as those characteristics pertain to a more complete elaboration of the “success factors”. 3.0 Success Factors Technology-based business startups often founder because the development of the technology itself becomes the first priority (almost the only priority) and the focus of nearly all of the company’s resources. The problems of finance, strategic planning, market research, product definition, business development, manufacturing planning, and so on are often largely ignored, usually with the predictable result for the fledgling firm. Technology development and product development are often third or fourth down the list of priorities of venture capitalists and veterans of business startups. Experience (often “bitter” and hard won) has shown that, in most cases, far more money and time will need to be spent on finance, market research, business development and manufacturing planning than on actual technology and product development. However, because the enterprise must succeed in each area, if it is to succeed as a viable business, not one of these areas can be ignored. It is self evident that a technology-based business must have technology, although it need not necessarily be developed in-house. Global Energy Concepts, LLC 3 August 2003 Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind Turbines Task #3 and 4: Success Factors for Companies in the Small Wind Turbine Business Arena Final We define success to date in the small wind turbine design and manufacturing arena as:   Survival and modest sustained growth in sales and profitability; and, Continuing product development and improvement. Many in the technology-based business community would not be very impressed with this definition. It could be termed a typical “technologist-centered” definition, not one likely to get most business people excited. Nonetheless it does appear to be the definition of success for the companies now in the small wind turbine industry. Most investors that make a business of investing in technology-based start up ventures are not interested in simply financing the establishment and operation of small businesses such as those that today seem to dominate the small wind turbine industry. (It is probably not stretching the point to term these existing small wind turbine businesses as being of the “mom and pop” variety.) They require a business strategy, vision and “exit plan” that provides for very significant and early returns on their investments. Usually this implies “going public” or the acquisition of the startup firm by a much larger company that can take the enterprise to the next level of products, product distribution and sales, and, of course, profits. 3.1. Market Definition, Product Definition and Strategy Apply Market Sense Start with markets and applications where the wind turbine is essential (necessary for industry, agriculture, health, education, scientific research and so on) not a market that is characterized by would-be customers who are fascinated by the idea of owning a wind turbine (“wouldn’t that be neat”) but do not really need it. In short, in the “essential” markets and applications wind turbines can make a pronounced difference. For example, Gipe2 states that historian Walter Prescott Webb wrote that three technological innovations made settlement of the American Great Plains possible: the Colt 45, barbed wire and the farm windmill. The water pumping windmill was essential to life in what was then termed the “American desert”. Focus Once you settle on the entry market, chase it as if your life depended on it. You have the advantage of not being distracted by existing customers and markets. It is possible to become economically viable (which will permit product line expansion and new market penetration) with growth generated by modest early returns from the entry market. Be Nimble and Adaptable Find a market and stick with it as an entry point until broader markets or better markets open up. You have the advantage over your established wind turbine competitors that you can shift course much more quickly. The total market for small wind turbines is small (in terms of total sales volume). Thus the niches are also small and most are already crowded. If the company cannot differentiate its wind turbine product sufficiently to capture sufficient sales, or if the product is found to be not well suited to the market niche, move on to a different niche or niches. Guessing the winning strategy up front is usually less crucial than ensuring sufficient resources of financial backing to hit and miss a few times before finding a profitable market. Another important element is to operate flexibly so strategic plans can be modified in response to fast-changing market conditions. Most successful new businesses abandon their original marketing plans as they learn what works and what doesn’t work in the marketplace. If possible, find emerging markets remote from and unimportant to the mainstream and improve product performance based on experience in niche markets before outperforming established competitors. It appears to be relatively easy for an experienced group of individuals to come up with a viable small turbine design, manufacture and sell a few in the region where it 2 Paul Gipe, Wind Energy Comes of Age, John Wiley and Sons, Inc., 1995. Global Energy Concepts, LLC 4 August 2003 Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind Turbines Task #3 and 4: Success Factors for Companies in the Small Wind Turbine Business Arena Final has natural affinities. Bergey Windpower and Vergnet may be good examples of starting and building businesses by exploiting natural markets. Bergey Windpower took advantage of its Oklahoma location (its “roots”), the relatively good wind resource in that state and the interest of some rural home owners in generating their own electric power. Vergnet takes advantage of being a French company and apparently concentrates its sales in Francophone countries where it presumably operates at a considerable advantage in winning competitive solicitations. Of course, it takes more than successfully recognizing and exploiting natural markets to be successful. Be “Hard Nosed” About Your Technology and Designs Stop developing and manufacturing turbine models that have a declining market or in which you are not competitive or in which you cannot provide adequate product support. Product Development Strategy When commercial units are in service, incremental product improvement is essential and inevitable. However, increasing the size of the market and market share by orders of magnitude cannot be achieved by simply edging up performance and edging down costs. This will require design breakthroughs and/or very significant reductions in the cost of the turbine through very high volume manufacturing. High volume manufacturing and quality assurance expertise becomes essential. Do not count on design breakthroughs. Know Your Competition The competition for a small wind turbine manufacturer is ultimately the product that can deliver the same value for an equal or lower price. The ultimate competitor may be another manufacturer’s wind turbine but it can also be PV, small engine generators and hybrids of the two. For example, in some applications and markets your wind turbine generator could be both competing with PV and working with PV as part of hybrid systems, depending on the specific customer requirements, the location of the installation and other factors. Learn from Competitors Find out why “things” work or do not work. Take full advantage of government grants, soft loans and other funding, even though the path to this money can often be difficult and there is a risk that using these funds can slow and otherwise hamper commercialization. Many of the successful companies are here today because of the government support that they managed to secure at critical junctures. Be Involved with the Small Wind Turbine and Renewable Energy Industries Be involved with the industry so that your voice is heard on federal funding, standards development and adoption, reducing and removing local government barriers, permitting streamlining and standardization, penetration of markets outside of your country with government assistance and so on. This takes extra work but it is vital. Do not be a bystander. 3.2. Technology and Product Development and Commercialization Design Lessons  Specify what is wanted. Develop the appropriate design criteria, design to the criteria and carry out effective design reviews. Ensure that an effective, integrated design, manufacturing planning and quality assurance plan is followed.  Keep it simple. Eliminate or simplify components and assemblies wherever possible. Design with life cycle cost firmly in mind. Integrate manufacturing, installation and maintenance considerations into the design process from the beginning.  Wind turbine design must be backed up by adequate development, including comprehensive testing of components, subsystems and the complete turbine.  Pay attention to details, particularly structural load paths. Understand which details of the design merit particular attention – the “hot” details. Global Energy Concepts, LLC 5 August 2003 Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind Turbines Task #3 and 4: Success Factors for Companies in the Small Wind Turbine Business Arena Final   Carefully consider failure modes and repair approaches. Design the turbine so that it can be readily and inexpensively inspected and maintained. The costs of inspections and routine maintenance alone can defeat the cost effectiveness of the turbines if inspection and maintenance procedures are complicated, labor intensive and require special equipment and tools. Operate pre-commercial turbines (prototype, “alpha” and “beta” units) at the most aggressive available sites so that weaknesses are exposed as early as possible. Do not compromise by selecting convenient sites. Fatigue damage accumulation is proportional to Vn , where V is mean wind speed and n is usually > 4. Experience in the wind turbine industry has tracked that in the aircraft industry during the first 20 years or so of the modern all-metal airframe. Specifically, in both industries structural problems were traced to bad detail design, poor choice of materials, inadequate consideration given to the in service environment, and manufacturing defects. Understand and act on the fact that a wind turbine is a system whose development and successful commercialization requires a blend of capabilities (both technical and non technical). Avoid the pitfall of permitting one or two technical disciplines to define the product development “roadmap” and the design drivers. No one person (or persons) or technical discipline can know in advance with certainty where the resources will have to be applied and in precisely what quantity as the design and development unfold. Remain agile. Move Quickly into Aggressive Field Operation Get prototypes, “alpha” units and “beta” units into the field quickly and run the turbines aggressively to quickly build up operating hours, energy production and fatigue cycles. The purpose of operating the turbines is to quickly ferret out early problems through failures due to design errors, manufacturing errors, poor materials selection, and inappropriate parts selection and so on. These might be termed accelerated wear problems leading to premature wear-out. (Wear-out is defined as the situation where wear has reached such proportions that failure occurs.) Because wear-out includes a wide variety of phenomena, such as fatigue, creep and corrosion, it is vital to operate the first turbines in the most aggressive sites that can be found that are representative of the conditions that commercial units will operate in. There is a risk that the company’s resources can be stretched too thin to manage three, four or more “alpha” and “beta” units operating at aggressive and possibly wide-spread sites. However, there is no substitute for such a program. Institute a Program of Fleet Leader Turbines. It is imperative to budget for and apply the necessary resources to quickly deploy and maintain the operation of “fleet leader” turbines. Lessons learned from these turbines can ensure that engineering design and manufacturing are always at least one step ahead in identifying and solving problems that may be endemic to the fleet of commercial turbines delivered to date or scheduled to be delivered. This process includes designing and making ready repairs and retrofits to be deployed as required. Of course the “fleet leaders” also need to be repaired and upgraded as the problems are identified and the lessons are learned. These turbines are also essential because they are accumulating fatigue cycles ahead of the commercial fleet so that possible high cycle fatigue problems are identified before they become evident in the turbines already sold and in service. (This is an adaptation of the practice successfully pioneered by the aircraft industry.) Find and Work with Friendly First Customers Most people and organizations tend to be riskaverse. They do not want to be early adopters of new unproven technologies. Others, however, can be considered innovators or early adopters. These end users have a “first on the block” mentality perhaps because they have a tinkerer’s curiosity or because they believe early adoption will generate real economic value for their company. By working with these early customers, the Global Energy Concepts, LLC 6 August 2003 Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind Turbines Task #3 and 4: Success Factors for Companies in the Small Wind Turbine Business Arena Final new small wind turbine supplier can learn how its products operate in the field (as discussed) and also better identify new value propositions (i.e., new markets) for them. One of the keys to managing resources – both physical and financial – for the prototype testing and fleet leader programs is finding the best possible collaborators. That is, “early adopters” or “friendly customers” not just willing to provide a site for a turbine or turbines, but that can also contribute to the on-going effort by operating the turbines and working with the technical team to resolve problems. They must be capable of carrying out rudimentary inspections (i.e. have basic mechanical and electrical skills and know-how), investigating and resetting turbine fault shutdowns as necessary, participating in basic troubleshooting (most often by telephone and email) and so on. These “friendly customers” are probably not going to be research organizations and government agencies. Understand the “Achilles Heel” Potential of the DC to AC Power Converter and Power Management Subsystem This subsystem can be the weak link from the technical, cost and market penetration perspectives. Penetrating the on-grid market is “held hostage” to the reliability, durability and cost of the power electronics package that makes it possible to deliver high quality AC power from the wind turbine to the grid, to receive AC power from the grid, and to protect both the grid and the wind turbine generator. Understand and act on the knowledge that turbines are fatigue-testing machines. There are two fundamental technical problems in bringing a new small wind turbine to market: 1. Making it work. Relatively, the easy part. 2. Making it last. The hard part. Fong states “Fatigue, or the engineer’s second fundamental problem, is considerably more difficult to solve than what engineers have been trained for, namely, to show simply that a system works instead of how long it lasts”3. It has been claimed that fatigue is responsible for at least 80% of all mechanical failures in products. Indeed, some claim that 80% of all electrical failures are mechanical; therefore, fatigue could well be responsible for most electrical failures as well. Thus, understanding fatigue and its various mechanisms and applying that knowledge throughout the development and commercialization process is essential. Most fatigue damage is accumulated during operation in high winds where relatively little energy is captured. A poor trade-off. Design for fatigue must include durability assessment which addresses propagation of flaws, the statistical variation of fatigue life and operations and maintenance procedures which are necessary and sufficient to obtain adequate operational life. Applying the second problem statement to wind turbines implies:    Knowing the properties of the materials that affect reliability. Knowing the structural loading. Understanding the load paths and the effects of manufacturing and assembly variability (including errors) on fatigue life. 3 J.T. Fong, “Fatigue Mechanism – Key to the Solution of the Engineer’s Second Fundamental Problem”, Fatigue Mechanisms, Proceedings of an ASTM-NBS-NSF Symposium, Kansas City, MO, May 1978, ASTM STP 675, American Society for Testing and Materials, 1978, pp. 3-8. Global Energy Concepts, LLC 7 August 2003 Market, Cost, and Technical Analysis of Vertical and Horizontal Axis Wind Turbines Task #3 and 4: Success Factors for Companies in the Small Wind Turbine Business Arena Final    Approaching the problem statistically. Testing critical structural details. High cycle fatigue test data are essential. Establishing maintenance practices at the design stage. Stress Quality at all stages – design, development, prototype testing, first deployment, manufacture, installation and product/operations support. Product quality, performance and continuing development cannot be ignored. Each is important and has to be relentlessly pursued. Don’t get spread thin on too many product offerings for too many applications. Delivering reliable wind turbines for battery charging, for example, seems to be what Southwest Windpower does best. However, recently it bought another small wind turbine product line to get into the grid-connect and larger home size market. However, the designs, the scales, the manufacturing processes and the applications are quite different. How will Southwest succeed with both product lines while not jeopardizing one or both? Use Design Reviews and Act on the Recommendations Outside design reviewers are essential. This is the area where specialists from government laboratories, allied industries and component suppliers can probably add the greatest value, often at no direct cost. Design for Manufacturability Manufacturability must be a key part of the design and development process, beginning right at prototype design. Act ruthlessly in all aspects of the design and development Question assumptions at every stage. Demonstrate both the ability to recognize and the willingness to abandon or modify “pet” ideas and approaches when they risk the success of the product. Know which intellectual property (IP) is worth protecting, decide how to best protect the IP and implement an IP management and protection program in parallel with product development. Patents are only one possible part of a comprehensive IP protection plan. Resist the pull to automatically file patent applications. Many technology-based companies continue to successfully develop and commercialize new products without any patents, choosing to simply rigorously maintain their trade secrets. When a patent is issued it becomes public information and those who are interested and deem it necessary will often find a way to “get around” your patents. However, patents and patent applications may be necessary to attract investment capital. Global Energy Concepts, LLC 8 August 2003