The market
Today, wind power provides 1.6% of global electricity with a total capacity of approximately 160,000 megawatts (MW). Despite the economic crisis, demand growth over the next decade is expected to maintain double-digit rates (12-13%). By 2020, up to 10% of global energy consumption could be met by wind power, representing 1,000 gigawatts (GW). The Danish consulting group BTM predicts that by 2030, this could even reach 2,500 GW, representing 17% of global electricity consumption. This would prevent the emission of 5 billion tons of carbon dioxide, or 28.2% of global emissions from all power plants. China emerged as the largest investor, installing 13.6 GW in 2009, the highest volume ever recorded in a single year in any country. The three Chinese suppliers, Sinovel, Goldwind, and Dongfang, are rapidly catching up with Vestas (Denmark) and General Electric (USA) and are already among the top ten global suppliers. Driven by dramatic improvements in turbine output of a factor of 100 over the past 30 years, investors have increased their appetite and generously made capital available to develop the industry. The market potential is also reflected in the market value of wind farms, which is expected to rise from $75 billion in 2010 to $124 billion in 2014. Wind turbines, like any power generation system, do not operate 24 hours a day, and the wind does not always blow in the right direction. However, on windy days, Denmark generates all its electricity from the country's 5,000 wind turbines, utilizing only 20% of its wind resources. While the media prepares the ground for large turbines with majestic images, there is a strong entrepreneurial current in the field. Whereas a decade ago, at most 50 companies manufactured wind turbines for small systems (with a capacity of less than 100 kilowatts), there are now more than 250 producers in 26 countries, the largest share (34%) of which is located in the United States. In the past year, some 20 small turbine manufacturers have attracted more than $250 million in private investment.
Innovation
Installing wind power is even more expensive than grid-connected electricity generated, for example, from coal. While generous subsidies, carbon credits, and feed-in tariffs have helped alleviate the additional investment costs, simply selling electricity, subject to competition from kilowatt-hour prices, doesn't offer a solid advantage. Greater added value is needed in the process to break the cost deadlock. When Håkan Ahlsten, director of Landshypotek, the farmers' bank on the Swedish island of Gotland in the Baltic Sea, was presented with an investment proposal from one of his clients to generate additional electricity, he explored the possibility of building a 1 MW wind turbine to produce all the necessary power. After all, the island is rich in wind. Initially, he concluded that the cost wasn't competitive. However, as a banker, he analyzed his client's cash flow and concluded that if he could sell the wind power abroad, not only would it be viable, but he could also plan for loan repayments to finance the wind power investment that was better than any other option he had considered. His client, Ryftes, collects all the carrots on the island, keeps the entire harvest in a zero-degree warehouse year-round to avoid price fluctuations, and sorts the carrots into seven categories ready for sale and distribution. Straight carrots of varying sizes are packaged and sold; crooked carrots are shredded and made into carrot cakes. These are immediately frozen straight from the oven and sold abroad as "fresh from the oven," which actually means the cakes have just been thawed. The entire process, from harvest to thawing at the point of sale, is powered by renewable wind energy from the island of Gotland.
The first cash flow
The marketing strategy got off to a good start, and sales quickly recovered, with full container loads reaching Singapore and Hong Kong. It became clear that the fact that these cakes covered all their energy needs with wind power gave them a significant competitive advantage. Although there are many cakes on the market, these cakes were propelled by the wind at every stage of the process and could offer customers a unique selling proposition (USP). Carrot cakes powered by coal or nuclear simply don't have the same appeal. As a result, the carrot cakes are selling well, and the profit margin has improved. This higher margin on the cakes has allowed for a better return on investment for the company's own power generators, which can now be amortized more quickly. While wind power is more expensive at the production site, Håkan and his team have demonstrated that it is possible to generate more revenue. As a banker, improving cash flow and profit margins is more important than simply reducing costs and finding the lowest price for inputs. In fact, the slightly higher energy price is offset by multiple margin improvements. This is a simple example of the blue economy: generating more revenue with what you have.
The opportunity
The debate on the cost of renewable energy is often limited to calculating production costs. However, production engineers are overlooking the fact that we operate in a market characterized by oversupply, where the consumer chooses. The ability to offer cakes—a product as simple as that—with an intangible component—as fundamental as wind power—provides a unique selling proposition (USP). The only way for competitors to respond is to do the same. This may be the best way to incentivize more investors to choose renewable energy, going beyond the government subsidies that were necessary to get the process started but are limited in the future due to the catastrophic public debt situation. The successful export of Gotland's "wind," through the production of carrot cakes, has generated jobs (including 26 at the bakery), made carrot farming on a remote island competitive again, and demonstrated that investments in renewable energy can be more financially advantageous if we are willing to analyze the entire value chain and go beyond simply calculating costs. This is the logic behind the Blue Economy.
