ANALYSIS - Consolidation spurs wind innovation revival

The slump of innovation investments seen in the wind industry back in 2013 is coming to an end. A healthier global market and replenished coffers have inspired a surge in new technology and product development.

The global market downturn saw a 34% drop in patent filings in 2013 vs. 2012. That same time frame also saw an industry-wide drop from 5.2% to 2.3% in average research and development (R&D) expenditure as a percentage of revenue.

The full breadth of patent filings for 2014 will become public in July of this year*, but they appear to be trending upwards, with an 18% improvement over 2013 so far. In the meantime, an evaluation of the R&D spend signals a rebound back up to an industry average of 4.7% of revenue based on analysis of 2015 data.

Scale, global competitiveness, and balance sheet strength have been core drivers behind recent deals in onshore wind. However, another byproduct of these mergers and acquisitions is the combination of R&D resources.

This trend is important because of the ever-increasing cost associated with the technology development which will result in a continued drop in levelised cost of energy (LCOE). In a maturing market, such as onshore wind in the past three years, the R&D investment and other non-recurring engineering costs for a new clean-sheet onshore wind turbine design are approximately EUR 120 million (USD 133.8m). An additional EUR 350 million - 450 million is typically required for supply chain development and initial commercial demonstration.

The development program for a new onshore blade could cost EUR 35 million - 45 million in non-recurring engineering including the capital expense of the manufacturing tooling, testing and certification. A few companies attempted a switch from doubly-fed induction generators (DFIG) to permanent magnet generators (PMG) a few years ago, only to find the commercialisation costs of switching over their entire production and supply chain to be too high a barrier without an appropriate order book to justify it.

But pooling resources enables some of this stagnant product evolution to be more cost effective with the newly expected global scale achievable thanks to the mergers.

Interestingly, this trend was started by the offshore wind sector. In the past five years, the industry has seen consolidation in offshore sector partly due to the product development costs, but mostly due to the commercialisation costs presenting a steep barrier to market entry. Offshore product development will easily run into EUR 150 million range, but the commercialisation costs including port infrastructure, manufacturing capacity, as well as supply chain development easily send the total nearing EUR 1 billion.

Companies without the ability to support such R&D and commercialisation investments either onshore or offshore will find difficulty competing in the new market environment with the combined companies who can.

This desire for technological differentiation and competitive advantage has proliferated to the rest of the supply chain as well with a series of recent technology and intellectual property (IP) asset acquisitions. The Vestas acquisition of the Modular Wind Energy (ModWind) technology and IP as well as the GE acquisition of Blade Dynamics speak to a need for re-invigoration of technology portfolios with assets of a certain maturity level.

The next few years are likely to see more of these type of technology focused deals, with an emphasis on three key areas. Companies at the forefront of materials and manufacturing technology, power plant control, along with data enabled service providers are the highest priority targets.

Manufacturing technology is often overlooked when it comes to wind, but it represents one of the highest impact sectors of innovation in the industry. A shift towards metal-composite hybrid materials which take advantage of the strength of carbon, without the cost penalty, and only modest weight increase vs. carbon use could shortly see their way into the blade, nacelle, and perhaps eventually the tower. Additionally, additive manufacturing has yet to make a meaningful impact, but look for this to become more pervasive for sub-component manufacturing of spar caps, shear webs, root elements and other structural components in the blade as well as other turbine components.

Overall, the design intent of the power plant control (PPC) system of the future is to increase annual energy production (AEP) and regulate wind turbine / wind park power output based upon demand and electricity price optimization. The architecture of the PPC system of the future will deliver maximum output of price-optimised electricity while maintaining overall health of each turbine in the wind park. Certainly, the Internet of Things (IoT) will play an important role as an underlying platform on which the performance and price optimisation of the wind park will be evaluated and achieved.

For services, data analysis will be important, but data communication as well as visualisation of repair workflows will enable significant reductions in lost production time. The timely communication of service issues to the right level of technical skill will be key to identifying field issues and initiating suitable repairs. Tools which facilitate collaboration between on-site field technicians and remotely based engineers will enable faster diagnosis of turbine issues and faster implementation of solutions. A fully integrated platform which also feeds spares availability information will mitigate the down-time of the repair.

Joint ventures, partnerships, technology and IP licensing are poised to see a revival as the industry continues the path to cost parity and seeks the next level of technology.

* - Due to the 18 month lag time in patent application publication from the filing date, numbers for 2015 will not become available until next year.

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