More decline in wind power slashes Danish jobs

Since I’m both Danish and following the green business beat, yesterday was an important day for me in terms of industry news. The world largest wind turbine manufacturer Vestas reported its third quarter earnings and after a horrible second quarter with a $164 million loss it was quite interesting to see what numbers the company could pull out the hat this time.

The earnings report had both good and band numbers. The good numbers were the actual profit of 126 million euro, $175 million, that was higher than the average estimate of 80 million euro in Bloomberg survey of 13 analysts. At the same time the giant wind company reported an order intake of 6,567 MW in the first nine months of 2010, which is the highest ever for the Danish company.

So much for the good news. At the conference call the CEO Ditlev Engel admitted that the administration had been too optimistic in terms of growth in the European wind power market and has to lay off 3,000 people, primarily in Denmark. To US companies 3,000 workers might not sound like a lot, but for a country like Denmark with a population of only 5.5 million a firing round like that can ruin whole regions for good.

In a sense it is also really bad news for the whole wind industry. Vestas predicts a decrease in demand in the European market to 7,000-8,000 MW from 8,000-9,000 MW primarily because the debt crisis has limited the prospects for economic growth.

The job reduction is a direct outcome of the weakened demand in Europa and to Vestas it made sense to cut the jobs where the expenses were highest, the home country. The expenses in Denmark are so high that it cost as much for Vestas to produce a wind turbine in China and having it shipped to Sweden, as it would cost to manufacture the turbine in Denmark and ship it to one of the neighboring countries.

Again it seems like China has great influence on the whole industry and from a green point of view it raises quite a paradox. The carbon emission in relation to shipping a wind turbine halfway around the globe is probably noticeable and not really in tune with what a green company preaches.

Nevertheless, the announcements from Vestas prove once more that China effects both prices, competition and now also the number of people working in high wage countries.

The Beer Father of Brooklyn

This is not exactly in tune with my green business beat, but it is still a nice story I had to read for class. 

Steve Hindy did not just change his own life as an established journalist when he in 1987 quit his life as he knew it and founded the Brooklyn Brewery. He also changed the Brooklyn community and introduced the New Yorkers to great beer.

By Sara Sjølin

Date: October 18^th 2010

Two professors from Baruch College enter the door and look around in the yeasty smelling office area. As they wait for their students in their entrepreneurship class to show up a 61-year-old dark-bearded man in a casual navy blue fleece sweater and khaki pants greets them.

“Steve,” he says shaking hands with them.

The name instantly lightens up both teachers’ faces as the female professor impressively asks, “Are you Steve Hindy? The founder of the brewery?”

And it is Steve Hindy. One of the two founding fathers of the 22-year old Brooklyn Brewery that today occupies a large area on N 11^th street in Williamsburg and has brought not only Brooklyn Lager, India Pale Ale and Pennant Ale to the Brooklyners, but also a renaissance to the borough Southeast of Manhattan.

On this late Friday afternoon before the big rush-in to the weekly happy hour he has agreed to tell them the story of how he, a war journalist for AP in the Middle East, gave up his profession and started the brewery with his friend and former banker Tom Potter in the late 1980s. A story about both courage and confidence, but also about technically bankruptcy and difficulties distributing the beer to customers.

The two guys met each other in the Brooklyn neighborhood Park Slope in 1984 where their wives had become friends through their involvement in the local public schools that Steve Hindy’s two children Sam and Lily attended. Earlier that year Steve’s wife Ellen had suggested that with two small children it was about time to leave Middle East and go back to the States. The correspondent job had led Steve to cover important stories as the Iran-Iraq War, the Israeli invasion of Lebanon, and the massacres in the Beirut refugee camps. A month before the birth of his son he was abducted in South Lebanon while traveling with a United Nations patrol, but Steve tells today that the experiences prepared him for his career as a cofounder of the Brooklyn Brewery.

His interest in making his own brew started in those days and back in the U.S. Steve started brewing his own beer in the apartment in Park Slope. Sitting in the backyard and drinking homebrew goodies with Tom, the two friends developed the idea of opening a brewery together.  

In March 1987 the business plan for Brooklyn Brewery was complete and the haunt for investors started. To Steve it was a terrifying time. Tom had quit his job as a banker in March and Steve was going to quit his well-paid job at Newsday in October. 35 investors pitched in and three days before the stock market crashed in October 1987 they reached the magic $300,000 that was their minimum to go into the brewing business. Brooklyn Brewery became a reality.

However, the first years as brewers didn’t turn out as the great entrepreneur story it is today. The brewery made great beer and contributed at non-for-profit events to rebuild Brooklyn as a hip neighborhood, but the bills exceeded the income. The first five years the local brewing company was technically bankrupt and struggled with distributing the beer to customers. Steve went to bed every night thinking that the situation was troublesome. But despite the difficulties in creating a profitable company he never lost confidence in the Brooklyn Brewery and his experiences in the Middle East helped him endure and stay determined and focused.

His confidence proved right. In May 1996 he and Tom opened the brewery in Williamsburg after several years of contract brewing in up-state New York and the brewing business started to take off.  Last year Brooklyn Brewery grew 20 percent in a difficult American beer industry that lost 2.5 percent the same year.

To the entrepreneur students from Baruck University the Brooklyn Brewery and Steve Hindy are a great story of the American dream. To Steve it is has been not just a dream, but also a great adventure. Experiencing people order a Brooklyn Lager in a bar in Manhattan still makes him really proud and he enjoys being a part of New York like that, he says.

But the brewery does not take up all his time like it did in the first intense years. He went from working 80 hours a week till 40 and is currently writing a book about his years in Lebanon. Now it is no longer the destiny of the brewery that keeps him awake:

“This morning I got up at 3.30 because I’m writing a book about my years in Lebanon and I’m thinking about it all the time.”

However, in December Steve will again have a lot of beer on his mind. He is expanding the brewing business and will go from making 12,000 barrels on the N 11^th street premises to 120,000 barrels. 

How the Chinese interest rate can affect green energy

China has a habit of pulling random rabbits of out the hat and this week was no different. As a surprise to world economists the populous country raised its interest rate for the first time since 2007 causing the stock markets around the world to shake and keeping economists work overtime. Most economists seemed to agree that the unexpected interest rate-increase is a signal of slowing economic growth and a way to avoid the inflation rate to get out of control.

To the green industry the surprise act from the People’s Bank of China can have several impacts.

First of all, China is on its way to outpace the US in most installed wind capacity by the end of this year, which makes the Chinese market extremely important to wind turbine manufacturers. The increase in interest rate in China makes it more expensive to borrow money, thus making it more expensive to initiate new projects.

Most wind turbines get installed as new projects and this week’s signal of a slowing growth in the prosperous country might have an impact on the wind turbines manufacturers. If China is not supplying the same growth in wind energy some wind power companies will undoubtedly feel the effect on their order book and bottom-line.  Some international companies, like the world’s largest wind turbine manufacturer Vestas, already experience economic trouble and the new line in Chinese economy might just be another bitter pill to swallow.

Furthermore, the higher interest rate has already lowered the price on oil the most in eight months, because of concern that the oil demand in the world’s biggest energy user will decrease. In combination with low gas prices the incentives to switch to sustainable energy sources will get even lower and probably effecting the number of new wind turbines put up.

China still has a great demand for energy, so I’m implying that the change in interest rate is going to bring the growth in wind energy to a halt. But it will be interesting to follow the new economic direction in China in relation to the sustainable energy industry.

Will the US obstruct the wind energy companies?

The Spanish operator of wind-power plants Iberdrola Renovables announced yesterday in its third quarter earnings report that it lowers its expectations to the American market. Going from expecting new installations of 1000 megawatt earlier this year the company now only expects to install between 600-700 megawatt in the US.

Now what does really mean? First of all it confirms the downturn in the American wind market that is not only bad news for the wind industry, but also for the environment. One of the major reasons for the wind power obstacles in the US is the extremely low gas prices that do not give the electricity companies any incentive to buy power from wind power plants. In that way it is difficult for the turbine manufacturers as GE Energy, Vestas and REpower to get involved in new projects and put up more capacity.

According to one of the largest Scandinavian banks, Nordea, the downgrading outlook from Iberdrola Renovables is bad news for the wind business and such lower expectations will eventually affect the large companies, i.e. the world largest wind turbine manufacturer Vestas. Nordea already lowered its recommendations on the Vestas stock to “hold” in May because of the discouraging outlook for the American market.

Furthermore, regulatory challenges destroy growth possibilities for the wind power companies, because there still is no national legislation on sustainable energy in the US.

At the same time China is on a wind high at the moment and the World Wind Energy Association just reported that China has already installed 7800 megawatt this year up until July leaving the US and India on a shared second place with 1200 megawatt installed each. If this trend continues China will probably outpace the US in most installed capacity in total by the end of this year.

Off course it is amazing that China is doing such a great job in installing wind power, but at the same time it is very depressing that the worlds most energy consuming country is not following the same path. I find it important that the big nations turn to sustainable energy and also encourage the green companies to keep innovating. And at the moment we need more of that from the US. 

The fight for the Chinese wind market

A lot of things are happening on the Chinese wind market these days. The largest wind turbine conference on Chinese ground so far, China Windpower 2010, opened today and at the opening session the Danish ambassador Friis Arne Petersen said that he sees a “very promising future for the industry in this country.”

Not only for the international wind turbine companies, but also to a great extent for the Chinese manufacturers such as Goldwind, Sinovel, and Dongfang. The three companies are doing so well that they last year made it into top 10 of the largest wind turbine manufacturers in the world – by almost only putting up wind turbines in China. That says a little bit about the opportunities in the large country and at the moment China is the fastest growing market for green energy.

The huge demand and proven success for Chinese wind power companies have of course drawn the attention from large international players like Vestas, Gamesa, General Electric and Suzlon and intensified the competition of the Chinese wind.

Suzlon just announced yesterday that it would raise $1.1 billion on the stock market and use the money to increase its presence in China and India because of the slow order growth in Europe. Vestas, the world’s largest wind turbine manufacturer opened an R&D center in Beijing yesterday as the first international wind power company and is in general trying to gain market shares in the attractive Chinese market.

It all sounds like China is up for a lot of green energy, but to me it also sounds like the wind power companies are aiming for an intense competition. It makes sense that they all want to explore (or exploit?) the seemingly growing market, but is the market big enough for all of them?

The Chinese wind power producers have already set new standards for how cheap a wind turbine can be in China and with the prices the international companies offer, they might be lost in price competition.

However, the cheap Chinese prices do not account for the quality of the turbine that requires them to get repaired or changed every second year or so. In the long rung the international companies have a competitive advantage in terms of quality. The big issue for those companies will then be for the Chinese costumers to start appreciating that.

Nevertheless, the Chinese wind market and the fight for its market shares will be interesting to keep an eye on the nearest future. 

Organic - an irrational choice?

This is not exactly in the theme of my regular blog, but a predictably irrational experiment I carried out to test people's preferences for organic food.

Introduction

Every time I go grocery shopping I am confronted with making horrible decisions. Do I get the healthy, live longer, get prettier, and expensive organic variation of an item or do I go for the regular, pesticide-filled, “animals-have-died-because-of-you” non-organic grocery that cost me half of the money? Secretly, when nobody is watching I sneak the non-organic milk in my basket and convince myself that when I get a real job I will start to save the world and myself and buy organic food.   

However, when the topic lands on organic food at dinner parties I like to join the choir of organic-lovers and say that I too prefer the healthier and – the implied – better choice. 

I figured that there would be more like me out there. People who will say that they prefer organic food, not only because it is better for them, but also because they can tell a different in taste.

Thus, I decided to do an experiment with random people to see if their preference in a certain grocery is irrational and changes if they are told that one is organic and one is not. 

The experiment 

I wanted to test out my participants’ organic preferences on a grocery that did not have a lot of taste variation within the same item. That ruled out most fruits and I decided to carry out my experiment with roasted and salted cashew nuts. Cashew nuts have a distinct taste and the variations within cashews are often only determined by the roasting and flavor.

I got one bag of non-organic cashews at 41 cents per ounce and another bag of organic cashews at 61 cents per ounce. The organic cashews were almost 50 % more expensive than the other bag.

I ran my experiment on three groups. To count for any minor taste difference I started out by asking a control group which nut they preferred the most without telling them that one was organic. By doing that I could later on in the experiment see if more people preferred the organic, when they were told that it actually was organic. 

I then asked my second experiment group which cashew the liked the most by taste and told them that one nut was organic and the other was not. The purpose of this group was to see if the participants were influence by the organic choice.

With the third group I inversed the experiment. I asked the group to taste the two different cashew nuts and told them that the non-organic nut was in deed organic and vice versa. The purpose of the third group was again to record if the information that one nut was organic had significance and to rule out any taste difference. 

Hypothesis

My hypothesis was based on my presumptions that people are not making rational decisions when they have to choose between two items in which they have a preference for one of them. Like experiments with Coca-Cola and Pepsi many participants have found themselves choosing their not preferable brand of soda in a blind testing, but continued buying what they preferred in the first place. I expected that the same irrationality could be applied to organic food and that people would choose organic only when they were told it was organic and not because they liked the taste better.

Therefore, my hypothesis was that nearly everyone would choose the organic cashew nut when faced with a choice between the organic and non-organic. Further, I expected that there would be no difference in preferences in the control group.

Results

The experiments went almost as I expected. In the control group the organic cashew nut was low on popularity, but it gained a lot of support when the participants knew that the nut was organic.

In the control group only 10 % preferred the organic nut, 40 % chose the non-organic nut and 50 % did not have a preference at all. The comments on the two nuts were that the non-organic was saltier and therefore tastier, but the organic was crunchier. The overall result from the control group was the organic nut was not preferable. 

That changed as soon as it got a label on it. Now 38 % of the participants wanted to go for the more expensive organic cashew nut. However, the non-organic nut still got the most votes and ended up with the remaining 62 % simply because it was tastier, most participants said.

When it came to run the experiment on the third group I already expected the non-organic nut labeled as organic to get the most votes, since it apparently tasted better. I was right. 70 % went for the non-organic nut in disguise as organic whereas the real organic nut only was preferred by 30 %. 

Conclusion

From the results of my experiment I can conclude that the organic label makes people irrational to some extent. When not confronted with an organic awareness almost none of the participants chose the organic nut. But as soon as people were aware of the difference in the nuts 40 % chose to go for the organic alternative. Even when the nuts were deliberately mislabeled most people preferred the organic nut, but it seems, as the mislabeled cashew actually did taste better. 

I had expected that almost everyone would have chosen the organic cashew nut though, when they knew the difference. 

In any way, this experiments proves that an organic label can make people irrational and go for the organic choice even if it does taste as good. 

Way to go for sustainable architecture

As a Dane I actually got a little proud today.  The hotel Crowne Plaza Copenhagen Towers was recognized as the most eco-friendly hotel and got the EcoTourism Award. I started to read a little bit about the hotel and some of its sustainable thoughts are actually pretty cool.

First of all it has Northern Europe’s largest solar power cell system to produce electricity for the hotel while the ground water takes care of air condition. All the shampoo bottles, toothbrushes and shower caps are biodegradable and the TV’s and lamps run on low energy. Combined it all make this hotel carbon neutral.

Second of all, and this is actually my favorite part, it encourage its guest to take part in making the Earth a greener place. If a guest gets in an exercise mood he or she can go for a ride on the hotel’s electricity producing bicycles and everyone that produces 10 watt hours can enjoy a free meal in the hotel’s restaurant. I know I would definitely go biking a lot more with a nice meal in sight.

To me a hotel like that seems like an amazing idea and I would probably spend a few extra bucks on a greener conscience when traveling. So it made me think about sustainable architecture. Buildings and residential areas have the greatest carbon-emission impact and thus the most important place to take a look at in trying to reduce carbon-emission.

An interesting example is this one Danish guy Jul Hørlyck that made a business out of isolating people’s houses so well that they can be heated up by only two light bulbs. That’s just amazing.

By incorporating sustainability into architecture like the Crowne Plaza Copenhagen Towers and Jul Hørlyck a lot of carbon-emission can be omitted or reduced. And since there’s an ongoing international war against pollution and climate changes I think there’s a major business in sustainable architecture. It’s just up to the large office buildings, hotels, airports and residential areas to figure out that they need it.

Cancun – another climate anticlimax?

This year’s climate summit in November in Cancun, Mexico is approaching and the final round of UN climate talks has got under way in China. Basically it means that the delegates gather to prepare negotiations for the Cancun summit, but the executive climate secretary at UN Christiana Figueres has already cast a shadow on the outcome of the summit.

Before the meeting in China she said that it is “naïve” to expect “one climate agreement that will solve everything right now” and played down expectations of a legally binding deal.

That is not only bad news for the environmental activists and the future climate, but also for the companies who work in the sustainable energy industry.

At the moment the UN, the EU and the American government are all trying to define the best solution for a greener and better environment, but so far it seems as only the EU are getting somewhere in defining real goals and agreements.

The different announcements means the world to the green energy companies as they plan their investment according to expected demands. Policy making plays a major role in that matter and the uncertainty in American energy policy has already made large wind power developers cut down investments.

The climate summit in November could or should help define some shared goals and regulations and thereby help the energy companies, but Christina Figueres’ statement makes me wonder if Cancun will be the new Copenhagen. For the future certainty in energy policy I really hope not – we do not need another anticlimax. 

Will Vestas show better trends for this quarter?

In a few weeks the earnings report season start for third quarter and in these time of recovery and transition to green energy I thought it would be interesting to take a look at how well the wind power companies are doing.

The world’s largest wind turbine manufacturer Vestas showed horrible results in the earnings report for second quarter of 2010, and actually reported a loss of 119 million Euros, $163 dollars. The poor result made the company downgrade the profit outlook for 2010 and it came as a shock to many of the analysts.

Their competitors Siemens Wind Power, Clipper Wind Power and Nordex did not show the same trend at all and reported great profits for that particular quarter.

And looking at the results now kind of make me wonder why the world’ leading wind turbine manufacturer is doing so much worse than all of its competitors. According to one analyst I talked to Vestas is having greater loss because it spend money more on research and development in these hard economic times.

To some extend that is true. Vestas did raise it costs for R&D in second quarter compared to the same quarter a year ago. However, the expenses only rose from 35 million Euros to 44 million Euros, which does not explain the 119 million Euros reported loss.

On October 26^th Vestas is ready with the earnings report for third quarter and it will be interesting to see if they continue the negative trend, spend more money on R&D or come out with a profit. During the last quarter Vestas announced several new orders and a number of banks analysts changed their recommendations on the stock to “buy” from “sell”. So maybe there is good news for Vestas investors and the wind power industry.