'Wind innovation is being stifled by financiers and insurers'
An aversion to risk and a desire for 'bankable' products has led to a decline in the development of breakthrough technology, writes Philip Totaro
Renewable energy finds itself in a bit of a Catch-22 when it comes to innovation. Intrepid entrepreneurs with impressive ideas that would reduce levelised cost of energy (LCOE), improve annual energy production (AEP), reduce the capital cost of wind turbines, solar panels and energy storage systems, or even reduce the operating costs to maintain renewable-energy installations are being stifled.
Even OEMs have shown either incremental product and technology innovations, or pie-in-the-sky new products that have little hope of ever seeing the commercial market.
To further highlight this, the wind industry's recent innovation trends suggest a sharp drop-off due to the market downturn in 2012-13 (see Graph 1 in the photo carousel above, and expand to read). Companies slashed research and development (R&D) budgets and reduced the percentage of R&D spend versus their overall revenue intake.
But there is hope, and our best days in innovation are not behind us. As most OEMs push towards 4-5MW onshore designs, the size constraints of scaling up what was essentially 750kW technology to these new levels necessitates innovation.
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From compact, medium-speed drivetrains to segmented blades and towers, the industry should be prepared for a rash of new innovations that will be introduced in the coming years.
A look at the future technology trends suggests numerous innovations that have been contemplated, but are not yet commercially available. All of which will require differing levels of R&D spend to get those technologies to commercial availability, as highlighted by Graph 2 in the photo carousel above (expand to read).
But a question remains as to whether or not all of these inventions, which have the ability to impact LCOE, AEP, capital expenditure and operating expense, will ever see the light of day.
One of the constraints of commercial adoption of new technologies has been a lack of acceptance by project financiers and insurance underwriters (and consequently, developers and asset owners as well) to fund the prototypes. The implementation of new products that comprise "radical" and "unproven" technologies — which might adversely impact a 99% availability rating or potentially increase unscheduled maintenance while early-stage kinks are ironed out — simply aren't "bankable”.
This has led to turbine OEMs saying that new wind turbines are merely an evolution of a previously proven, reliable, and "bankable" product family — even though some products possess significant design changes.
Even when start-ups or inventors with novel and commercially viable ideas for a new generator architecture, new multi-piece blade joint, or a new segmented tower seek funding from venture capital or private-equity firms to complete their proof of concept, they are stymied due to lack of an OEM partnership. With no window to payback they tend not to receive funding. But in all fairness, the OEMs are unlikely to take a big gamble on as-yet unproven technology until there is validation. Thus the Catch-22.
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One solution has been for governments to step up and bear some of the brunt for the costs of new technology validation. In Denmark and Germany, we have seen federal commitments for new testing facilities. Even in the US, new facilities at NREL and other test sites established in Massachusetts and South Carolina over the past few years are already helping to prove new capabilities. But government coffers for providing funds for new technology validation can be fickle in a competition over scarce resources where different administrations have different priorities.
Another solution is for OEMs to finance the prototypes and the development projects that will prove the viability of new technologies. Seven to ten years ago, most OEMs had a development entity as part of their organisation, which they have subsequently wound down or sold off to dedicated developers. Interestingly, several Chinese OEMs that are attempting to globalise their technology are currently having to build and operate projects that have served as a vehicle for them to prove their product bankability.
Nevertheless, the future will be interesting, and potentially expensive for OEMs to contemplate if they are forced to re-engage in a development company acquisition or partnership to provide a vehicle for the commercial proof of concept for these new product platforms. While this is not yet an assured strategy for all OEMs, it remains an option if project financiers and insurance underwriters continue their aversion to new technology and product introduction.
So in this future scenario, what happens to all those intrepid entrepreneurs with innovative ideas? They will continue to bring their ideas to market with the right help to facilitate their technology proof of concept. Let's hope the risk aversion in the investment community loosens up to release these good ideas from the minds of inventors to the benefit of humanity.
I trust the cream will rise to the top.
Philip Totaro is founder and chief executive of innovation strategy consultancy Totaro & Associates