By Anne McIvor
Could the Queen’s historic visit to Ireland become the catalyst for renewable energy jobs at Chinese-owned companies in Humberside?
The launch of the British Irish Chamber of Commerce earlier this year came as a surprise to some. Given the close trading links between the nations (the UK is Ireland’s largest trading partner and Ireland is the fifth largest export market for the UK), most of the respective populations, including British Foreign Secretary William Hague, who spoke at the launch, hadn’t noticed that a Chamber of Commerce didn’t exist already. While general trading links between the two nations are strong, in terms of energy Ireland has historically been relatively isolated – a function of its geography. That is changing now, however, with the construction of interconnectors between the island of Ireland and the UK mainland. The two are already joined via the 500MW Moyle Interconnector, which linked the electricity grids of Northern Ireland and Scotland in 2002. (Northern Ireland’s electricity system is connected to the mainland UK and is also, in turn, joined to the Republic of Ireland’s system.) The energy link is set to become stronger with the construction of the East-West Interconnector. This €600 million project is being developed by EirGrid, the Irish national grid operator, and financed in part by the European Commission with a loan of €300 million from the European Investment Bank. The 500MW connector, which will link stations in County Dublin and North Wales, is expected to be operational in 2012.
In the context of concerns in the UK about ‘the lights going out’ (the fear that there will be insufficient energy supply to meet future demand, especially in the medium term while large scale offshore wind and nuclear projects are being constructed), the new interconnector may become a lifeline for the UK by permitting Ireland to export energy to its neighbour. On the surface it makes sense for energy being exported from Ireland to be derived from renewables. Ireland is rich in renewable resources: lots of wind, including – cheaper – onshore wind, as well as extensive wave energy resources. And it appears that the UK may offer incentives for Ireland to roll out its renewable energy capacity further: in conjunction with the Queen’s historic first visit to the Republic of Ireland in May this year, a dialogue has opened regarding the possibility of the UK ROC regime being extended to Irish renewables.
Perhaps in anticipation of the opening up of the UK market to Irish renewable energy, Irish entrepreneur Eddie O’Connor has committed to a major investment in his home market – the first time his new company, Mainstream Renewable Power, will invest in its domestic market. Mainstream was founded by O’Connor in 2008 after the sale of wind project developer Airtricity, which O’Connor had founded after leaving Bord na Móna, where he had been CEO. (Airtricity was sold to Scottish & Southern Energy for €1 billion in 2007.) Mainstream announced earlier this year that it will develop 1GW of onshore wind in Ireland over the next five years.
In retrospect, Airtricity’s expansion in the Irish wind market, prior to its sale, was at a time of relatively easy bank financing. This time round, however, Ireland has been hit hard by the credit crisis. Mainstream – which has a presence in markets including the US, Chile, Australia and South Africa and a pipeline of 16GW – is not short of money. However, it’s perhaps a sign of these cash-strapped times that the company is working with Chinese turbine manufacturer, Sinovel Wind Group, to develop the Irish projects, which are expected to cost up to €1.5 billion. Mainstream will develop and construct the projects, with Sinovel providing the technology. And part of the financing will come from the China Development Bank – which has a commitment to provide Sinovel with up to US$6.5 billion to support its international expansion strategy.
O’Connor and Airtricity were ahead of the game during the last decade as one of the few successful independent wind project developers. In identifying the potential to work with Chinese partners, O’Connor appears once again to be one step ahead. Mainstream recently opened an office in Beijing and, according to O’Connor, “China is central to Mainstream’s strategy”. He observes that “Chinese suppliers are looking to deploy their technologies in the markets in which we’re operating”.
Fintan Whelan, Mainstream’s Corporate Finance Director, notes that the company’s relationships with Chinese manufacturers date back to the Airtricity days when the team (which included Whelan as well as O’Connor) operated in Mongolia. He acknowledges the cultural gap between east and west and comments that the Irish have reached a mutual understanding with the Chinese companies – which in Mainstream’s case is based on these long standing relationships.
With access to funding from the China Development Bank, Whelan notes that there is keen Chinese investor appetite for operating assets – and that this is an important factor driving the expansion of the Chinese players, in parallel to their ambitions to sell turbines. At the end of 2010 Mainstream worked on a 106.5MW project in Illinois with Goldwind, another leading Chinese turbine manufacturer. That deal marked Goldwind’s entry at market scale into North America and was significant for the company which – like Sinovel – aims to become a volume seller into international wind markets.Sinovel, which raised US$1.5 billion through an IPO in January this year, is the world’s second largest wind turbine manufacturer after Denmark’s Vestas – and China’s largest (it added installed capacity of 4.4GW in 2010). However, Sinovel has only recently started to expand outside its domestic Chinese market. It is targeting international markets including the US, Canada, Australia, Brazil and India. Its first venture into Europe came earlier this year through a strategic collaboration in Greece with power producer PPC (whose Chairman & CEO is Arthouros Zervos, Chairman of the Global Wind Energy Council and President of the European Wind Energy Association).
Mainstream is not the only Irish company working with a Chinese manufacturer: hot on the heels of the July announcement about the Sinovel deal, Irish developer Gaelectric Holdings revealed in August that it is co-developing three wind farms with China’s XEMC VWEC, part of the Hunan province-based XEMC Group. XEMC, which acquired Dutch manufacturer Darwind in 2009, is a leader in direct drive permanent magnet generator wind turbines. It plans to deploy its XV90 turbines at three Gaelectric sites in Ireland, with total capacity of 13.6MW, at a cost of €18 million in what will mark the firm’s first commercial installations in Europe.
Chinese equipment has been criticised in some quarters as being of inferior quality, but Whelan is more than comfortable with the quality of the Chinese turbines, pointing out that they pass the quality assurance tests of companies such as SGS. Indeed, he regards the quality issue as “a complete red herring”. O’Connor is also impressed by Chinese technology – not just for its reliability but also for reasons of price. He says about Sinovel:
“We have the global portfolio of projects, they have the world-leading technology which is ready to deploy cost-effectively and at scale. It’s a great fit”.
Sinovel is understood to be considering setting up local manufacturing in Europe. Referring to the agreement between Mainstream and Sinovel, O’Connor notes that:
“.... a deal like this has the potential to bring substantial manufacturing opportunities to markets like Ireland.”
O'Connor, in an article published in the Irish Times, recently called on the Irish Government to propose the Republic as a bridgehead for China within the EU and to leverage the relationship between China and Ireland.
So could Chinese wind manufacturing help to underpin the recovery of the ‘Celtic Tiger’? Perhaps a ‘Celtic Dragon’ will emerge? Whelan acknowledges the potential, but emphasises that the jury is still out. In the short term, transport economics are a less significant issue than might be expected, he says, because the supply chain is already biased towards low cost manufacturing countries: towers, the heaviest component of a wind generator, are typically imported from China to Europe in any case.
Longer term, Whelan points out, Chinese manufacturers such as Sinovel and XEMC have set their sights on the offshore wind energy market. XEMC has already installed a prototype of its dedicated offshore 5MW turbine at a test centre in the Netherlands. The key question, he argues, is whether the Chinese manufacturers will attain volume in offshore in the domestic Chinese market, or whether they will enter Europe as a learning experience before focusing back on their home market opportunity.
And while Chinese companies are taking their first steps into onshore wind in Europe, Whelan suggests that some of the Korean companies may in fact by-pass onshore wind and move directly to the offshore market.
Given their offshore aspirations, an established port facility is the most likely location for a manufacturing base for a Chinese – or Korean – turbine producer. Whelan suggests that locations such as Arklow, in the Republic of Ireland, or the Harland & Wolf shipyard in Northern Ireland, with its established industrial tradition, might be options. In the context of the longer term strategy to develop a position in the offshore wind market, however, he observes that Ireland might not necessarily be the location of choice. Whelan suggests that Humberside, where Able UK is developing a Marine Energy Park incorporating a logistics centre and business park, may prove to be a more appropriate location. Able Humber Port aims to support the development of three offshore wind sites at Hornsea (a 6GW project being developed by Mainstream), Dogger Bank and Norfolk Bank. Combined, these projects will require around 5,000 turbines by 2020 – or 19 turbines being shipped weekly from 2015 onwards – according to Able UK. In addition to Hornsea, Mainstream’s offshore interests include the 450MW Neart na Gaoithe project in Scotland and the 1.2GW Horizont project in German waters – all of which dwarf the scale of the onshore Irish project.
Wind may create a Celtic energy-producing ‘Dragon’ which will be well placed to export energy to the UK in the medium term. Longer term, however, there is no guarantee that the Sino Irish co-operation will attract manufacturing jobs.
Perhaps history will, in time, report that the Queen’s visit to Ireland was the inspiration for investment in Irish wind generation, with the help of finance from the Chinese. And perhaps history will relay that Ireland was a stepping stone for Chinese wind turbine manufacturers to enter into other European markets, including the UK. Perhaps, also, history will tell the story of the revitalisation of the industrial base in the Humber, on the back of wind turbine manufacturing plants based on Chinese technology and financed by Chinese capital. Only time will tell.
As far as Ireland is concerned, its history as an isolated energy producer (until the recent interconnector construction) has provided expertise in grid stability. Gaelectric has worked on studies of grid stability using fast-response flywheel technology on a large scale, based on the Irish grid. With the addition of offshore wind to the grid, storage technologies and grid stability technologies will be critical. Perhaps, in terms of technology success, there will be Irish winners from amongst the companies working on technologies for grid connection of renewable energy?
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