Online Extra: Q&A with Johannes Poulsen, Wizard of Wind

His Danish company has become the world leader in windmills that generate cheap power

Perhaps more than any other single individual, Johannes Poulsen has turned clean wind energy into a serious competitor to dirty coal and oil. A soft-spoken Dane, the 59-year-old Poulsen is managing director of the world's largest windmill maker, Vestas Wind Systems. Under Poulsen's direction, Vestas has increased the size of its generators and improved computer controls to make its machines especially efficient. The best Vestas windmills now can produce a kilowatt-hour of electricity for about 5 cents -- half the price of just five years ago.

For Denmark, too, the wind boom has been important. Vestas and two other Danish wind companies have grabbed two-thirds of the growing world market for windmills. Poulsen met recently with BusinessWeek's William Echikson at the company's headquarters in a small fishing village on the Jutland Peninsula. Here are edited excerpts of their conversation:

Q: Why did Denmark become such a leader in wind energy?


Windmills were traditional even before World War II in the countryside here. They were used before for processing food. The modern wind industry started in the 1970s, when Denmark and California came up with incentive program to use wind power. But they used different incentives.

In Denmark, it was an investment subsidy and guaranteed high power prices. In the U.S., a depreciation and tax credit was used. It encouraged limited partnerships. Most American investors never saw a wind turbine. They were doctors and dentists, and once they got their tax credit, they were satisfied. By contrast, the Danish system required investors to generate electricity.

Q: What did this mean in practice?


In Denmark, many farmers began making more money on power generation than on farming. They repaired wind turbines when they broke. In California, when the mills broke, they were often not repaired. When suddenly the incentive system was canceled in the mid-1980s, the market collapsed. That brought almost all manufacturers, including us, to near bankruptcy.

Q: How did Vestas survive?


We also had a farming and a crane-building business. But we struggled and went bankrupt in 1986. Then a small group of local investors came in and established a new company, Vestas Wind Systems. They sold off all the farm-machinery division. I joined in February, 1987.

Q: What attracted you to the company? Were you an environmentalist?


No. Before coming here, I was in different industries, such as the ice-cream manufacturing business. I also ran a furniture business, located not far from here. When Vestas approached me, I didn't know much about wind turbines. But the investors convinced me that there was a future in this business, and the challenge excited me.

Q: Why were you confident? After all, the business was bankrupt.


Vestas still had considerable assets. It ranked among the most reliable manufacturers of wind turbines. Our technology worked. I think our background in farming helped. American manufacturers came from the helicopter industry and used lightweight aerospace materials. That required a lot of maintenance. We used heavy, sturdy components. Our choice was better-suited to turbines designed to last for 20 years in a difficult environment, in all types of weather. They needed little maintenance. The Danish approach is the surviving one.

Q: How did you rebuild the business?


We corrected the impression that wind turbines didn't work well. We built a test site in California, and the turbine performed. Eventually the market started to revive. The growth was modest at first, from $10 million in sales in 1987 to about $15 million the next year. But the trend was upward.

Q: Is wind really competitive as an energy supply?


No doubt -- it used to be much more expensive. The discussion of global warming and the greenhouse effect helped us. They provided the early impetus. In the first half of the 1990s, it was this environmental aspect of wind that fed the growth. Since then, the turbines have become much more efficient. We have brought costs down 5% a year. Now, wind power is among the cheapest energy sources around.

Q: And yet you still need subsidies. Why?


Wind power is cheap, but buying a new wind turbine isn't cheaper than just pouring some more coal into an already operating coal-fired power plant. And developing countries that need more energy generation often are skeptical at first about wind's potential, though we are making progress in places such as India.

Q: What are your predictions for the market?


It will grow at least at 25% a year for the foreseeable future. The major markets will be Germany and the U.S. I think the California energy crisis is a turning point. California realizes that it must build new capacity. That's a big change. California should help us prove to the world that wind power has several advantages, that it can be installed fast, works immediately, is cost efficient, and is clean. It takes three to five years to build a new coal plant for 500 megawatts. We can install 500 megawatts in three-quarters of a year.

Q: What are the risks?


It's a challenge to grow as fast as we have been growing. We double capacity every second year. That's hard. We have to make sure we perform. One of our Danish competitors, NEG Micon, had a problem recently with its gearboxes. So far, we thankfully have escaped such problems.

Q: Isn't there a problem with wind in that you can't be sure exactly how much energy it will produce and that you can't store electricity?


Until now this has not been a handicap. If we ever supply more than 25% of total electricity, it could be a difficulty. But that's only an issue here in Denmark and in certain areas of Germany. Plus, the development of fuel cells that store electricity is very promising. So I am optimistic that we are not yet near capacity.

Q: Didn't you have some problems in India?


Yes. We decided in 1994 to finance inventory with our joint venture in India. At the time, India was the world's largest wind market. But then in 1996 there were elections, and the upshot was that interest rates rose to about 30%. The market for wind investments disappeared overnight. So we wrote down our investment, about $8 million. But we stayed in India. And the market there is again growing fast.

Q: How large is the global wind market, and who are the main competitors?


I believe we installed 4,500 megawatts last year, and that's about $5.5 billion in sales. The Danes have about 60% of the market. The other players are mostly German, but they only supply their home market. Enron is the only American manufacturer left, but its operations are concentrated in Germany and have taken a Danish approach to technology. NEG Micon used to be larger to us, but we have now jumped ahead.

Q: Are you worried of suffering from the stock crash in technology shares?


Going public was a natural development for us. We are now one of the top 10 companies traded on the Danish exchange. I like it. It's an expression of interest in our company. Yes, our shares have risen fast, and our market capitalization is about $6 billion. There are high expectations. But until now, we have lived up to these expectations, which is why our share price has been maintained.

Q: Aren't you frightened that General Electric, ABB, and other big manufacturers could enter the market? Hasn't ABB announced a new revolutionary turbine?


The big global players might well get interested in this industry. We think they should be interested. But I believe it will be hard for them to start from scratch. We have years of expertise built up in how to site a wind turbine. And most improvements are evolutionary, not revolutionary. So the big players probably would have to acquire one of the existing manufacturers.

Yes, We have heard a lot of talk about ABB. They are developing a special generator. But it remains unclear whether they want to manufacture themselves. I think they will prefer to remain a component manufacturer.

Q: Do you want to be bought out?


We have a strong feeling that we can continue to grow independently. I believe it is important to have a clear focus on what you are doing. If we become part of a large conglomerate, there is a risk that we would lose some of our focus.

Q: What are the industry's next challenges?


I think a large part of the future will be offshore. People then can no longer complain about wind parks in their back yard. Plus, going offshore gives you a number of advantages. The wind speeds are higher. Of course, it is more expensive to install and operate turbines there, but we are working fast on the technology.

Q: What's been the impact of the wind industry's growth here in Jutland?


The shipyard here had gone broke. We have taken over all the facilities and expanded them. But now we have reached our maximum expansion in Denmark. Our future growth will come abroad. If the U.S. market stabilizes, and we are sure of the incentives with new tax credits, I think we will invest in a manufacturing plant there.

Q: What do you think about George Bush's energy policy?


Bush imposed renewable energy requirements for Texas. He is thinking of promoting renewables with new tax credits. That makes me optimistic.

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