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Denmark

Denmark

From grass roots to big business

One of the largest wind plant developers in the world built its fortune by going door to door in Denmark, offering shares in wind plant co-operatives. This is the story of how Jysk Vindkraft grew and how its parent company, World Wide Wind, is becoming an international player under a different set of rules. Foreign investors in Danish wind farms are now welcome -- and World Wide Wind is the conduit for a new trend in green investments

It began as an unmanned desk with a telephone in an unused corner of an insurance brokerage. "We didn't know if it was a good or bad idea so we started with the empty desk," says Jørgen Poulsen. It was his insurance business, located on the island of Mors in Denmark's north Jutland, that sacrificed the desk.

The year was 1985. Poulsen and his friends, auto mechanic Mogens Poulsen (no relation) and mason Poul Hansen, were planning to erect three wind turbines. Hansen had erected one on his land the year before and putting up another three should have been plain sailing. But just before the building permit for the three was issued a new law arrived prohibiting private people from owning more than one turbine on their own land. Additional turbines, though, could be co-operatively owned within the municipality, so the threesome set out to sell the shares for the turbines. It took two days.

"It went amazingly well," says Poulsen. So well, in fact, the team got a business idea: to start a turnkey wind power project development company, acting as middlemen between wind turbine manufacturers and local farmers and wind turbine owner co-operatives. They would take care of all the administration, project planning, siting and building and delivering the on-line plant to the customer. The "three Ps" (Poul, Poulsen and Poulsen) founded their company, World Wide Wind/3 P Holding Aps, whose most important activity was focused on a 100% subsidiary, Jysk (pronounced "Yoosk") Vindkraft. The telephone on the empty desk was the first step.

"When that phone rang, say a farmer called in the evening, I had to run over from my desk and answer it, remembering to say Jysk Vindkraft," says Poulsen. "We drove around in our free time and in the evenings. For three years, we hardly ever had time off."

By 1988, the wind power business was booming, to the extent that the firm began to hire staff. Gradually, the three Ps stopped their other jobs -- Jørgen Poulsen, the company's president, sold his insurance brokerage -- and worked full time with wind power. Turnover grew substantially over the next decade, helping the company to become one of the ten largest wind power project developers on the planet.

Now, as World Wide Wind prepares for a flotation on the Danish bourse in a couple of years, the company has begun to change its business focus, phasing out Jysk Vindkraft and phasing in activity in foreign wind markets as well as other forms of renewable energy. None of this would work, stresses Poulsen, were it not for the solid experience in regulatory, practical and promotional work in wind power development the company has gained from its home country.

First lesson: persistence

World Wide Wind's headquarters, a century-old iron foundry in the town of Nykøbing on Mors, has been comfortably restored, leaving many of the original relics in place. One of these is a clock in the company's planning department, framed by the words: "Time is running. Time is money." Under the clock is a series of long, white ink boards. Here, Jysk Vindkraft mapped the progress of the dozens of wind turbine co-operatives it was instrumental in establishing. In an adjacent printing room, prospectus material for various turbine owning co-operatives was filed in the many small compartments that line the wall in rows and rows.

Forming co-operatives was time consuming and demanded patience, persistence and organisation. Once a site was found for a new plant, the company distributed thousands of prospectus brochures to local organisations and private households and took out advertisements in the relevant local press. When initial interest reached at least half the required share limit, the company invited future members of the owner co-operative to an orientation meeting at a local inn. If enough interest persisted, a statutory general meeting was called on the spot to form a co-operative, which subsequently elected a board of directors. The co-op then helped to sell the rest of the shares and when all were sold, a contract was drawn up and the project realised. "At that time we needed to find a hundred families to be able to sell one turbine. For this, we needed to send material out to a thousand families," says Poulsen.

Tough government restrictions complicated the business. Though the rules changed over the years, by the mid 1990s, the share of a turbine that a single family could own was limited to a production of 30,000 kWh a year, the idea being that a family could meet its own consumption, or thereabouts, without being treated as a profit-making business under tax law. This restriction meant, however, that Jysk Vindkraft usually had to find 40 families for a machine that generated 1,200,000 kWh/year. And when Jysk Vindkraft started business, shareholders had to live in the same municipality, or within ten kilometres of the wind turbine; by the end, they could live in neighbouring municipalities as well.

A different approach

Co-op contracts were usually for 25 years, with a ten year payback period for the wind plant. Share prices were fixed to protect investors against unexpected cost surprises in the project's development. This was a different approach to that taken by the association of Danish wind turbine owners (DV), which was also in the business of advising wind turbine co-operatives on project development. Indeed, DV was at times a vocal opponent of the Jysk Vindkraft approach, with many seeing the small company on Mors as a profit mongering capitalist in an area so sacred to Danes as community co-operatives.

"There was a sort of fight between us, a competitiveness," Poulsen says. "But we never tried to take advantage of the situation. We had to earn money at it -- we lived by selling wind turbine projects. We could never really take up the discussion in DV's magazine, so our attitude was that we'll drive our business, they drive their business." The key difference between the businesses, Poulsen says, is that Jysk Vindkraft took care of a project's financial risk, whereas DV did not. It was not a question of spreading the risk over many projects, but instead knowing the Danish wind and regulations and bureaucracy so well that there was very little chance for failure.

"We knew what a project would cost before we went out to sell shares," he says. "We knew the contract price on the wind turbines, the price on foundations and construction and the electricity system installation. We know wind conditions very well here in Denmark. What could go wrong? Ninety-eight percent of the time, nothing did." He adds that the worst that could happen was that shares took a longer time to sell than expected, but the set price for purchasing shares was in fact the key to attracting the average Danish homeowner, who might otherwise have been scared away from 20 year cost risk scenarios. "We could say that here is a set price, and it stays the same no matter how the project goes. We sold shares this way by the ten-thousands."

"No one earned a lot of money," he continues. Normally a household used 10,000 kWh a year, which meant that after the payback period, they could earn DKK 5000-6000 (EUR 700-EUR 800] a year, he continues. "A lot of people used this money for their holidays."

The shift to a new way

In all, the company erected around 500 wind turbines for co-operatives in Denmark and another 100 single machines for land owners. Today, however, the white boards are blank and the prospectus compartments are empty. This is not because Jysk Vindkraft just decided to stop its development work. Other, more wide-sweeping factors lie behind the change. First, fewer building permits are issued now than five years ago, explains Poulsen. Denmark, which is smaller than Costa Rica and comparable in size to the combined area covered by the two US states of Massachusetts and New Hampshire, has nearly 2400 MW of wind capacity currently on-line, spread among about 6300 individual units. Even the wind power happy Danes are beginning to say "we've had enough," he says.

Second, on May 22, 2000, the Danish government -- in a move that surprised nearly everyone at the time -- opened up the country to wind turbine investors anywhere in the world, allowing anyone to own as many turbines as they wished. It was one of the steps on the road towards liberalisation of the country's electricity market -- and it made Jysk Vindkraft's job that much easier. Gone were the days of trying to attract a hundred families to invest in one turbine. "Today we can sell ten turbines to one person," says Poulsen. "They sell themselves."

This is particularly the case with foreign green investment funds, he says, which are so in need of places to put their money, they are flocking around Europe on the lookout for possibilities like wind plant. "There are many investors who are tired of the stock market the last few months. They see wind plant as a solid, 20-year investment. Through the years we've been contacted countless times by foreign investors interested in Danish wind plant -- and we've had to turn them down. Now the chance is there." The company has been in contact with foreign markets, he adds, through their various communication channels, the message about Denmark's new potential is already out.

The repowering market

Jysk Vindkraft is thus focusing its energies on a big potential market in Denmark to replace old, small wind turbines with larger, newer machines. To kick start this repowering market the government is offering what sounds like an amazingly lucrative deal: replace an old turbine with one three times its size and receive a guaranteed fixed rate for the new turbine's output of DKK 0.60/kWh (EUR 0.081/kWh) for the first 12,000 "full load hours" -- the hours for which a turbine has operated at full capacity. Jysk Vindkraft is one of the few companies in Denmark actively working with the new repowering market with its high guaranteed tariff, Poulsen says. There is a catch, however, including an impossibly tight time schedule imposed by government.

"This is even more difficult than first getting a turbine installed," says Poulsen. "First you have to drive out to the spot and convince enough people in the co-operative to call an annual general meeting and then a majority must decide to tear down the old turbine. Then we need to tear it down and clean up the foundation. You must find a location for the new, bigger unit, and with the rules designating distance to the nearest neighbour and so on, this can be difficult in some areas. The new turbine can almost never be installed at same site. Then environmental impact assessments must be done and the new turbine built. But it needs to be on-line by 2003 to be eligible for the high fixed subsidy -- and this is almost impossible."

He says the whole plan for the repowering subsidy is looking more and more like a fiasco. Still, the Danish authorities are keen to see the removal of around 1500 old Danish turbines -- often occupying sites that would be much more effectively utilised by a modern wind turbine producing far more power from the same amount of wind -- so hopes are high among many that the deadline will be extended.

Green certificates and all that

Meantime, Poulsen has been a supporter of the liberalisation of Denmark's wind power market as part of the country's broad electricity market reform. Until now the environmental value of wind power has been recognised through a fixed "green tariff," a policy not compatible with the commercial nature of a free market. Instead of the tariff, the government has proposed a green power standard for the entire country's electricity consumption. To comply with the standard, consumers of power are required to buy an appropriate number of green certificates -- with the fee for these certificates going to the wind power producer to top up the contracted sales price for the physical power.

"I have fought for a green certificates system here in Denmark. But I think the fight is going to be lost," says Poulsen. "Fixed prices make it easier to sell wind plant and finance them, but in the long run there is more money to earn in a green certificates market. Danish manufacturers have opposed the green certificate system, but this is simply because it's easier to sell wind plant under a fixed price system. This is short-sighted. There is a boom in Germany now for wind power -- and this is due to a fixed price system allowing for wind turbines to be installed where there are bad winds. Again, this is short-sighted. It's clear that a green certificate system will take about four or five years to get going, but we really wanted to go for it."

He points out that Denmark, the Netherlands and Italy have been the only countries remaining still serious about shifting to green certificates, but that does not make much of a market. Sweden was just getting interested, too, he adds, but now that Denmark is getting cold feet, he expects Sweden will, too. "So now we'll have to just live with different fixed price models in different countries."

The loophole

Meantime, World Wide Wind is these days doing its best to live up to its international name with projects abroad. Ironically, the foundations for today's international growth were laid by a turnabout on the home market back in the 1990s. It changed Jysk Vindkraft's course so drastically that today's vanishing Danish market is of little consequence to the company's fortunes. Up until 1995, company turnover was around DKK 20-30 million a year. In 1995-96, it increased tenfold to about DKK 250 million. How? "We found a loophole," says Poulsen, with a wink.

Until then a farmer was allowed to own one turbine if it was installed on his own land. But there was nothing in the law preventing the farmer from selling off a little piece of his property to someone else in the municipality -- even if that person did not live on adjacent property. In effect, the buyer simply annexed, on paper, the farmer's land to their own property. Jysk Vindkraft leapt upon this opportunity for hugely increasing its market of landowners able to install turbines. So many deals were made that after only four months -- when the loophole was closed by the Danish government -- business could shift up to another level entirely. "We really got a boost," Poulsen says.

The extra income allowed World Wide Wind to get serious with its plans for Sweden, Poland and Spain. "We'd earlier looked into Spain, but it was much too expensive, and we were not interested in borrowing money."

Of the projects outside Denmark today, Spain is rolling the best, with 229 MW in final stages of preparation, with plans to go up next year after a recent record financing deal (Windpower Monthly, September 2001). The company hopes to get final approval for 1000 MW in the country by the end of the year.

Otherwise, there's a research and development project in Estonia (page 19), other development activity in Italy, Germany and Spain, and initial government approval for a 100 MW offshore project in Poland (Windpower Monthly, September 2001). The company has two years of offshore experience via its Swedish subsidiary, European Offshore AB, which in 1998 bought in a 500 kW Wind World turbine that Swedish Vindkompaniet had erected off Gotland's shore. "We have learned a lot from that," Poulsen says.

FLOTATION

In the course of the next two years, Jysk Vindkraft will be phased out completely, to be replaced by the more international-oriented subsidiary, Renewable Energy Group. This is being lead by Niels Immerkjær, previously head of the wind division at the giant ABB concern.

By 2003, World Wide Wind hopes to have completed a flotation on the Danish stock exchange. By this time, predicts Poulsen, wind development on land will be its core business, supplemented by biomass, offshore wind power and photovoltaic (PV) cells. "I believe that PV will become even bigger than wind turbines in the long run," says Poulsen. "Other countries besides Denmark are already reaching their limit for wind turbines in some regions -- take Germany and Spain. And there are many areas in the world where the wind doesn't blow. It's necessary for us to combine wind power with solar power."

More pressing, however, is the attempt to get a biomass turnkey business up and running in Denmark, then taking it to foreign markets. World Wide Wind has gone so far as to buy a wood pellet factory in Estonia, which guarantees it with a supply of up to 100 tonnes of wood pellets a day. The fuel is shipped to Grenå, Denmark. "We don't make biomass plant, just like we don't make wind turbines," Poulsen points out, adding that the company must have a supply of fuel to test its concept.

The question is whether the Danish market will be just as open to a new, stepped up focus on biomass as it has been to wind over the past 15 years. For the three Ps, there's no other way to find out than try.

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