Home market drives global ambitions

Boosted by the Japanese government's new drive to encourage renewable energy development -- including an official target to increase wind power capacity to 3000 MW by 2010 -- Mitsubishi Heavy Industries is aggressively gearing up its wind turbine manufacturing business in a bid to increase the company's profile as one of the sector's major players.

Mitsubishi Heavy Industries, a true giant of the commercial world, is no longer content with its wind division's role as a relatively minor player on the global market. It is now working to take what it sees as its rightful place among the wind industry's heavyweights

Boosted by the Japanese government's new drive to encourage renewable energy development -- including an official target to increase wind power capacity to 3000 MW by 2010 -- Mitsubishi Heavy Industries (MHI) is aggressively gearing up its wind turbine manufacturing business in a bid to increase the company's profile as one of the sector's major players. "Until recently we had a disadvantage compared with many other wind turbine manufacturers, because we lacked a home market," says Yoshinori Ueda from Mitsubishi Power System headquarters in Yokohama. "Japan has now developed into a substantial market for wind turbines and we aim to be an important player. Having a home market gives us better options to develop new products and to plan ahead."

The company is so confident it will increase its market share both at home and abroad that it has said it expects to double its global wind turbine sales this year. Its wind division turnover is now forecast to reach around ´40 billion for the year ending March 31, 2004, compared to ´20 billion for the year ending March 2003. By 2005, it says, its global share of the wind market is expected to increase from today's 2% to 5% or more. At home, it expects to take a 25% share of new orders this year (up from 6% last year) and in the US (its main market) it hopes to increase its share to 20% from today's 11%.

The Japanese government's plans to increase wind generation from the current 500 MW means new opportunities are opening up for MHI both at home and abroad, Ueda says. Up to now, 90% of MHI's turbine business has been in the US. Up until July the company had installed 1652 turbines worldwide with a combined capacity of 870 MW. Of these, 737 MW is in the US, consisting of 1389 turbines, 41 MW in Europe (124 turbines), and 89 MW in Japan (131 turbines) with the remaining eight turbines turning in India, Mexico and Peru.

Certain advantages

Japan needs to install 2500 MW of wind capacity in the next seven years if its targets are to be met. MHI plans to supply a quarter of this new capacity. "Being a domestic manufacturer gives us certain advantages," says Ueda. "We understand the market, and we are close to our customers. For example, during the big typhoon on September eleventh, several wind turbines were seriously damaged in Japan. Towers were broken on three turbines, and blades were broken on another three. Fortunately, they are not Mitsubishi turbines, but this is not an uncommon problem in Japan.

"Apart from typhoons and random wind, there is also heavy lightening, which can easily damage turbines. Therefore Japanese wind turbine owners hold reliability and after service in high esteem. Mitsubishi can produce reinforced turbines for the domestic market -- and even if something breaks down we can respond very rapidly and we can supply spare parts relatively quickly."

This local knowledge, he says, will give MHI the edge over its competitors. Moreover, in anticipation of new business, it has doubled its turbine production capacity to 500 units a year at its Nagasaki plant and enhanced its blade production capabilities. This total production capability gives the company added strength and the ability to develop comprehensive technology, says Ueda.

"This is one of the factors which will decide the future winners in the global wind business," he says. "We can produce wind turbines with both induction and synchronous generators. The latter is a turbine without a gear box and permanent magnet synchronous generator (PMSG). Because of its relatively simple mechanical structure, it requires little maintenance, so can be applied for the coming offshore market."

Direct drive turbine

Right now Mitsubishi is promoting its 2 MW direct-drive PMSG turbine, the MWT-S2000. The first two of these have already been sold on the home market: one to a hotel in Awajii-shima in Hyogo-Prefecture, the other to Okinawa New Energy Development Company in Okinawa. A new high performance 2 MW class turbine is also under development, while the next step, Ueda says, is to develop a 4-5 MW class turbine in the coming years.

Producing these at lower cost will be the challenge. The movement on the global currency market has recently helped Mitsubishi gain a significant cost advantage, even if only in the short term, over European manufacturers in both the US and Japan.

In order to gain more hands on knowledge of wind turbines in action, MHI has for the first time invested in a wind farm in Japan. It owns 90% of the 11 MW Seto Wind Hill in Ehime-Prefecture in the Shikoku-District. The remaining 10% belongs to the local government. The project uses 11 Mitsubishi 1 MW turbines, which began generating electricity last month.

According to Ueda, the company may well consider further direct investment in developing projects, but he stresses that the main aim of its involvement in Seto Wind Hill is to establish a wind power showcase for Mitsubishi in Japan. Being an operator though, he says, will also give Mitsubishi first hand experience with installation, operation, maintenance and after service: "We are aware that the wind turbine is only a part of the business. Service is just as important."

new role

Ueda notes that the company's size and financial muscle may help it move into a new role as project developer, should it decide to follow that route. But for now it will concentrate on its core manufacturing and turbine supply business. It already has significant orders in the pipeline, including the supply of 43 of its new 1 MW MWT-1000A turbines to the Kamaishi wind project in Iwate-Prefecture, which will be the largest wind farm in Japan. The owner is Eurus Energy Japan and the total investment is ´10 billion. The project will start producing electricity in November 2004.

More projects are expected to follow, says a confident Ueda, but there is one serious hiccup that could thwart its plans for the Japanese market. Lack of enough grid capacity could limit the potential for wind generation in the windy northern districts (such as Hokkaido and Tohoku), pushing the focus to less windy areas such as Tokyo, Chubu and Kansai further south.

Until improved grid infrastructure is in place to ensure distribution to these areas, utilities in the non-windy states will not be able, Ueda says, to meet their obligations to source 1.25% of their power from renewables by 2010 -- not by using wind power, one of the cheapest and the most readily available renewable energy options. "Unless the government steps in and invests in expanding the grid, there will be a serious hole in the wind market," Ueda warns.

He is optimistic this investment will come in time. In the future, he sees Japan becoming a core focus for Mitsubishi's wind business, alongside the US market. In Europe, however, the wind energy playing field is not level for Mitsubishi in countries like Germany and Denmark, says Ueda. The German wind market is 25 times bigger than the Japanese wind market, but Mitsubishi has only succeeded in selling one turbine to Germany over the years, he points out.

"America is still going to be a very important market for Mitsubishi," he adds. In fact, the company started local production of blades in Mexico last year. It can currently produce 500 blades a year, but MHI is considering expansion to enable 1000 blades a year to be produced. Whether the company will establish a new manufacturing facility in America depends on the sales volume. If it sells more than 500 turbines a year in the US, then the possibility could turn to reality, Ueda suggests.

In Europe, Britain will continue to be the company's priority although other countries will be examined. Australia is being watched intently while with the help of Japanese development aid, MHI might break into the Philippine and other Asian markets.