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Getting ready for major investment

The mighty General Electric Co is showing all the signs of being deadly serious about its entry into the wind power business through its purchase of Enron Wind. GE Wind Energy boss Steven Zwolinski is busy shaping a company able to supply whatever the market for wind stations desires

General Electric Co has entered the wind industry as a wind turbine manufacturer, a builder of wind power stations and as a supplier of ancillary services, including financing, wind plant operation, and maintenance. GE Wind Energy is not -- adamantly not -- setting up as a project developer. "Our goal is not to develop our own wind farms," stresses Steven Zwolinski, who heads the new unit. "We do not compete with our customers." It is the first of a series of points that Zwolinski is at particular pains to make in an hour-long early morning interview on the second day of the American wind industry's annual conference in Portland last month.

If Zwolinski suffers from jet lag it had failed to kick-in after his arrival from Europe the previous evening. More likely, after years spent trotting the globe for GE, immunity to jet lag has long been part of the Zwolinski armour, along with a clear-cut, no-nonsense certainty of manner, nicely tempered by an easy going boyish charm. He has a bachelor degree in mechanical engineering and a masters in business administration. With 20 years at GE behind him, most recently as general manager of GE Global Hydro, the glint of personal ambition is undeniable as he picks up the reins of GE Wind Energy.

GE Wind, says Zwolinski, will provide what its customers want. If a turbine purchaser wants GE to develop a project "we will help them." The same goes for financing. "It will be on offer if it makes sense to the customer," he says. Indeed, the customer-at-the-centre philosophy is one of the points Zwolinski hammers home. In this he is a follower of Jeffrey Immelt, GE's new board chairman and CEO, who took over from legendary former boss, Jack Welch, last year. (Incidentally, Immelt started at GE in the same year as Zwolinski, 1982). While Welch was a "products" man, Immelt's oft-quoted focus is on sales and the front end of business.

Zwolinski's focus is in the same place. GE Wind's product line will be tailored to customer demand, he says. "If customers need smaller units we will let the market tell us what is needed." Meantime, GE will be marketing the relatively large 1.5 MW European workhorse of the former Enron Wind. The machine is based on technology developed by Tacke, an ailing German wind company bought by Enron in 1997, just months after the disgraced American energy giant entered the wind industry with its purchase of Californian Zond. GE Wind is also testing a 3.6 MW prototype for offshore use, developed in Europe and recently installed in northern Spain.

Warranties solution

The Zond technology is being left well alone. In its purchase of Enron Wind, GE even refused to pick up Enron's warranties on the troubled Z-750 turbines -- more than 500 of which operate in the US Midwest, California and Texas. Market players, let alone the owners of the Midwest wind stations (Windpower Monthly, May 2002), have been left fearful that the machines could be abandoned by the wind industry, tainting the fragile sector with the unpleasant odour of Enron's scandalous demise.

Zwolinski is clearly tired of discussing the warranties. It is an almost closed book as far as he is concerned. "We are working on a solution with the customer and Enron Wind," he says. "They know we are not going to leave them high and dry on this." The warranty issue was holding up the whole deal and the partners were "miles apart" during purchase negotiations, says Zwolinski. "Rather than hold things up we decided to go ahead. We could not understand the problem well enough to put a price tag on it. So we decided to cog it off." He adds: "We really understand the physics of failure. We are just diving in now. We can work commercially with these customers and individuals."

Neither was GE prepared to take on the around 200 MW of wind plant owned by Enron, mostly in California but also in Europe (Windpower Monthly, April 2002). These remain with the rump of Enron Wind. GE, it seems, has little faith in machinery it has not had a hand in manufacturing. Indeed, Zwolinski is emphatic about vertical integration and the tight in-house control GE will bring to wind turbine manufacture and installation -- a departure from the industry past, where assembly of components from more than a hundred suppliers has been typical.

Tip to toe manufacture

GE, he stresses, is an expert in the whole range of wind energy components and skills: blades, gear boxes, generators, electronics and mechanics. The company also has major facilities for non-destructive testing. "It is not a matter of developing it. It is a matter of supplying it from within the group. We have it. We own it," he says. "There is a lot of technology already developed in GE that we do not have to pay a lot for."

No decision has yet been made on whether GE will make its own blades or use a supplier, though Zwolinski says the company is keen to apply its aerodynamic and composite skills to not only blade production, but also blade design. GE might even develop brand new airfoils -- the basic aerodynamic shape seen in cross-section on which any wind turbine blade is built -- specifically designed for wind energy conversion rather than for keeping airplanes in the sky. If that scale of investment were to happen, it would be a radical leap forward for the entire wind industry.

"We are going to put a lot of money into this industry," Zwolinski assures. What GE offers, he continues, is blade-tip to tower-base knowledge and expertise, from transmission at the top of the compact column of vertical integration down through the grid, the wind turbine, to the "molecular structure" of the raw materials used for components. "At the group level we can model the grid better than anybody in the world," he states.

Service and operations and maintenance (O&M) will be particular company strengths. GE Wind hopes to do the O&M on all the wind plant it sells. Effective management -- the ability to apply a quick fix to failures -- is a key business parameter for Zwolinski, a former general manager of GE's Global Services Center. "We can serve it anywhere in the world. We have a sense of the urgency needed to get it done." Colleen Repplier, newly appointed general manager of GE Wind America and a long time colleague of Zwolinski's, firmly nods her agreement.

Warranties, too, will be a natural part of the GE sales package. "We'll provide whatever the market requires," says Zwolinski, exuding the confidence expected of a man whose guarantees are backed by the might of GE. Repplier cautions, however, "The goal is not to need to exercise the warranty."

Vertical integration also applies to company management. "This is GE. We do not let anybody run independently." Zwolinski, an American national, leaves little room for doubt that the German end will no longer be allowed to run its own show. He may well make his base -- an office which he says will need no more than a handful of staff -- in Europe. Paris is running as the favourite relocation from Norway for Zwolinski and his family (he has three children). Conveniently, Paris is also the location of John McCarter, European head of GE Power Systems, GE Wind's immediate parent. And McCarter has stated that he is keen to work on making GE more visible in Europe. GE might be the world's largest company and a household name in America, but the GE trademark does not have the same recognition in Europe, an image problem the company has been working on since the European Commission said no to its takeover of Honeywell.

Zwolinski answers directly to the head of GE Power Systems, John Rice, and through him to Immelt. GE Co, Zwolinski says, is enthusiastic about its diversion into green energy -- and supportive. "We like the business and we're excited by it," he says. GE Capital has been in on the wind venture since the start, assessing not only the potential needs of wind turbine customers for project financing, but also the likely scale of investment required by GE Wind.

Below his management level, Zwolinski describes GE Wind as a three pole structure each with a general manager -- America, headed by Colleen Repplier, Asia headed by Steve Fludder and Europe, where Herbert Peels continues to head up the European operation from Germany, as he did under Enron Wind. Peels is the only GE outsider in the trio. Despite the existence of the three regional bases, turbine manufacturing facilities in California, Germany and Spain, and blade production in the Netherlands, wind turbines could be churned out from any of a number of GE outlets, says Zwolinski. He sees putting turbines together as a "portable assembly" operation. "If we need to do local assembly for a local market, we will. GE has facilities anywhere in the world we need them."

Enron Wind employees, whose talents are considered to be "critical to the transition to GE and our future strategic initiatives," will be kept on board. "We're going to figure out what the customers need. We'll be adding engineers and technology people and filling in the other gaps." No significant layoffs are expected "at this time."

The variable speed patent

Underpinning the three regional wind units are three layers of global foundation: engineering, marketing and sales, and (most importantly stress Repplier and Zwolinski) quality control. Quality is a Zwolinski speciality at GE where he was Quality Leader for the much vaunted "Six Sigma" program, under which employees are trained in "strategy, statistical tools and techniques," for identifying and eliminating all product defects.

The issue of the patent is one area on which Zwolinski will not be drawn. "I'm not a lawyer," he flatly responds. As part of its purchase of Enron Wind, GE has acquired the North American patent on variable speed wind turbine technology. The patent was obtained -- and successfully defended from a challenge by Germany's Enercon in 1995 -- by Kenetech Windpower. It was later acquired by Zond after Kenetech's bankruptcy, before passing into Enron's ownership and then into GE's hands.

After a moment's reflection, Zwolinski softens his tone. "We know what we've bought and we priced it," he says. "We are still working on that whole intellectual property strategy ... we have not made hard plans or anything to change that overnight." Meantime, it would take a brave competitor to attempt a sale of a variable speed wind turbine in GE's backyard.

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