Denmark to be fossil free by 2050 – a comparative advantage

«Deep Sea Delta», boreplattform, her i Nordsjøen

Oil platform

Most of the developed countries have agreed to reduce its dependence on fossil fuels. By the Kyoto accord the number greenhouse gasses have to be reduced 5,2% by next year and the EU have set ambitious target of 30% reduction by 2020. But now Denmark is setting even higher goals as the ambition is to be independent of all fossil fuels by 2050 that is Denmark will be self sufficient on coal, oil and gas. With these initiatives the CO2 reduction will for Denmark alone be around 35% to 40% in the ear 2020 e.g. 5% higher than the EU target.

While most of us will agree that this could very well be too ambitions a target to go for but none the less it is what the government is aiming for. So will this not make Denmark less competitive in the future you might ask? Well according to the Danish minister, Martin Lidegaard, for energy it is what is going to make the country the even more competitive.

According to the International agency energy the price of fossil fuels will go up by one third towards 2035. This means that crude oil will be traded from somewhere between 140 and 160 USD on an average day of trading. Even though one cannot make a direct link between the price of crude and the price one have to pay at the gas station there is no doubt that the increase is going to be significant. Together with the other types of fossil fuels that we need it all amounts up quite a big expense that ordinary people have to pay, money mind you that could go to other purposes.

It is this comparative advantage the government will take advantage of and being first mover can prove to have its advantages. In the governments plan Denmark will be the birthplace of green and sustainable energy innovation. A whole industry will flourish and companies and universities will work together in order to crate and share knowledge that will make it possible to achieve the targets. Energy consumption will be taxed (even harder) so to give incentive to consumers and companies so that they reduce their use of energy even more than they do now.

The ambition is that Denmark should be dependent on “green” electricity. This will be done through a capacity increase of a 1200MW windmill farm on the ocean and by building 1800MW of windmills on land. A rough calculation based on some of the biggest windmills we have today will mean that around 600 mills have to be built. There will also be a massive increase in biomass fuels in order to substitute fuel like coal.

I would like to think that Denmark can gain a comparative advantage by becoming a greener nation than the rest of the industrialised world, but there are some things that have to be realised if this dream is to become true. First fuel prices have to go up significantly as it is predicted and secondly no one else is setting even more ambitious goals that could mean that we get outcompeted even bore we start.

As the situation is right now there seem to be no consensus by the biggest energy consumers in the world to reduce its consumption. As long as they keep on being divided there is a good chance that the plan might work and that Denmark will remain one of the top nations in the world. Just imaging the difference it will mean if the US remains on its current energy course and the price of oil reaches 200 or 250 USD what will it mean to society and not least what will it mean to Denmark that will not have to worry. Well it is food for thought.

Vestas from the air

I have been on one-week tour of the western part of Denmark and took the opportunity to have a view of Vestas facilities seen from the air. Among the sites were the 5 MW giant mill that will is to supplemented by a 7 MW mill later this or next year.

Vestas logisticsThe Vestas shipping facilities at Ringkøbing in western Jylland. Looks quite busy on the docks which is good for my portfolio.
wind millSecond picture shows the 5 MW mill in action. Not the best picture but it is quite difficult to hold the camera steady while you are flying a small plane.
Vestas windmill farm

I tried to capture as much of the windmill farm outside the factory however my objective could only get part of the huge complex.
windmill factory
This is the plant itself. From the air it looked fairly busy so it could be that the value of the company measured in the current stock price is somewhat under the mark.

No Bonus for Vestas Wind Systems Management

Vestas wind turbine, Dithmarschen.

Image via Wikipedia

Vestas wind system have in the past have had real problems with customer satisfaction. The main problems have been with the gear system in the wind turbines and in the past they have been the source of real challenges for Vestas customers.    

In the just released annual report the company reported a customer satisfaction of 64 but this is not good enough when the target was for 70. Vestas’ customer satisfaction, not deliver the expected growth in 2010 and therefore contributed to an absent bonus for Vestas management. 

Vestas in 2010 conducted a customer satisfaction survey in which 986 persons from 348 customers answered the Danish wind giant. And the answers were not positive enough. 

Customer Satisfaction Index was ended in the index 64 and thus unchanged from 2009, where satisfaction rose by 12 index points. 

Five sales business units went forward and two went back, said Vestas annual report. Now reads the target for 2011 at an increase in customer satisfaction index to 72 and a further increase to “at least 75”. 

“It is on level with the best in the world,” says Vestas. 

The bonus for 2011

As the targets that triggered the bonuses for 2010 was not met by Vestas management they will have to wait another year and try again.
The customer satisfaction index of 72 counts 20 per cent of the corporate bonus target. In addition, counts an operating margin of 8.4% counts for 35%, a free cash flow of 200 million euro 30% and a turnover of 7 billion euro 15%. 

In 2009 Vestas managed to raise customer satisfaction which was mainly attributed to better performing mills, an improvement in the cooperation with customers, better internal process management and launching of new products and services. 

“All actions that are helping to lay the foundations for the necessary growth in turnover and profitability in the coming years,” said Vestas.