… Sperans quis vult audire
Renewable energy and wind is not an exception is a competitive market. Projects are assessed on LCOE (Lowest Cost of Energy) and the go-to-market strategies are more and more often in project discussions. The off-taking of the (produced) electricity is not granted anymore or highly exposed to the merchant market.
The supply chain (SC) management (SCM) is not a stranger to this, exposing its vulnerabilities and risks.
Aside from the increasing industry’s level of competition, we will show a few of them in this post.
Strain 1: The rare-earth elements …
It is well known that wind turbines are classified into two types: fixed speed and variable speed wind turbine. A variable speed wind turbine provides more energy than the fixed speed wind turbines, reduce power fluctuations and improve reactive power supply.
In variable speed wind turbine generators, two main technologies are used: i) PMSG (Permanent Magnet Synchronous Generator) and ii) DFIG (Double Fed Induction Generator).
Many modern turbines use PMSG wind turbines which use few called rare-earth elements and particularly neodymium (Nd), praseodymium (Pr), dysprosium (Dy) and terbium (Tb). These elements are key in the composition of the NdFeB permanent magnets.
These rare-earth elements are found across the globe but concentrated deposits are rare and expensive to separate. Following price spikes in 2011, there have been few boom, bust and boom again cycles.
While the future demand for high-performing NdFeB magnet and its constituent elements is likely to increase, the future deployment of wind power generation may be affected by potential disruptions in the supply and price rises of critical rare earth elements. However, OEMs are putting already strategies in place to reduce this risk.
The development of new high-efficiency magnets using a limited amount of critical rare earth elements (or none at all) is not only a risk for the wind SC but crucial for the large-scale deployment of wind turbines and also electric vehicles (EVs).
Strain 2: Country strains and the local content …
In order to protect and/or developing country’s industry or simply warrant further supply chain investments, governments are increasingly setting rules to comply with local content requirements (LCRs), meaning that they have to award a proportion of the main contracts to that particular country based companies. This is not limited to emerging markets but also to the more mature (e.g. the UK and offshore) and also for onshore and offshore projects.
Whilst companies are moving their supply chain into more cost-effective countries (as global competitiveness of wind is increasing, and price pressure is mounting on the industry), this removes some degree/s of freedom for the SC management.
On the contrary, it can become an opportunity as well (e.g find & develop new suppliers, cost opportunities due to less transport, avoid import duties or avoid currency fluctuations).
Strain 3: A very-UK strain, the B word…
The UK will leave the European Union on March 29 and so far there is no agreement to replace the rules and regulations that govern vital trade between Britain and the rest of the world.
The potential chances of a hard Brexit have boosted the risk mitigation plans in several wind industry players at different levels and not only the supply chain itself.
For the supply chain, few wind players have reviewed and increased their levels of stocks fearing higher lead times or increased taxes. Another lead has been the peak of demand for warehouse space.
When thinking about SCM, we need to think about the whole asset life and therefore in all five major supply chain segments: Development and Consent, Wind Turbine, Balance of plant, Installation & Commissioning and Operations & Maintenance.
These strains might lead to vulnerabilities and risks that will have an impact across the asset life.