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RPA on New Jersey’s Electricity Rate Emergency
Kyle Mason (Associate Planner) and Robert Freudenberg (VP, Energy & Environment Program) from the Regional Plan Association break down why New Jersey electricity rates spiked 17-20% in June 2024. They explore how outdated grid infrastructure, AI-driven energy demand, and stalled renewable projects are creating a perfect storm for ratepayers.
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Allen Hall: Kyle and Rob, welcome to the podcast. Thank you for having us.
Robert Freudenberg: Yeah, thanks. Great to be here.
Allen Hall: Uh, so I was doing a lot of homework online a couple of days ago and looking into, uh, some statements with an administration about the electricity rates in New Jersey, and I thought, well, I need, I need to do my homework because some of this is new to me and throughout all my research and spent several hours on it.
Your organization is the only one that had any real data. So I’m glad you’re joining us today. So, Kyle, I would like to start with you first, and, and. There’s a fundamental challenge that’s happening, uh, in New Jersey. Can you just paint a picture of what around New Jersey rate payers are facing with their electricity bills?
Kyle Mason: Yeah, absolutely. So starting [00:01:00] June of this year, uh, electricity rates in New Jersey went up between 17 to 20%, depending on your utility company. Uh, that is a cause of a larger problem with the regional grid operator. PJM. Uh, PJM is the grid operator for New Jersey and 12 other states. It covers over 60 million people in a wide geographic area.
Uh, they run a annual capacity auction, which secures power for when the grid is at peak load or when most power is being used on the grid. And that capacity market saw record high prices, which trickled down to. Increased electricity rates for New Jersey rate payers.
Allen Hall: Rob, from a policy perspective, how did we get here?
Robert Freudenberg: Yeah, I mean, there are, there are so many ways we got here and that’s part of the issue. Um, you know, I think what we’ve seen in, in the aftermath [00:02:00] of these rate hikes is everybody trying to point to one thing. Uh, and there is no one thing here. This is, this is a series of changes over time. Um, you know, we’re.
We’re, we’re looking at, um, the way we bring energy onto a system on an old grid. We have a very old grid. And we’re trying to update it in real time. And the process to put things on the grid is, uh, taking a lot longer than it used to. And we’re putting new and more, uh, various types of, of energy sources onto the grid.
So, um, as we’re, it’s like trying to, to build the plane while you’re flying it, and we’re trying to update our grid. As we need the energy and as demand is increasing. So, um, you know, as we add these new and various sources, uh, to the grid, they’re going through a process that used to take a few years, and now it takes many years.
And we’re also in a, in a phase where we’re adding a lot of renewables, which are, you know, not big behemoth like power plants. Um, you know, they’re [00:03:00] smaller, more distributed. So the process that’s set up to bring new energy, new infrastructure online is outdated. And, um, you know, I think what we’re, what we’re finding is as we go and more energy is demanded that the system is not keeping up, uh, with the demand.
And so we’re falling behind and projects are getting stuck in the queue. And the, the federal government, which is overseeing this, is trying to update it, um, and trying to make changes, but the grid operators are trying to react to that and, and find the realistic balance. So at the end of the day, you have, uh, new systems that want to come online with an old system that’s not letting them come online as, as quickly as they need to.
Joel Saxum: And, and there’s a compounding factor here too, right? Rob and Kyle, correct me if I’m wrong, but we have new types of generation on an old grid. But then we also have new types of demand on that grid, right? So with, you know, the buzzword around energy, of course, AI, [00:04:00] data centers, all these things. But we’re really looking at a change.
And Kyle, when we talked a bit kind of offline and planning this, and you, you noted to, to us that. This, this 1% of like annual load growth now is looking at like 5% in the future, and we haven’t had that kind of growth since. Was the air conditioning was invented? Is that what you said?
Kyle Mason: Yeah, absolutely. We are seeing in our lifetimes unprecedented load growth.
I mean, we have not seen the amount of year over year percentage low growth since. Air conditionings were invented and they started going up in places like New York City and Detroit and Chicago and other big cities throughout the us. And what we’re seeing right now is a massive, massive expansion of data centers.
Not just small data centers that we saw expand during the, uh, years leading up to the.com bubble, but rather these massive, uh, hundred plus megawatt data [00:05:00] centers that are. Very, uh, tightly geographically located. So there’s clusters of these in Northern Virginia, in New Jersey and Pennsylvania and Ohio, and they’re using massive amounts of electricity and they largely were not, uh, predicting 10 years ago they were not predicting AI to, uh, develop as it has and for data centers to expand as they have.
So it’s really been a. Tricky, tricky planning situation with grid operators, the federal government and state governments.
Joel Saxum: Yeah, I think that’s something that the general public doesn’t really see or understand right now is like when you’re playing around on CH GPT making a, a funny picture of your friend picking up a house or whatever the thing is, you know, the amount of energy that, that those resources are taking up.
Is massive and the growth is there. The things are happening behind the scenes. You don’t see the issue now as a rate payer, as a normal citizen because the lights are still on in your house. Everything’s cruising lock you. You see [00:06:00] this little blurb, like you said last June, like in June, like, oh, my electricity price just went up.
Well, that’s gonna continue to keep happening here. And then you have this, this, this perfect storm of. Now we’re, we have an interconnection queue issue within PJM, and then you have like the 1100 megawatt ocean winds project offshore wind that would’ve been connected in New Jersey there that is, has been abandoned for now.
At least. There’s, there’s a lot of things happening. Chess pieces moving on the board. They’re going the wrong way. We don’t wanna see.
Robert Freudenberg: Yeah. And here’s the real challenge, and this is where policy comes back, is, you know, up until, uh, the last year or couple years, um, we were all rowing towards the same direction that we’re gonna electrify things, we’re gonna electrify our cars, we’re gonna electrify our buildings, we’re gonna be more plugged in, uh, use more data.
And we’re gonna create new renewable energy to feed that hunger, uh, for power. And, and what has just been completely upended is, is [00:07:00] this idea that, okay, we can have more, we can do more, and we’ll have clean energy, uh, to kind of feed that. We’ll get these projects in the queue, we’ll get ’em lined up, and we’ve been spending the better part of the last decade or so.
Planning for new big renewable energy projects to feed that demand, um, and, and feed our electric cars and feed our more electrified buildings. And now all of a sudden the plug has been pulled on that, and we’re still moving towards the direction of having electric cars and having electric buildings and having data centers.
But now without the renewable energy, that was really just on the verge of coming online. And, and that’s the, the kind of conundrum we’re in right now is that we are, we are hungry for more. We have set things on track to kind of move towards a more electrified, more plugged in world. And now we’re unplugging the, the renewable energy sources.
I could have said that.
Allen Hall: And New Jersey’s really at risk because it’s its own energy island, so to speak. It uses more energy [00:08:00] than they produce. But they’re also tied to all this data center. So the larger PJM, uh, grid, I’ll call it, is what? Pennsylvania, Virginia, New Jersey, and a number other big power hungry states.
They’re all interconnected. New Jersey was trying to help forge a path to bring more energy online, but obviously that has stopped from what we have seen. There was supposed to be about around five gigawatts of offshore wind. To be able to supply New Jersey and that has all stopped. But at the same time, uh, Kyle, I think you mentioned there’s over 200 gigawatts of interconnect queue.
That is vast majority is renewable, just waiting to be connected.
Kyle Mason: Yeah. Yeah. As of about. April of last year, there were over 200 gigawatts of projects in the internet connection queue waiting to be studied. And around 98% of them were solar, wind, both onshore and offshore, and [00:09:00] storage. Now a project being in the queue and completing the study doesn’t necessarily mean that it’s going to come online, but even if 50% of those projects came online, uh, it would’ve.
Uh, markedly improved the rate situation, and those are clean energy, uh, systems that can be deployed in small, already geographically constrained areas like New Jersey, for example, is a, the most densely populated state in the country and is fairly geographically constrained. A lot of the open land will.
Uh, municipalities would rather use it for housing or open space than large energy projects. And solar, uh, and storage can fill those gaps. And then offshore wind for New Jersey is the ideal solution for a large scale generator. And having those projects stuck in the queue only, uh, decreases supply [00:10:00] or limits the supply supply that will go onto the grid.
And at the same time, we’re seeing generator deactivations either from policy or reliability concerns, uh, particularly with coal and oil and gas plants. Uh, there’s a lot of reliability concerns during extreme weather events, extreme cold events. And, uh, PJM recently changed their market rules to, uh, make the reliability rules stricter, which, uh.
Which made a lot of those fossil fuel plants ineligible to even enter their capacity market.
Allen Hall: Yeah. That buffer dropped from about 16 gigawatts of, of supposedly reliable, uh, energy sources to about 500 megawatts when the reliability requirements were issued. That’s. Amazing because I think the normal assumption is that, well, your, your base load is always gonna be covered by gas fired generation [00:11:00] or coal fired generation.
What could possibly go wrong with that? But when they had to do the reliability review, they realized. They’re not really set up for extreme cold weather events or some of these other situations, and so they’ve removed them from the, the reliability factor that even tightens the news, so to speak. On New Jersey and PJM, what are they about to do here?
What is, is, is there a current. Plan or market dynamics in, in place to put some structure back in to get us out of this hole?
Kyle Mason: Yeah, to an extent. Uh, PJM has worked with, uh, ferc, which is the Federal Energy Regulatory Commission to improve their interconnection Q process. So starting back in 2021 and 2022, uh, PJM worked with the federal government to create a new cluster study prop.
Process. So their previous interconnection study process was first come, first [00:12:00] serve, and that was a serial basis. And it didn’t matter if the project would take one year to build or 10 years, if it went into the queue earlier than another project, it would be studied earlier. They have since changed it to reviewing, uh, projects in clusters and on a, uh, first.
Ready for serve basis. So a project that will only take one year to build will get a precedent over a project that will take 10 years to build. And they’ve started to implement it on a staggered basis, starting in 2023. And they have made significant progress. They’ve, uh, looked at, they studied over 40 gigawatts of energy already, and that’s starting to get built.
Um, but it is a very slow process and. Uh, there, there is the question of whether that can, uh, outpace the rising demand.
Allen Hall: What is the consistency or, or what is that [00:13:00] new generation comprised of? Is it gas fired? Is it solar, is it wind or a combination of all of those?
Kyle Mason: Yeah, from my understanding it’s mostly solar and storage, um, when there is some wind, but with, uh, federal policy around offshore wind that has been stagnated.
Um, and there’s also a significant amount of up rates to gas plants. Up rates are increasing the, uh, nameplate capacity of a plant. So basically, uh. Categorical improvements to improve efficiency and the amount of generation these plants can have.
Robert Freudenberg: This process has been, um, good. Right. This is, this kind of sets us on a better path, um, especially because we were going to bring, you know, a lot more renewables on.
I think what’s interesting to think now is as, as there’s a federal shift away from, from offshore wind and there’s, there’s actually a push, uh, for fossil [00:14:00]fuels. Um, I think it’ll be interesting to see how this process plays out now for those projects, right? Because we’re gonna need energy and, and there’s a lot working against renewable energy.
And now this speedier better process might favor, uh, and work for, uh, kind of the, the, the fossil generated things. I think we’re, we’re gonna hit a problem with is, is we’re back to supply chain issues, uh, where we’re years away from getting new, um, fossil, you know, fired, uh, turbines, right? We’re. We’re years away from, uh, the nuclear dream, uh, that, that so many people seem to have.
Um, and, and we had these renewable projects coming along and we’re gonna hit right when we needed it. So. It will be interesting to see how, what’s in the queue now, um, you know, keeps moving forward. And then what comes next in the queue. What, what shifts, uh, is, is it, you know, policy is driving us, uh, away from renewables right now.
Uh, it will be interesting to see how, how that actually plays out in [00:15:00]reality.
Allen Hall: Yeah. Because speed is part of the answer in trying to get more generation online. That’s why I think solar is a big part of that, right. Is just because you can deploy very quickly. With gas and other petroleum based systems, they’re slow.
It’s gonna take, you may not even be able to get a gas turbine for 20 30, 20 31 if you, if you put your order in today and at, at that point when we get to 2030, I think you’re projecting what, 10%, 12% of the electricity demand on PJM is just from data centers, which is crazy. That’s a huge amount of energy.
With the, uh, uh, the federal administration at the moment, uh, pushing wind off the table, so to speak. How do you fill that demand quickly? Or, or do we just not do it and get to 2030 and hope that we have some gas generation? Is is that where policy is headed? Because
Robert Freudenberg: PJM. [00:16:00] The territory is so large, uh, and it includes so many states.
You know, I think, you know New Jersey. As a state, uh, we might be looking at importing even more energy, uh, from places and it’ll be importing it from states that didn’t necessarily have, uh, renewable energy goals or, or climate goals. Right there. There are states that make up, uh, the PJM territory. That kind of never left that track or didn’t leave that track as much, and that might start to fill, uh, the demand, um, or that, that we have, uh, again, Kyle, correct me if I’m wrong on that.
Kyle Mason: No, you’re, you’re absolutely right. And then if it gets even, and if it gets to a certain point, PJM as a whole may have to start purchasing power from outside authorities, whether it’s states on its border like Miso or Southern states, um, or even Canada. Uh, we’re seeing that in New York with, uh, the Chippy line.
Uh, New York is purchasing power directly from [00:17:00] Canada, uh, di uh, plugging in directly to New York City, which is great. It’s clean, hydroelectric energy, but they are relying on, uh. Energy from outside of our borders.
Joel Saxum: Yeah. So what do you start comp? You’re compounding the issue, or not you, sorry, not you, but we are compounding this or issue more here.
Right? So if you start relying on energy from Canada, now you’re running into energy security, which is national security issues, right? And then the other side of this thing, at the same time, we would love to see more renewable energies come from. Uh, environments regeneration is easy, right? So we’re talking about like the mid, the middle of the country, the all the wind states.
It would be fantastic to be plumbing that, uh, that power back to the east coast, to the PGM, to different, uh, operators through like high voltage transmission lines. However. Now those are under attack. We saw this with the, the grain belt express coming across from the middle of the [00:18:00] country heading east.
That’s been, you know, the d the DOE loan guarantee was pulled from that, so now they’re looking at private funding and whatnot. But so like, there’s just so many things happening here that, like I said earlier, we’re kind of in this perfect storm where what you’re gonna end up having is extreme rates possible blackouts, brownouts, and, and.
Also, and this is the thing that nobody wants to see, is, in my opinion, job loss. Because energy intensive industries are gonna have to leave the East Coast because they’re not gonna be able to afford energy. You’re gonna see more of them, what you’re seeing now actually from around the country, like heading to Ercot, heading to Texas, where power’s cheaper.
Because at the end of the day, if that’s, that’s a consumable for a manufacturing operation. And if you’re looking at rates that are, I think like in Austin, outside of Austin, I’m paying like 9 cents a kilowatt hour. Uh, your, that, that can’t compete with something that is in, you know, 2, 3, 5, 6, 8 times that in the future, as these rates start to keep increasing, jobs are [00:19:00] gonna leave as well.
Leave that pla that area as well. And so there’s this, this issue that’s compounding, compounding, compounding. And it’s great to hear that the permitting, uh, issues have been. Addressed that there’s, if there’s a plan working for there in the PJM. But the big thing here is to me, generation, you got to stop taking generation off the off the table.
And that is in the form of offshore wind because. N there’s no other resource over there, right? Nuclear dream nuclear could be great for the energy grid. However, when are you gonna get a new pet built? 10, 12 years? Same thing with gas right now. You’re not gonna get ’em online till 20 30, 20 32. So the generation, and we wanna be this AI Super house AI powerhouse.
We need power Now. Why are we shooting ourselves in the foot at the generation that we need? Is there? It’s ready to go. Shovel ready. We’re ready to collect, connect the electrons to the grid. Um, but we’re, uh. We seem to be going backwards on that.
Kyle Mason: Yeah, absolutely. And I do wanna just touch on one thing you said.
Uh, so PJM still hasn’t [00:20:00] figured out the permitting issue. They figured out they’re working on the studying issue. The permitting issue is a, a federal, state, and local process, and PJM doesn’t really have much say over that. Um, and there is still a lot of reform that could be done. And it’s been, there’s been a lot of talk, especially in the last two, three years around permitting reform, and a lot of states are working on solutions.
There’s. Legislation within state governments to try and figure out permitting for energy systems, um, and transmission wires in particular. Transmission wires is a, a big, uh, issue right now. ’cause the average amount of time to build a high voltage transmission wire is 10 years. So you have the issue of it taking years and years just to get the materials to build.
Power plants and then 10 years with permitting costs and supply chain issues and, uh, permitting timelines to build the transmission wires that will bring that power to the load centers.
Allen Hall: Isn’t that where offshore wind was gonna solve that problem? Because instead of [00:21:00] drawing power a thousand miles away, you’re gonna draw from about 20 miles offshore.
And is there a scenario where offshore wind. Plays a factor in New Jersey electricity rates to help bring them down, or is it completely off the table? We are not even planning to see any offshore wind because of what’s happening with the current administration.
Robert Freudenberg: That’s the question, um, is what’s going on with federal policy, federal aggression, honestly, towards offshore wind?
Is this a pause or is it. A death blow. Right. And, and I think, you know, probably the answer to somewhere in between there, but we’re certainly losing time. Um, we’re losing kind of the opportunities. We have an offshore wind farm working right now off of the South Fork on Long Island. And if you look at the data from that, that is performing very well, it’s reliable.
Uh, the folks who pay, uh, the rates on that, you know, they get a a dollar [00:22:00] and a half more on their bill. Um, but it’s not gonna go up because they negotiated that rate, um, you know, years ago. And that’s set. It’s not gonna fluctuate. Like, uh, other rates do, uh, put a thousand people to work. Uh, we have the proof that these projects work and they deliver on what they said they were going to do.
Um, and we’re, we’re actively citing against us. We’re not, but the federal government is. Um, so I think what. You know, offshore wind developers, uh, around the, the world are asking themselves right now is, you know, are we just leading, uh, to see what the US ends up doing with offshore wind? Or is this damaging enough that we just go away?
I, I think the way we think of it is the ingredients here are so good for offshore wind. Everything you just said. Uh, the proximity, the, the wind speeds. Um, all we have to do is build those things and connect them into our grid and we’ve got a lot of power. Um, and I think that [00:23:00] opportunity doesn’t go away.
It’s just what are the, what is the damage we’re doing to the industry now? How, how many years are we setting ourselves back? Um, if you look in New Jersey. You know, there was a plan to build this pre-built infrastructure, PPI, um, where they were going to connect, you know, build the infrastructure in ducts so that when offshore wind farms come online, they have nice, one nice duct to put a few projects in, uh, minimizes disruption on communities.
And, um, it really just allows a place for multiple farms to plug in. And, you know, the state is in a, in a, a limb in limbo right now because, um, they don’t see offshore wind coming anytime soon. So why should they go ahead and build this and put the resources and time into it? New York did something similar.
They had a, you know, plan for building transmission infrastructure for the future offshore wind farms. And, and now those projects are on ice. Um, in [00:24:00] some cases not even, not even moving forward. So how far are we setting ourselves back? Our hope is that offshore wind comes back quickly. We would like to see states continue to make these investments in transmission, uh, but we also understand that it’s, it’s tricky, um, to get the timing right, but, uh, you know, it’s, it’s a real challenge.
Allen Hall: Well, what is the message then for New Jersey policy makers, uh, about offshore wind renewables going forward? I
Robert Freudenberg: think it’s, um, you know, as much as a state can, uh, because there are limits to what a state can do without federal approval, I think states need to keep the charge on for offshore wind. They need to keep the fire burning for it.
Um, I think they need to, you know, recognize that this, this likely is a pause. Uh, work closely with developers, work closely with communities to prepare them, uh, but know that we have, uh, some, some time and space here where, where it’s not gonna move forward, but have all the plans ready to go. [00:25:00] Um, want the minute?
Kind of this federal policy changes. Um, I have to think that with everything going for offshore wind, with the demand that’s gonna come with the prices that are gonna come, there’s gonna be an outcry, uh, for more energy. And we have the lease areas, we even have projects on paper, right? We can, we can get these things going again.
And I think, uh, states, uh, should be doing everything they can to prepare for that. And I do think that includes, you know, getting the transmission and infrastructure ready so that. As soon as we can build them, we can plug ’em in versus having to start from scratch and leap for them to be built and leap to go through the process.
We can get some of this done that’s in the state’s, uh, power right now to, to move on the transmission infrastructure, uh, to the degree it doesn’t need federal approvals.
Kyle Mason: Yeah. And uh, and along that line, uh, the state recently has announced some major steps forward to building transmission infrastructure, not necessarily for offshore wind, but general.
Grid modification. They [00:26:00] recently announced their Garden State Energy Storage program, which, uh, aims to get, uh, over two gigawatts of energy storage onto New Jersey’s grid in the next few years. And they, uh, release their first set of grid modification rules, which really are more statutory, but they require.
All of the utility companies to conform to a, um, modern standard in New Jersey. But they’re hoping to release another set of rules later about actual technical grant modification standards that they would like utilities to follow, and that that workup can really improve efficiency, bring down costs for rate payers, and prepare the grid for, uh, renewable energy like offshore
Allen Hall: wind.
There’s so much that’s gonna happen over the next. Six months to a year, to two years in New Jersey and PJM, uh, it’s gonna be amazing to watch. And if you want to learn more about what’s about to happen, you need to visit Regional [00:27:00] Plant Association. And guys, your report has. Was fantastic. And if you haven’t visited their website, you should, it’s rpa.org.
And I assume, are you gonna have any new information coming out or any new reports coming out? Uh, talking about more electricity prices in the region?
Kyle Mason: Yeah, we will be having three more lab posts. Uh. Featuring a, a state of the grid for each of our three states in the region. So that’s New Jersey, New York, and Connecticut.
Oh, wow. Okay. That’s terrific. I’ll, I’ll look forward to
Allen Hall: that. Well, Kyle and Rob, thank you so much for being on the podcast. We’d love to have you back. As those reports get issued, we’d learn to learn more about what’s about to happen on electricity rate. So thank you so much for joining us.
Kyle Mason: Yeah, thank you both.
It was great to speak with you. Yeah, great conversation.
Robert Freudenberg: Appreciate what you’re. Talking [00:28:00] about.
https://weatherguardwind.com/rpa-new-jersey-electricity/
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Vestas Shares Jump 20%, UK Blocks Ming Yang Factory
Vestas doubles second quarter profit and adds €4.7 billion in market value overnight. Plus EnBW finishes He Dreiht after a V236 blade break, the UK blocks Ming Yang’s Scottish factory, and India rules turbines are movable goods.
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Allen Hall: Welcome to the Uptime Wind Energy podcast. I’m your host, Allen Hall, and I’m here with Rosemary Barnes, Matthew Stead, and Yolanda Padron. And three out of the four of us will be in Melbourne Australia talking to a number of operators and interested parties about WOMA 2027. Matthew, where will we be the couple of days we’re in Melbourne?
Matthew Stead: So, um, first of all, we’ve got the Pullman, uh, East Melbourne, which is, uh, where the venue will be for, for 2027. Um, so that’ll be our home base. Um, we’ve got around about eight meetings planned already. So what we’re doing is we’re talking to the operators and a few other industry, um, players about [00:01:00] what we need to talk about, how we’re gonna move the industry forward in Australia.
Uh, so it’s gonna be jam-packed, but there’s a little bit of time left on the Friday afternoon if there’s any late-minute, um, people that wanna get in contact and catch up with us, um, for next Thursday, Friday, or actually Friday. Uh, so yeah, it’s gonna be a, a jam-packed time. I think we’re gonna be tired, too many coffees, and talking to all the key, all the key operators, uh, about what they wanna hear about and how we can move the, the industry forward.
Allen Hall: And if someone wants to put an input into the WOMA panel about what will be discussed at WOMA 2027, Matthew, how would they do that? How do they get ahold of you?
Matthew Stead: Well, we have a wonderful website, and that’s got all the details you could ever want. Um, you can also register on the website, so please register.
Otherwise, um, I’m sure we’re gonna be a sellout this year for sure. So woma2027.com.
Rosemary Barnes: I just wanna add that when people talk to [00:02:00] me about the event, they always say how they love that the topics are so relevant, and the reason why that they’re so relevant is because we make sure to go around to operators and find out what are the issues that they’re really dealing with.
So anybody that’s thinking of attending, even if you can’t, you know, meet us up, meet up with us in Melbourne, get in touch and tell us what are the, yeah, what are the topics that you’re struggling with that you’re not, um, you’re having trouble finding enough information, having trouble finding the people that can help you.
And y- yeah, like we take all of that information, and that’s how we come up with our agenda each year. And yeah, I mean, for us, that’s the, the main thing is that this has to be really relevant, up-to-date information for the industry, and we need your help to make sure it stays that way. I
Matthew Stead: mean, that’s what we’ve done the last two years, so this is– we’re just repeating the formula, um, listening to the operators and getting the good topics and the good speakers.
Allen Hall: Well, Vestas has had a good quarter. Uh, the, for the last couple of years, honestly, s- [00:03:00] Vestas has been really thin on margins. There was questions about it continuing on. Rising costs mostly, uh, supply chains, especially during COVID, were bad. Uh, and, uh, but for the most part, the shareholders stayed attached.
Well, that story is changing rapidly. The world’s largest turbine maker posted second quarter operating profits of $400- €46 million, more than double what the analysts had expected, and it’s raised its full-year margin guidance alongside half-year results for the first time in a decade. The shares climbed about 20% in Copenhagen, adding roughly €4.7 billion of market value in a single session.
Now, the chief executive, uh, Henrik Andersen, ha- put it plainly to, uh, uh, in a couple of news sources that something much bigger is happening and Vestas is gonna be the, the leader in wind. That’s how I read it, that everybody [00:04:00]at Vestas was super happy with the, the change in direction and things were moving up steadily.
But a 20% jump in a day is remarkable. You don’t see that in large industrial businesses like wind energy. Matthew, this has real implications on what happens next for Vestas because success like this usually means more orders.
Matthew Stead: Yeah, I wonder what’s going on under the hood there. Um, I mean, Vestas is a quality company, although, although can I just do a quick segue?
How many turbines were installed in Denmark in the last, uh, two years? Like last year and the year before?
Allen Hall: I don’t know. How many?
Matthew Stead: I believe it was eight turbines installed onshore in Denmark last year, and the year before it was 12. So, you know, maybe, maybe Vestas needs to focus on their own backyard a little bit as well.
Allen Hall: I’m not sure there’s a lot of opportunity there. Yeah, onshore.
Matthew Stead: How can you ever be full? I mean, there’s always, um, [00:05:00] uh, you know, um, you know, resiting or, um, you know, upgrades and-
Rosemary Barnes: You know what? Allen and I are probably gonna get some time in Jutland, uh, later this year, um, and that area and the old wind turbines there was actually the inspiration for my whole YouTube channel.
It just, ’cause there’s, you know, there’s turbines there from, the earliest one is, um, from the ’70s and still going. I think it’s one and a half megawatts, actually huge for, for that time. Um, and it was like community made, um, at Tvind. But anyway, I’m interested to revisit the site and have a look and see are these, you know, all these old turbines still there.
It’s only, like six years since I went through and did the experience but for the most part, they don’t seem to be yet pulling down the, the small old ones and putting up big ones. There’s a lot of, a lot of them are community owned. Um, and yeah, I mean, Danish people love wind turbines, but there’s only so many that you can have onshore.
Like, people are happy to live near them by, you know, the standards of people in other countries, but you don’t want [00:06:00] one in your literal backyard. I think that there is, there, there is a, a limit to how many more onshore wind turbines that you can get in that area and offshore expansion is the more likely way to go.
Um, and also I think it’s, it’s, it’s good to recognize that if you have a domestic only or a domestic first strategy, that will only get you so far and then you have to expand, and I think Denmark did that really well. I think Germany a little bit less. I think that Enercon were a bit surprised, um, by their strategy.
It, uh, they had a real hard time anyway when they had to transition away from mostly Germany to getting overseas. And obviously, like if you look at China, they have most of their installations are in China. They are trying so hard to get outside of China because it’s not, like even a market as big as China, it’s got decades to go before it will be full.
Um, you can still recognize that that’s not your, like long-term strategy for growth has to involve expansion, I think.
Allen Hall: I think Vestas, regardless of what happens in Denmark, is making a play for the United States. That seems to be [00:07:00] where a significant effort is happening at the moment and on offshore. Their– Vestas seems very excited about the offshore opportunities.
Of course, there’s a ton of wind turbines gonna be installed in the UK and, and all around Northern Europe. Offshore, the opportunities to buy turbines, there’s only a couple that you could get today. Uh, uh, the GE Vernova offerings I, I don’t think are gonna fit the mold, and I don’t know if GE’s even actively selling.
So their competitor realistically is Siemens Gamesa, which does seem like the smaller player at the minute versus Vestas, which is heavily pushing the V236 and will fill order books like crazy, I think, uh, just based upon the, the history they’ve had and everybody knowing who they are. So Also on the move in Australia, right?
Vestas is huge in Australia right now.
Rosemary Barnes: I think it’s really good that their, um, yeah, finances, uh, are [00:08:00] looking a bit better ’cause it’s been funny. Like, I tried early on in my wind career to invest in, you know, wind turbine manufacturers knowing that there would be immense growth, and I was right. There, there was immense growth.
Not that that was so hard to figure out that there would be, but it did not lead to any kind of, um, return on, on anything, you know. Like, that did not keep pace with the just general market. Um, so I, I stopped trying to, stopped trying to invest to that. But it has been really, really hard for the companies to, you know, raise money or y- you know, do any of the things that they need to do because they’ve always, like, they’re growing, growing, growing, but finances has been so tight that it has been a real constraint on the amount of engineering that they could do, and I really hope that Vestas are gonna take this opportunity that they’ve got compared to, you know, a lot of the other manufacturers.
Vestas do have really strong, um, innovation and, yeah, engineering capabilities for doing– you know, developing new technologies and improving them, and I really hope that they’re taking this opportunity to build that up. There are a lot [00:09:00] of very good engineers with a lot of experience in the industry in that area that are working in other fields at the moment because, you know, there’s been a lot of contraction in Denmark.
So I don’t know, it seems like a really good time to hire back some of that really in-depth knowledge and, yeah, get a- get ahead of, you know, some of the future quality problems. We’re going through such a hard time at the moment from the fast development that happened in the 20-teens when there wasn’t a whole lot of money around.
We’re dealing with quality problems now, so, you know, maybe we can get ahead and not have the next round of them if we can invest in just a lot more, uh, engineering capacity.
Allen Hall: When you have success like Vestas has, usually the upper level management and some of the executive team starts getting pilfered, that they’ll get offers to repeat that success at another company, and it sounds like that process has started already.
There’s a couple of executives that have recently departing or are in the midst of departing from Vestas. [00:10:00] I would see that continuing f- at least for the next six months, uh, because everybody wants to repeat that, right? If you can get a 20% increase in your valuation overnight, uh, I can, I can list a number of companies, regardless of industry, that would love to participate.
Even in a 5% increase, that would be remarkable. So, um, Vestas is gonna have a hard time holding onto this. That’s just the nature of the business where things are successful, people will wander. And Rosemary, I, I think they’re– And Yolanda In, in my book, Vestas should sort of s-stand down and just make quality products.
I’m not sure you sh-should tinker too much at the time being and just make the good stuff better. That seems like a way to really increase profits.
Yolanda Padron: Yeah, I mean, solving a lot of the issues that– And, and that’s not just a Vestas exclusive thing, right? All of these OEMs have some sort of issue that maybe– I know Rosie’s touched a lot on, on it, where [00:11:00] you build this version A and then version B solves one of the small little issues, but now it creates another little problem, and then you have version C, and then everything just kinda has its own niche little issue, um, that really expands over time.
So if they could solidify what they already have in, in a, in a model that, that would help them just even keep a lot of their customers, I think that’d be great, and it would help, certainly help them, um, not continuously, like, rotate around the customers, ’cause it almost feels like, at least in the States, right, you, you get GE to be really, really strong and have a huge market share, and then GE starts focusing more on gas turbines, so then they all go onto Vestas, and then they all go onto Ontara now.
Um, and then just, you know, just kind of everybody starts cycling through them because they just kind of want something that’s better quality than what they’re getting in the long haul.
Matthew Stead: Allen, you, you talked about you think there’s something big under the hood. I think you, you [00:12:00] thought that maybe Vestas was angling towards something or being quite bullish.
Do you think that they might take over GE Vernova?
Allen Hall: I don’t think they’re gonna grab Vernova, and I don’t think Vernova is for sale at the minute, but I wonder if Siemens Gamesa is, or Nordex. I mean, Nordex has done terrific the last couple of quarters and is making inroads in places that I didn’t think possible three, four years ago.
Uh, the European marketplace is be- becoming really unique in that sense that there’s a lot of money being put out. But is there a sole perfect solution for Europe? Not at the minute, ’cause you got two competitors there, and then China trying to, to work its way in. Will the Europeans come together and form something more united, even if it’s just a partnership, a loose partnership, versus letting China on the shores?
We’ll see. 64 of the largest machines that Vestas has builds are standing off the German coast, but one blade is missing a [00:13:00] piece. We’ll talk about that when we come back.
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Allen Hall: Well, Germany’s largest offshore wind farm is now fully installed, and EnBW confirmed this, uh, past week that all 64 of the Vestas V236 15-megawatt turbines are s- standing at the He Dreiht wind farm about 85 kilometers northwest of Borkum. Uh, 960 megawatts, [00:14:00] 2.4 billion euros invested. Man, these offshore projects are expensive to get installed.
Uh, so it’s power for roughly 1.1 million households, and there’s no state subsidy behind any of it. And so this is a little bit of a u- unique situation. Uh, th- well, the one footnote about the wind farm is they had a V236 blade break and fall into the North Sea, and they had fished it out and I think I passed along s- pictures that I saw online of, uh, one of the police boats pulling the shear web out of the water I don’t know what to think anymore about some of these offshore blade issues.
Obviously, Vestas is very conscientious about it and will be doing RCAs and engineering reviews and all the above to go identify what the problem is. But it does just lead to a little bit of a pause of do– what is going on for some of these offshore [00:15:00] wind blade installations or, or whatever’s causing these blades to break?
Do we have a good handle on it? Yolanda, is– are we following up on all the design details so that we can prevent these things in the future?
Yolanda Padron: I mean, I’d, I’d hope you’d be following up on the design, right? Like, and, um, but I think there is still a little bit of a disconnect from, from what we’ve seen, and again, not just Vestas exclusive, um, between the people who are designing and the people who are manufacturing, the people who are in operations, right?
So, uh- The, from what we’ve heard, uh, this could have potentially been a, um, partially because of a transportation issue, which is what happens a lot in onshore. It’s a lot more common than we would like it to be. Um, and so that even goes beyond what would go on in the design studio and what would go on in the manufacturing and what would [00:16:00] go on even just for the people that are running the site, right?
So, so some sort of, um, in between, uh, EPC error. Um, but yeah, I just think that, like in a lot of industries, there should be a lot more communication between all of these teams on the lower level, so that way a lot of these problems can, can be avoided.
Allen Hall: I’m wondering if it’s actually an issue on the, the testing side.
And, uh, the one question that just popped up, and we saw from the ORE Catapult, uh, survey that’s being conducted at the moment, and if you haven’t participated in that, you just visit ORE Catapult and answer some of the survey questions. But torsion on a blade, which is very difficult to test for, and it really isn’t tested for today, but does happen during the move and the transportation of these big offshore blades.
Is it one area that we need to do a little more work in or maybe spend some more time focusing on it to see what is happening as blades are [00:17:00]moved?
Rosemary Barnes: The thing about te- torsion is that it is much more significant as blades get longer. I can’t, I can’t remember the equation off the top of my head, which is, um, bothering me.
But I think it scales with, like, the fourth power or something of, of length. And so whilst it was always a bit of a problem, it’s much more of a problem as it gets, as blades get bigger. I mean, they’ve never, like, fully tested a blade, and there was always a lot of reliance on, hey, y- you know, like we’ve tested certain things that is possible to test in a test facility on the ground.
But they also rely on their decades of experience of how blades actually behave in the field. But, you know, remember, that’s a real lagging, lagging indicator because y- you know, their decades of experience is mostly with lots smaller blades. Now, blades are really different because they’re longer and different effects are, are taking over.
It’s not just, uh, torsion, but it’s also the laminates get much thicker, and then y- you know, you, you have issues with the way that they’re curing, [00:18:00] and there’s a lot more just space for, um, defects to be present in a really thick laminate All of those things add up. Oh, yeah, then add in addition, like new materials, carbon fiber is new, and then new ways of producing it, you know, pultrusions, um, all kinds of different materials like balsa’s being replaced with foams and, um, like, you know, 10 times that number of what sounds like a small innovation, but all of these things have the potential for damage and don’t have a really long track record in the field to be able to kind of calibrate.
We do need to remember that, like, when you do something new, things are gonna break, uh, sometimes, they’re gonna fail sometimes. If they don’t, then you’re definitely being too conservative, and your product is costing more than it should, and nobody wants more expensive wind energy, right?
Matthew Stead: Rosie, Rosie, I, I know you’re doing some, some excellent work on, um, industry studies around erosion and temperature and so forth.
Um, I just wanted to let a little secret out of the bag that, um, in the future there will also be some [00:19:00] other studies on torsion and blade twist and blade dynamics. So, um, just a few things are in, in train at the moment, which I can’t share, share, but, uh, watch this space around better understanding blade twist.
Allen Hall: The Hydride wind farm runs on European turbines, but the next one might not. Two governments with two very different answers on who gets to build Europe’s wind fleet.
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Well, two countries and two decisions, one question. In Scotland, the UK government blocked plans for the Chinese manufacturer Mingyang to build a turbine factory, uh, near Inverness on national security grounds. 1.5 billion pounds of investment, up to about 1,500 jobs. And First Minister John Swinney has asked the new prime minister to reconsider.
And the UK energy secretary minister called that request irresponsible. Meanwhile, up in Denmark, Vattenfall has just won two offshore wind farms and will not say whether it will buy European turbines. Danish suppliers are not taking that quietly. So [00:21:00] the Scotland question about the Mingyang factory is at least being discussed again with the new prime minister in the UK.
It does seem like there’s a lot to do and get the government formed and make all this stuff happen. But I don’t see a Burnham administration changing the outcome for Mingyang, but I could be wrong. At the, the same time, Vestas is pushing for a more Eurocentric focus and to really keep out the Chinese.
Uh, something has to give here pretty soon.
Matthew Stead: I actually think Mingyang should, um, set up a factory in Scotland. I, I mean, what’s wrong with that? I mean, uh, why is that a security issue?
Rosemary Barnes: Set up the factory and put the, like, whatever you’re worried about, put protections in place for it, require it to be a local joint venture or whatever.
You know, we’ve seen the blueprint in many of what used to be, you know, less rich countries. That’s how they, you know, got a head start on some of these technologies. It’s not like, I don’t think that China [00:22:00] has a head start on wind, wind turbine technology, but they certainly have different ways of doing things that, um, yeah, we could, we could learn from.
But I think across the board, wind turbines, batteries, solar panels, whatever, let them set up factories, put the rules in place that mean that your country benefits from it and you’re getting the, you know, the information transfer.
Yolanda Padron: Do you think that’ll, like, impulse a lot of these more established European companies to maybe start fixing some of the issues that they’ve known about for, for a while, um, particularly regarding the blades and everything that we’ve talked about earlier?
Like, there’s enough competition there, so maybe they need to start looking a little bit more deeply into their problems.
Allen Hall: Do we think that Chinese operations have been out front, forward, honest, I’ll even use, about their blade issues?
Rosemary Barnes: No, but this is a good way to find out, isn’t it?
Allen Hall: Governments decide who is allowed to build a turbine after a discussion on Scotland.
Uh, but, but [00:23:00] occasionally, a court decides what a turbine legally is. India has just settled that question, and the reasoning should be of interest to anybody who ships machines across a border right after this. As wind energy professionals, staying informed is crucial and let’s face it, difficult. That’s why the Uptime Podcast recommends PES Wind Magazine.
PES Wind offers a diverse range of in-depth articles and expert insights that dive into the most pressing issues facing our energy future. Whether you’re an industry veteran or new to wind, PES Wind has the high-quality content you need. Don’t miss out. Visit peswind.com today. A tax fight in India has produced a definition every turbine supplier should read.
Is a wind turbine bolted to a concrete foundation movable goods, or is it immovable property? State tax authorities argued immovable, which would have [00:24:00] taxed erection and commissioning contracts at 18% instead of 5%. The Andhra Pradesh, uh, High Court disagreed, and on the 12th of August, the Supreme Court declined to interfere.
The reasoning rests on something this whole industry takes for granted. A turbine can be taken down, moved, and put back up. So a turbine is a movable object, and it has less taxation. Bonus. So this is a really interesting discussion that’s happening in India because it’s probably symptomatic of things we’re seeing elsewhere across the world about taxation for wind turbines, right?
That, um, if there’s a way to tax a wind turbine, we’re gonna try to do it. This is a unique way, uh, that happens in India where depending on if it’s permanent or movable, the tax rates are different. I, I guess that would apply to a lot of components inside a wind turbine too, Matthew, don’t you? Like the, the generator, the, the big heavy things, [00:25:00] gearbox, generator, blades, rotors, tower sections, would be taxed at a, a lesser rate.
Matthew Stead: I agree with the court case that it’s all movable and, uh, you can actually buy turbines on the secondhand market, can’t you? I mean, if I wanted to buy, yeah, whatever, whatever, I could buy one and, and put it up in my backyard if I had a bigger backyard. Um, so yeah, I vote for movable. I vote for lower taxes.
Yolanda Padron: The way that it would work a lot of times in the US is, I mean, it’s, you pay, the company itself pays a lot less than they would’ve over time, right? Just by pure, the, the regular kind of tax laws. Um, but the community, there’d be just direct donations to the community, so then they’d get, uh, like money would actually come into the community where the turbines were being built instead of just distributed around the state, which I mean, in a state as big as Texas, it gets, um, but easier for that c- um, that county to get a lot more, uh, funding than they would typically get if it was [00:26:00] through a big enough area.
Um, but yeah, no, I agr- I completely agree with you guys that, that this should be a movable good. I mean, how many times have we seen, uh, even just a blade, um, that it looks like it’s, uh, just a, a failed blade that they have to go in and replace, and then they take it out, fix it, and then just bring it back to the same site or take it to another site across the country.
And, and to that point, like if you were to h- judge it as something that’s immovable, would then any blade replacement just not be taxed? Because then it’s, you’re moving that one component and two, but it’s essentially the same turbine. Like, I don’t know how that all would make sense.
Allen Hall: I think the Uptime Supreme Court agrees with the Indian Supreme Court that wind turbines are movable, and that’s good.
Well, that wraps up another episode of the Uptime Wind Energy podcast. If today’s discussion sparked any questions or ideas, we’d love to hear from you. [00:27:00] Reach out to us on LinkedIn. And if you found value in today’s conversation, please leave us a review. It really helps other wind energy professionals discover the show.
And don’t forget to subscribe so you never miss an episode. For Rosa, Yolanda, and Matthew, I’m Allen Hall. We’ll see you here next week on the Uptime Wind Energy podcast.
Can’t swear that the story here is authentic, but it sure rings true.
Vermont is a somewhat quirky state, but it protects its citizens very well. FWIW, this is where I want MY tax dollars going too.
Florida is a deeply red state that, true to form, wants as much ignorance as it can possibly produce. Educated people aren’t voting for people like Ron Desantis.
The GOP is asking American voters to believe that “radical left Democrat extremists” are leading the country into socialism/communism. They’re hoping that this fear will outweigh the electorate’s understanding of the damage that Trump, with help of congressional Republicans, is inflicting on this nation in the form of the war in Iran, destroyed relations with allies, inflation, shoddy education, environmental collapse, and threats to Social Security and Medicare.
As we all know, the rate at which a lie becomes accepted as true is a function of the frequency that it is repeated. And God knows, we see this crap about communism every time we turn around.
But this looks like an unwinnable battle. Virtually no one wants to abandon free enterprise. Moreover, Trump’s abysmal polling numbers reflect the fact that is largely despised as a criminal–the most corrupt figure in U.S. history.
How would you like to be campaigning to retired baby boomers on the platform that we cannot afford Social Security any longer, because we’ve siphoned off huge amounts of money, like our president’s “vanity war,” with only further downside in sight, that is costing $1 billion a day?
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