Iberwind is a vital part of the Portuguese wind energy industry, and recently achieved very good results in a benchmarking study by McKinsey. The sector is making steady progress towards Europe’s 20:20 targets, but what is the future, and where is financial growth to be found? Iberwind CEO Arnaldo Machado weighs in.

The New Economy: You are in a truly exciting sector, wind energy, but it would seem many investors still need convincing of the business case for wind power. So, how would you sum it up?

Navarro Machado: I don’t really know if I completely agree with you regarding the need to convince investors of the business case for wind power. Look, we shall not forget that Europe is the leading continent regarding renewable energy. In 2009 the European Union adopted a new renewable energy directive which set the target of achieving 20 percent of the energy from renewable resources by 2020. This target established that by that time 34 percent of the electricity demand in Europe shall be from renewable sources, and that 14 percent has to come from wind.

Each European country has run up its national renewable energy action plan and it seems completely possible to achieve the targets stipulated by the European Union. In Europe around 40-50 percent of capital of wind farms belongs to utilities. But still at least another 50 percent belongs to private equities – pension funds, insurance companies or even private investors – and I think that the interest still exits.

Sooner or later the financial crisis will go away, and business will return to normal. And who knows if it will still be possible to achieve the dream of having in 2050, a Europe 100 percent powered by renewable energy.

The New Economy: So from a business perspective, where is the money going to be in the wind energy sector in the future? Will it be owning the real estate, building the turbines or distributing the energy?

Navarro Machado: This is not an easy question to answer. Let us try to foresee what the future will be like. In the on-shore wind business the good sides tend to become scarce. [The shore will be affected? 00:02:19] but turbines will tend to become more powerful; in other words, have a higher capacity and be more efficient. That means that to install a wind farm with a certain capacity we will need less turbines and a smaller area. In other words, the land may tend to become more expensive; but as we will need less land, I do not think that land will be where the money will go.

Recently a lot of the available money used to go to turbine manufacturers. The demand for turbines was much higher than capacity of suppliers. Today the situation is different, with the lack of financial resources it has been very difficult to install new capacity. In this circumstance the manufacturers have significantly lowered price. In the future, the distribution of money will depend a lot on the way business will progress. If demand will tend not to overtake supply capacity, then the manufacturer will have to split the margins with developers, and make operation and maintenance a complement of the margin they get from the sale of the turbines. I think that the offshore operation and maintenance will have a lot in developing this side of the business.

The New Economy: Iberwind is the market leader in Portugal, it is a great location on the Atlantic Coast, so what is Portugal doing to take a lead in renewable energies?

Navarro Machado: Portugal is one of the best countries in Europe as far as onshore wind is concerned with a load factor around 27-28 percent. The wind industry in Portugal already directly and indirectly employs around 3,500 people. Portugal has undergone impressive developments in recent years in all wind energy related activities. Today Portugal produces significant parts of major components for turbines for internal market and for export. And its National Renewable Energy Action Plan targets an installed wind generation capacity of 6.9 GW by 2020.

The New Economy: One striking feature of Iberwind is how lean the company is. That hasn’t happened by accident, right?

Navarro Machado: Right. These things never happen by accident. First you have to define a few things. How are you going to settle your corporate structure? Believe me it has a lot to do with administrative paperwork.

Next, how are you going to manage your main activity: operation and maintenance. Are you going to do it yourselves, are you going to subcontract all the activity, or are you going to choose a hybrid solution. How much of the data that you can receive from the wind farms do you want to process, analyse and study?

Finally you just have to act and try shape the company according to the characterisation and decisions previously taken. Honestly, it sounds easier than it really is.

The New Economy: Indeed; your efficiency has been recognised by consultants such as McKinsey; you came out with a lot of credit from a benchmarking exercise McKinsey carried out, what are the details there?

Navarro Machado: In 2010 we were invited to McKinsey to join seven other European wind energy producers to participate in a benchmark study. There were basically five criteria to be analysed. Two were related to technical performance: time and energy availability, and efficiency of the turbines. And three were related to economic aspects. In the end we got two first places, two second places and one third place. The result was good and the study was important because we were made more aware of our relative position among other relevant European players. And also because we became more aware of areas where we still need to improve.

The New Economy: So where is renewable energy going to be, realistically, in 10-20 years time?

Navarro Machado: Well, this is the type of question that we would love to know how to answer too! Today it is even more difficult to answer, as nobody seems to be able to foresee when the economic crisis is going to finish. But one thing we know is that oil and hydrocarbons are limited resources, and our reserves seem to be decreasing.

Europe today imports 50 percent of the energy it requires. If we do not change policies, by 2030 Europe will need to import around 70 percent of its needs. The emphasis is on renewable energy and the gradual transformation of the present economy into a much lower carbon consuming economy could be an answer to our problems. If that will lead to 100 percent renewable power system in Europe by 2050 I don’t know. It may be possible to achieve, but it is very hard to believe.

A fair combination of renewables, where wind and hydro energy will play an important role, together with gas, seems to me to be a much more realistic alternative.

The New Economy: Navarro Machado, thank you very much.