new energy: Numerous media sources have claimed that Enercon came close to running out of liquidity last autumn. How dire was the situation?
Hans-Dieter Kettwig: Well, I don’t have to tell new energy readers about the collapse in Germany’s onshore wind market. We were at the forefront of this market for decades. In 2017 we installed more than 700 turbines in the country, compared to fewer than 100 in 2019. And there is no prospect of improvement on the horizon for onshore wind, in spite of all the government’s talk of green stimulus packages. The collapse led to the first negative results in our company’s history. In 2018 and 2019, we reported nine-figure losses that can be attributed to the high costs of a value chain located almost entirely in Germany on one hand, and a dearth of orders and immense cost pressure on the other. This brief summary of the challenges faced by our company may have led some media outlets to speculate on whether we were running out of liquidity. The fact of the matter is that Enercon has at all times been in a position to meet its financial obligations, aided in no small measure by the increase in our equity ratio over the last few years.
ne: How do you plan to improve the situation?
Kettwig: There are two main ways for Enercon to halt the downward spiral: on one hand, the primary focus on Germany as a core market and on our domestic value chain must change. We will have to adopt an even more international stance. On the other hand, we need to bring down the manufacturing and development costs of the next generation of turbines. In view of heightened international competition, costs of energy are a crucial factor, especially at the top end of the quality range. In 2019, with the support of the Aloys Wobben Foundation, we initiated a strict restructuring programme designed to achieve these two goals, among others. At the same time, we are focusing on our core business of developing, selling and servicing onshore wind turbines, with a particular focus on developing new, competitive machines and optimising our global supply chain. In the course of this strategic realignment, the business units devoted to operation of own turbines, energy generation and energy sales will be transferred to a new company.
ne: Do you think these measures will help you to get back on track? What are your predictions for the company’s fortunes in 2020 and 2021?
Kettwig: We are confident that these steps will create a solid foundation for viable growth, both in terms of Enercon’s overall business model, and of the generation and sale of energy from onshore turbines – an area which will assume increasing importance in the next phase of the energy transition. In 2020 and 2021 the company will still be in a clearly defined and thoroughly planned turnaround process that will get us back on the road to success from 2022 – with a focus on markets in which onshore wind enjoys favourable framework conditions. The extent to which Germany will remain in the top tier of our core markets depends very much on whether the major problems plaguing the domestic market can be solved at the political level. These problems include the scarcity of available sites, the permit backlog and the public acceptance debate. First and foremost, however, it is crucial that we do not give up on the positive vision of an energy supply made up entirely of distributed renewables.
ne: Some politicians in Lower Saxony have criticised Enercon’s overall strategy. How do you respond to that?
Kettwig: We too have undoubtedly made mistakes in the past that contributed in some way to the crisis. We have never disputed that. But we need to make one thing very clear: there is no way that a company can maintain a significantly above-average level of vertical integration in a market that ultimately does not buy its products. This is something that most politicians at the federal state and municipal level in Hanover and Aurich, but also Magdeburg, where one of our facilities is based, have fully understood. In this regard, I would like to extend my thanks for the meetings and panel discussions in which we were able to explain the reasoning behind our decisions. Critical voices are of course entirely understandable. We are in a restructuring period which unfortunately cannot have a positive outcome for everyone involved. The renewables industry is subject to similar constraints as other industries that depend on international business.
Kettwig: The market dictates the structure within which companies must operate. This means that we are unfortunately unable to continue placing the same volume of orders with our production partners in Germany as in the past. The inevitable result is painful downsizing and the end of the line for entire companies that depended on Enercon orders for their survival. Some politicians have accused us of doing nothing for too long. But if you think this complaint through, all it can mean is that we kept our faith in the German market for too long, and didn’t begin the process of relocating our production chain abroad soon enough. Across the German wind industry, more than 40,000 jobs have been lost over the last four years. It is a cheap political trick to single out our company and say that our problems are of our own making.
ne: Enercon has announced major restructuring. What exactly is going to happen, and in what timeframe?
Kettwig: I’ve already spoken at some length about the reasons for and goals of our strategic realignment. We are currently working with our employees in all areas of the company and a consulting firm to implement the corresponding package of measures. This is a top priority, as the turnaround depends on a tight schedule between now and the end of 2022. At the very top of the list is optimising costs of energy. This is crucial in order for our turbines to be able to compete in the auction systems in place in most countries. However, we are also working to increase efficiency in all areas, and securing international supply chains. We want to build on the success of previous years. This will involve shedding some old habits and overhauling our internal structures so as to become more efficient, faster and better, and optimally satisfy the heightened demands of our employees and customers in an increasingly aggressive competitive environment. We must embrace change as an opportunity, for instance if we want to provide energy for industrial purposes. Otherwise, renewable generation is going to get stuck in the trivial details.
ne: What consequences will the restructuring programme have for your product range?
Kettwig: The variables directly affecting the cost of energy produced by a given turbine, such as capacity, efficiency and output are obvious enough. Equally straightforward are the costs arising from production, logistics and installation that affect product prices, or operating and maintenance costs once the turbines are up and running. Accordingly, there will be a clear focus on large, high-output turbines in the EP3 and EP5 ranges, in terms of both research and development, and marketing. The nacelles of these turbines, with capacities in excess of 3 and 5 megawatts (MW) respectively, are substantially lighter and more compact than their predecessor models. This makes them easier to transport, and significantly shortens installation times, while the modular steel tower in conjunction with the climbing crane creates savings in terms of time, footprint and construction site logistics. Moreover, our turbines now have both permanent generators and the time-honoured synchronous generators on board, which is advantageous when considering the 6-MW turbines of the future. Of course, alongside the modern large-scale turbines we also offer a broad selection of tried and tested turbines in the 1 to 3-MW range, which are well-suited to particular topographical locations such as islands, or where space is at a premium. What is more, we anticipate that for many wind sites eligible for repowering a decision will have to be made at some point: can the farm remain viable with turbines of a similar size, or should it be abandoned for wind power purposes altogether? We are in favour of giving old sites a chance for continued operation and renewal.
ne: Will the job cuts already announced – 3,000 out of 18,000 – be the end of it as far as 2020 is concerned, or could there be more?
Kettwig: Our statement from last autumn still applies: we estimate that by the end of 2020, 3,000 jobs will be affected in our company and our direct production partners. Further cuts cannot be ruled out in the course of the transformation process. This will also depend to some extent on developments at the political level. But you can be sure that we will thoroughly consider each step we take, and carefully weigh up the pros and cons every time. We want to safeguard jobs in Germany and the EU, and avert a widespread loss of know-how like the one that occurred in the solar industry. But we cannot know what the future will bring.
ne: What changes are in store in terms of the proportion of international business in the company’s operations?
Kettwig: Even before the collapse of the German market, international business accounted for around 40 percent of the company’s revenue. In future, the region made up of Germany, Austria and Switzerland will be one of around ten global core markets in which we are either already market leaders, or aim to be in the medium term. We also intend to expand our activities in Asia and South America. Meanwhile, we are keeping an eye on some very dynamic developments in the global market. A good example is Africa, where in many regions the most logical option is a fully renewable and distributed energy supply based on wind and solar in conjunction with storage technology. When it comes to safeguarding a stable regional energy supply in spite of distributed and fluctuating generation, we have a great deal of know-how to offer. We are firmly convinced that onshore turbines can and will serve the goal of sustainable and peaceful energy generation and supply worldwide.
ne: In early June, Enercon reported that it had secured long-term financing. What agreement was reached with Enercon’s financial backers, and what does it mean for the company?
Kettwig: Yes, that was a much-needed ray of hope for the company. We successfully negotiated a new, long-term financing agreement with the lending banks and the Aloys Wobben Foundation. In addition to the extension of an existing loan, it also provides for a new credit line. The agreement gives us the planning security we need to continue putting the turnaround into practice. Aside from safeguarding our international business and stabilising our project financing, we also expect this development to restore our relations with business partners and suppliers, among whom the restructuring programme had caused a certain degree of unease.
ne: In terms of policy framework – what are your main expectations from the forthcoming revisions to the Renewable Energy Sources Act?
Kettwig: Renewables must have clear growth prospects once again. There is no shortage of political targets and concepts, but what we need are rigorous programmes and concrete measures. We cannot go on like this: wind auctions are dramatically undersubscribed and we are nowhere near even the government’s expansion trajectory. We need to eliminate the obstacles standing in the way of renewables and relieve the burdens on power from clean sources. Unless we can do this, all the targets and plans for renewables and sector coupling are meaningless.