Lucky Don Quixote – all he invested in was time when he stabbed at windmills. That may be what the bosses at Danish wind turbine manufacturer Vestas wish they had done when they announced they would be shutting down blade production activities in the Isle of Wight and Southampton in the UK, making 600 employees redundant.

Although the company is continuing R&D activities in the Isle of Wight, it announced in August that it would close the production facilities due to the slow pace of wind farm development in the UK.

“The decision to close the factory was very difficult, and we fully recognise the impact this will have on employees, their families and on the Isle of Wight,” says Vestas Blades’ president, Ole Borup Jakobsen. “Nonetheless, this commercial decision was absolutely necessary to secure Vestas’ competitiveness and create a regional balance between production and the demand for wind turbines.”

Warning signs

Earlier this year, Vestas had hinted that all was not well with its northern European market when the company announced it would be reducing production capacity as conditions in those markets was not meeting the company’s expectations. At the same time, the company began significantly investing in Spain, China and the US by hiring 5000 new employees to help supply those regions’ growing domestic wind markets.

That expansion – mostly in the US – created substantial excess production in northern Europe, which was also manufacturing turbines for the US market. The cost of exporting blades to the US – where 8.5 gigawatts of wind farms were installed last year compared with 0.5 gigawatts in the UK – turned out to be higher than the labour costs to produce the blades. Unfortunately for Vestas, insufficient demand in the northern European market meant that the region could not absorb the excess production. “We are moving to the US market because it makes sense to be close to where the action is,” chief executive Ditlev Engel told UK newspaper The Guardian.

Political problems also proved to be an issue for the company’s expansion; believing that the UK government’s renewable energy plans might lead to a boom in the construction of more wind farms, the original plan was to have the Isle of Wight facility converted to make turbines for the UK market. But that never happened, in part because local politicians and activists had blocked opportunities for wind farm growth, according to Mr Engel.

In 2006, the local council on the Isle of Wight received a letter from their local MP asking them to block an application to build six turbines because the MP believed it would prove detrimental to the countryside. Vestas countered that the blocking of the application would not only lead to the eventual closure of the factory but would also negate the country’s stated commitment to wind energy. The council rejected the plan and since that time no wind farms have been constructed on the Isle of Wight.

A statement released by Vestas claims: “In particular, the local planning process for onshore wind power plants in the UK remains an obstacle to the development of the market. Vestas is, as ever, ready to work with all relevant political parties to secure a long-term sustainable market for onshore wind power in the UK.”

Aside from the booming US market, Vestas is also investing significantly in China, which is currently ranks fourth in the world for wind energy manufacturing, but is expected to surpass the US. With the Chinese government insisting that 80% of all wind farms be produced locally, Vestas sees big opportunities in that emerging market. Don Quixote might well consider relocating.

COMPANY PROFILE

Vestas Wind Systems

Headquarters

Randers, DenmarkEmployees worldwide

21,153Annual revenue (2008)

€6035mExecutive management

Ditlev Engel, president and CEO, Henrik Nørremark, executive vice-presidentMarkets

Argentina, Australia, Austria, Brazil, Canada, China, Denmark, France, Germany, Greece, India, Italy, Japan, South Korea, Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, Spain, Sweden, Taiwan, Turkey, UK, US