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First Real Signs of Trouble for Windpower

by Crazy Horse Wed Jan 7th, 2009 at 04:15:01 PM EST

In the first hard news I've seen that life will also be tough for one of the main industries which should survive well in the economic meltdown, LM Glasfiber announced up to 20% cuts in its workforce.  LM is the largest independent rotor blade manufacturer around the globe.  (Many manufacturers produce much of their own blades, but not all.)



Wind turbine blade producer LM Glasfiber has announced that it is to fire one fifth of its Danish workforce in what is being called the biggest domestic firing-round of recent times.

While I do believe this is a significant event, I do not believe it is strictly related to the meltdown.  More below.


In a surprising announcement today, LM Glasfiber may shed up to a fifth of its workforce.  The story will likely garner much press about the wind industry being slammed by the economic meltdown.  It may even be jumped on by wind opponents calling many parts of the industry "not a real business."  For certain, it will put some more fear into the financial industry underpinning windpower growth.


Richard Andrew Bevan, LM's general manager for northern Europe, announced yesterday that the lay-offs are a result of customers delaying windmill projects due to a lack of capital.

Of course, the potential causes will likely not be mentioned.


British private equity fund Doughty Hanson & Co. became principal shareholders in the Danish company in 2001. Four years later they cancelled plans to list LM Glasfiber on the stock exchange.

Right, LM is owned by a British private equity firm.  Is it possible their growth plans were fueled more by the bubble than by sound planning, as other wind companies are doing.  Certainly there are still some tough hits coming, (I won't name the high risks, except for massive consulting fees.), but could it be that this is not an example of a hit on the industry, but rather that the company set its sights too high, being managed by "private equity"?

Beats me.

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I'm reminded of this recent post on naked capitalism:

naked capitalism: Private Equity Firms Expected to Show 20-30% Losses for 2008

OK, you gotta help me. Private equity is basically levered equity. Yes, the claim to add value in various ways, but many academic studies question that theory. The big source of profits is leverage and financial engineering. Neither of those approaches were spectacularly successful in any sector I can think of in 2008.

In addition, many PE firms have companies in their portfolio that are in a world of hurt right now, due to a combination of fundamentals that fell off a cliff, high debt loads, and in many cases, debt maturing in the next year or so.

So how can PE companies (on average) possibly report returns that are better than equity averages last year? It strains credulity. Leverage cuts both ways, and it most certainly would not, in most cases, have done PE owned firms much good last year.

And making the expected mere 20-30% losses (versus public market declines of more like 40%) comes when PE firms are held to more rigorous standards in valuing their holdings. That alone should have a return-depressing effect.

To its credit, the Financial Times article does say the losses could be considerably worse than the rumored level.
by Metatone (metatone [a|t] gmail (dot) com) on Wed Jan 7th, 2009 at 04:22:25 PM EST
Nice catch, metatone.  To me it goes deeper, as when bubble financial principles are used to base management decisions, real world planning goes out the window.  How can private equity owners treat their companies any other way.

Trouble is, it's the companies that pay the price.  The carnival barkers or pirates, known in the mainstream media as heroic and entrepreneurial private equity bankers, take the remaining loot and move to the next scam or bubble.

I'm very sad to see this happen to LM, a company with much experience, top engineers and aerodynamicists, and a great track record.  (Should have said that in the diary.)  They have a top-of-the-line wind tunnel for research.  Some of their executives have decades in the industry, and the global experience that comes with it.

Hopefully, they have a program to rehire when the industry expands faster than expected.

"Life shrinks or expands in proportion to one's courage." - Anas Nin

by Crazy Horse on Wed Jan 7th, 2009 at 04:51:28 PM EST
[ Parent ]
Again, opposite to private equity's LM, REpower today announced that they have not had any order cancellations.  They have only dropped their growth forecast, as have other well-planned companies.  The pickup by the end of Q2 '09 may well be enough to offset all drops.

"Life shrinks or expands in proportion to one's courage." - Anas Nin
by Crazy Horse on Wed Jan 7th, 2009 at 05:33:01 PM EST
[ Parent ]
There were articles in the Arkansas Democrat Gazette today, (Wednesday,) about layoffs by LM in Little Rock.  These layoffs are attributed to a drop in sales due to lack of availability of credit, according to Randy Fox, vice president and North American general manager LM Glasfiber.  They are closing the plant in which they started production here and transferring some workers to their new plant at the Little Rock Port.  

Mr. Fox was at pains to point out that, even with these layoffs, LM is ahead of projections for total employment by Jan, '09 and that they will be here for the long term.  He also notes that some of these workers could be re-hired.  The article goes on to note that DMI Industries of Fargo, N.D. has announced a 20% reduction in employment, also attributed to the credit squeeze.  We can hope that the Obama administration will give some attention to some of the consequences of the financial implosion other than trying to provide first aid for the perpetrators.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Jan 7th, 2009 at 06:27:48 PM EST
Thanks, AR (us geezers stick together)

These layoffs are attributed to a drop in sales due to lack of availability of credit, according to Randy Fox, vice president and North American general manager LM Glasfiber.

REpower today announced they had zero sales cancellations.  I attribute LM's announcement to the bubble mentality of LM's majority owner, and their growth plans accordingly, rather than a major windpower hit.

Doughboy Hanson indeed. (actually Doughty Hanson & Co.)  Cost people their livelihoods.

"Life shrinks or expands in proportion to one's courage." - Anas Nin

by Crazy Horse on Wed Jan 7th, 2009 at 06:49:06 PM EST
[ Parent ]
The problem with highly leveraged PE firms is that they can be forced into a firesale situation when their loans are called in or mature.  This may simply be a case of not having sufficient cashflow to keep the business ticking over, or needing the cash flow to pay back loans rather than progress the business.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Jan 7th, 2009 at 08:08:23 PM EST
How much did the workforce of LM Glasfiber expand in the 4 years since it was acquired by the British PE firm?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Wed Jan 7th, 2009 at 08:12:44 PM EST
I don't know, but i expect significantly, as new blade plants were established around the globe, particularly Canada, US and China, with expansion in Europe.

"Life shrinks or expands in proportion to one's courage." - Anas Nin
by Crazy Horse on Thu Jan 8th, 2009 at 03:52:15 AM EST
[ Parent ]
Independent: 'Strange lights' reported as wind turbine damaged

An investigation was under way today into how a blade was mysteriously torn off a wind turbine amid reports of "strange lights" in the sky.

The turbine at Conisholme in Lincolnshire was left wrecked after the incident.

The Sun quoted residents speculating the damage could have been caused by a UFO.

Yup - the little silver people with big eyes are not pleased...

You can't be me, I'm taken

by Sven Triloqvist on Thu Jan 8th, 2009 at 04:30:57 AM EST
Thanks for bringing this Dr. Triloqvist.  As you know, most turbine damage is caused by reverse vortexes induced by the near-proximity dark matter believed to accompany wormhole jumps.  

"Life shrinks or expands in proportion to one's courage." - Anas Nin
by Crazy Horse on Thu Jan 8th, 2009 at 05:29:12 AM EST
[ Parent ]
I presume such alien risk factors are included in the return on investment models Jerome and you guys work from?  I'd hate for the ET Turbine to be damaged by some alien lurkers...

Where is Mig anyway?

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jan 8th, 2009 at 07:33:33 AM EST
[ Parent ]
Mig's a Vulcan isn't he?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Jan 8th, 2009 at 07:46:28 AM EST
[ Parent ]
They were pissed off that there were no crops to make circles from (which they borrow turbine blades to do, of course...)

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Jan 8th, 2009 at 06:22:00 AM EST
[ Parent ]
I just hope that brilliant idea doesn't land on the desk of some National Enquirer reporter ;-)

You can't be me, I'm taken
by Sven Triloqvist on Thu Jan 8th, 2009 at 06:31:49 AM EST
[ Parent ]
Sven Triloqvist:
just hope that brilliant idea doesn't land on the desk of some National Enquirer reporter

I thought those reporters are aliens....

...reminded of "Men in Black" when Will Smith asks Tommy Lee Jones concerning the alien presence in New York how many are taxi drivers and he responds

"Not as many as you would think..."

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Jan 8th, 2009 at 07:27:13 AM EST
[ Parent ]
It most assuredly will... if you don't get in there and exploit it first. :)

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt t gmail dotcom) on Thu Jan 8th, 2009 at 08:39:57 AM EST
[ Parent ]
Turbulence in the markets?
No power in the windbank?
What goes around, comes around?
Fibreglass rotors caught in Melt-down?

Just trying to think of some snappy headlines for your op ed piece on this.  You ARE going to publish it, aren't you?

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Jan 8th, 2009 at 09:57:35 AM EST
Financial Markets Reach Cut-Out Speed.

"Life shrinks or expands in proportion to one's courage." - Anas Nin
by Crazy Horse on Thu Jan 8th, 2009 at 10:22:24 AM EST
[ Parent ]
Why don't you think the reaction will be, that there is need for a gov't sponsored bail out of the wind industry?

After all the car industries all over the world get bail outs,despite it is clear, that there are overcapacities.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Thu Jan 8th, 2009 at 11:42:20 AM EST
Because wind isn't serious.

The serious people drive cars (or have people drive them for them). They understand why cars are nice to have. They haven't got a clue why windmills are nice to have.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 8th, 2009 at 12:00:54 PM EST
[ Parent ]
I thought that really serious people had private jets, even in the car industry?
by GreatZamfir on Fri Jan 9th, 2009 at 05:24:34 AM EST
[ Parent ]
Windmills are machines where you put wind in on one side and get money out the other. An eminently simple and straightforward business strategy in a world of complex financial insanity.

Love your sig btw. :)

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Jan 12th, 2009 at 11:15:02 AM EST
[ Parent ]
For whatever it is worth. :-)

Jay Leno's MagLev Wind Turbine Is Bigger Than Ed Begley's (VIDEO)

Jay Leno may have a ton of old cars that probably get four or five miles to the gallon, but at least he's talking about wind power on television! Or. Hang on. At least he talks about wind power on NBC.com!

In the video below, he's staring at a MagLev wind turbine -- that's a turbine that works well because it's levitating on a magnetic field. Less resistance means more conserved energy and less mechanical wear. Very cool stuff, and it's the kind of toy that a mechanical geek like Leno can get into.

This baby's going on Ed Begley's house, but Leno brags that the one he'll buy is bigger.

by Fran on Thu Jan 8th, 2009 at 05:56:17 PM EST
And celebrities are always falling for them.  (thanks for posting this, Fran)

There is a certain amount of energy available in a certain cross section of wind.  Betz' Law (1919) states that the maximum theoretical amount of energy that can be captured from a rotor is 59.3%.  When losses and mechanical inefficiencies are taken into account, modern turbines achieve coefficients of performance at between .4 and .5, or 70-80% of theoretical.

When you add all kinds of expense to capture the same amount of energy a simple cheap rotor captures, like permanent magnets to "float" the turbine, you've already lost the game.  Plus, in the video, the CEO or whatever says the turbine reaches maximum output at 28 mph (45.1 kmh).  In most urban areas around the world, that might be 20 -60 hours a year.

We now return you to conventional reality.

"Life shrinks or expands in proportion to one's courage." - Anas Nin

by Crazy Horse on Fri Jan 9th, 2009 at 03:49:40 AM EST
[ Parent ]
Hmm, I can see how electromagnets or cryogenics (for superconductors) would be a loss, but I don't see why "permanent magnets" per se would be too expensive.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Migeru (migeru at eurotrib dot com) on Fri Jan 9th, 2009 at 04:11:52 AM EST
[ Parent ]
As opposed to a simple bearing?  rare earth PMs can become quite expensive, especially at small scale.  otoh, permanent magnets have been used in the generators of gearless or hybrid turbines for years now, and are quite efficient.

"Life shrinks or expands in proportion to one's courage." - Anas Nin
by Crazy Horse on Fri Jan 9th, 2009 at 04:23:26 AM EST
[ Parent ]


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