Clipper Windpower: Setting Up To Become a Global Player

The year 2007 was an eventful one for the U.S. wind power industry, and it certainly was an eventful one for Clipper Windpower. Now, 2008 is starting out in similar fashion for the Carpinteria, CA-based US wind turbine manufacturer and wind power project development company. The latest news — following right in the wake of Clipper’s April 15 shareholders meeting in London — is the sale of its giant 7.5-megawatt (MW) prototype Britannia offshore wind turbine to UK Crown Estates as the UK looks to move its ambitious offshore wind power development plans closer to fruition.

Clipper hit snags as it strove to ramp up production and meet growing demand for its flagship 2.5-MW Liberty turbines. Management reported a US $192.5 million loss for 2007, its first full year of turbine production. On the flip side, the company made significant headway in mapping and laying out the groundwork that management believes will create a company capable of competing for and participating in large-scale projects not only in the U.S. and North America, but in Europe and elsewhere around the world.

Of note regarding the latter was striking two strategic investments and partnerships. The week before announcing its year-end 2007 results, Clipper announced that One Equity, the private equity management arm of JP Morgan Chase, would invest US $150 million in the company and appoint two directors to serve on Clipper’s board with a primary aim of working with management to strengthen Clipper’s supply chain and support growth in its core wind turbine business.

Clipper is also working to take a big step forward in terms of building the wind power project development side of its business, as well as extending its geographic reach. Management is planning to combine Clipper’s wind power project portfolio with that of Helium Energy, a fast-growing European renewable energy company owned by Spanish construction and real estate group Hemeretik, and spinning off a separate subsidiary dubbed Clipper Capital & Generation, (CapGen) with a combined wind power portfolio that initially totals 10,500 MW.

Growing Pains

The need to redesign and reinforce Liberty turbine blades so that they can operate in conditions not considered in its original specs or by certification bodies along with addressing the problem of inadequately manufactured drivetrain components from two suppliers caused problems for Clipper in 2007.

Remediation efforts led to substantial cost overruns, delayed deliveries and revenue recognition. Provisions for turbine remediation costs, along with loss-making contracts, warranties, inventory obsolescence and liquidate damages accounted for $107.1 million of Clipper’s total loss for fiscal 2007.

The good news is that Clipper did manufacture 137 turbines at its Cedar Rapids factory in 2007, representing 343 MW and equivalent to some 6.5% of total new wind turbine installations in the U.S. for the entire year. Clipper produced a total eight turbines in the final months of 2006.

Moreover, cumulative third-party orders for Liberty turbines continue to grow, rising from 370 to 825 units — 925 MW and 2,063 MW equivalents, respectively. Clipper booked orders for another 1,500 units in joint development and contingent sales agreements.

Clipper expects to be able to manufacture 400 turbines a year at its main Cedar Rapids factory having hired and trained new employees and invested in expanding capacity. “We’re getting pretty comfortable with the numbers we talked about for this year — operation of the plant is really going along well,” Jim Dehlsen, Clipper’s chairman and CEO said in an interview.

“We have had some teething issues, but we’re well into getting those remediated. Right now we’re about three-quarters through drivetrain program; we should have the whole deal completed, including blade strengthening in the third quarter. Now, we’re starting to take a look at how to start to build up production levels looking out beyond this year.”

Linking Up the Supply Chain

Taken together with governments’ ongoing efforts to launch national and international wind power development initiatives, Clipper’s strengths and pioneering role in U.S. wind power development and growing turbine demand for its Liberty turbines has captured the attention, and attracted the backing, of prominent investors and industry leaders both in and outside the U.S.

“The US market for wind energy has tremendous growth prospects and we see Clipper’s 2.5 MW turbine as uniquely positioned to capitalize on this opportunity,” managing partner Richard Cashin said of the main reason underlying One Equity’s plans. “Our investment adds real muscle to Clipper’s operational plan, which is designed to transition the company to a new stage of growth.”

Building up and strengthening Clipper’s supply chain will be a focal point for One Equity’s work with Clipper, and not just in the U.S. The availability and quality of wind turbine components is constraining production not only for Clipper but for the wind power industry globally and across the board.

The strategic investment and partnership promises to enhance and accelerate Clipper’s efforts to proactively address both existing supply chain challenges and establish a solid foundation for future growth. Clipper management has been considering ways of optimizing its supply chain globally going back to 2001, according to Dehlsen.

“We think we’re going to see considerably more volume going forward…Their organization is one that has a very solid ratio of actual industry people — ex-CEOs and people involved in heavy industry and large volume production environments — which promises very good support for Clipper’s plans,” he commented.

“With the increasing scale of our operations and a reliable supply chain in place we’re starting to see an offset to the commodity effect, a leveling off of costs that were rising during the early stages of manufacturing.”

Wind Power Project Development

Clipper management has similarly taken strides to better develop and expand the wind power project development arm of the company. Negotiations to combine Clipper’s wind power project assets with those of Helium Energy’s to create Clipper Capital & Generation (CapGen) hold out the prospect of creating an organization led by an international management team with proven ability and experience in successfully building a wind power company with global reach.

“[Wind power project development] is quite a different type of business, so we separated our development assets into something we call CapGen in order to establish a global capability and a very strong senior management team,” Dehlsen explained.

“Essentially, we joined with Helium to bring in their assets and management experience and expertise…This is the group that essentially took Iberdrola from quite a small presence in wind energy and built it up into where it’s one of the largest on the planet; they really have quite a track record.”

Project Development and Turbine Sales Opportunities in Europe

The EU and member nations, Germany, Spain and the UK among them, have established themselves as centers for wind power development. Clipper has had some initial success in Europe and it’s looking to CapGen, as well as its partnership with One Equity, to grow and better establish itself in the EU market.

With an upsurge in European offshore wind development forecast for 2011 and 2012, Clipper last year formed an advanced technology team and undertook Project Britannia, an initiative to design and manufacture the world’s largest offshore wind turbine to date — one with a 7.5 MW capacity.

On April 17 Clipper announced that it has agreed to sell the Britannia prototype to the UK Crown Estate as part of the UK government’s efforts to promote and support offshore wind power development. Offshore wind turbines may produce as much as 33 gigawatts of electricity for the UK by 2020, according to government studies.

“It is widely recognized that offshore wind energy will provide the majority of the required contribution needed to ensure that the UK meets its demanding renewable energy target to supply 15 percent of our consumed energy from renewable sources by 2020,” Rob Hastings, Director of the Marine Estates at the Crown Estate, stated in a media release.

“More than anything it’s a very positive step for Clipper to be able to accelerate the development of the project,” Dehlsen added for RenewableEnergyWorld.com. “The UK has very ambitious goals set for wind and renewables and with this type of support I think it just accelerates our development plans and allows us to bring them forward…

“Building a Supergrid is an idea that really has some merit…I think it’s just an indication of how broadly we’re seeing wind being accepted in areas, particularly in some of the larger electrical systems…They’re trying to accommodate much greater wind capacities. There’s been some resistance to that, but it’s nice to see those horizons come into view.”

Andrew Burger is a RenewableEnergyWorld.com International Correspondent currently working out of Israel.

 

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