Win[d]W I N D , O I L A N D G A S

No. 12 Ye a r 0 5 8 May 2008

Boosting productivity

Offshore opportunities A safety incentive Technology transfer Keeping executives excellent Customers speak out Heading for Four Sigma The art of nding fault Industry takes the climate battle to a new level

On to the next stepIt was disappointing for us all at Vestas to read the results of the latest customer satisfaction survey. Because although the survey shows progress on a range of key issues, we still face major challenges with regard to working relationships with our customers. Challenges that we take very seriously indeed. Nevertheless, the results have not knocked us down for the count, because even though we have a long way to go at all levels at Vestas, the results conrm that the initiatives we have launched are right on the mark as regards the requirements our customers are making. We are committed to focusing intensely on these central challenges in 2008. Our managers are completing development programmes designed to improve professionalism and the ability to perform faultlessly in all parts of our organisation. Our production processes will undergo comprehensive changes and we are working concertedly to improve working relationships with our customers. It is also clear that requirements on us as a partner, on our products and on our professionalism are growing naturally in step with the industry, and in line with the increasingly central role that is being accorded to wind energy in different countries all over the world. That is why we are making higher demands on ourselves and on our suppliers. And as the articles in this issue of the magazine make clear, we are on the right track. It is with satisfaction that we can note that many of our suppliers have welcomed the challenge and have already made a good deal of progress in the work necessary to ensure appreciable improvements in quality and an expansion of capacity. As the market leader, we have simultaneously taken on responsibility for expanding familiarity with the indisputable benets wind power provides in relation to other sources of energy, and we can see that our messages have met with a very positive response. However, the industry alone cannot raise wind power to the next, essential level. In the same way as all other forms of energy, wind power demands long-term planning and a stable political framework if it is to develop. All the conditions are in place to enable wind power to play a key role in the solution of energy and climate challenges. However, the necessary political decisions must be made now not in ve or ten years if the ambitions are to be achieved. The opportunity to take a whole new approach to energy is here today all that is required is the courage to seize it. Or as a well-known sports company says: Just do it. Ditlev Engel, President and CEO Vestas Wind Systems A/S

Content

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Expanding inwards Improving productivity at existing factories has a key role to play in Vestas growth over the coming years. Offshore opportunities As the V90-3.0 MW returns to the market, offshore business is booming.

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Global economy 2.0 When Lars G. Josefsson, President and CEO of the Swedish energy company Vattenfall, talks about climate issues, the politicians listen. Read about the industry leader who is special climate advisor to Angela Merkel, the German Chancellor.

42Challenges at IJmuiden How Vestas overcame a serious setback to get the Q7 offshore project in the Netherlands back on track.

Taranto technology transfer The Italian factory gears up to produce V90-3.0 MW turbines, while transferring V52-850 kW know-how to China.

46 16Down but still determined Some praise, much criticism: the 2008 customer loyalty survey reveals a hard road to satisfy customer needs, but Vestas is resolute.

A framework for loyal relationships Vestas Mediterranean turns the spotlight on partnerships with suppliers.

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Training to stay at the top Fast-paced business growth makes growing demands of Vestas executives. A sophisticated development programme is optimising their skills

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Rewarding safety Safety targets are part of a new incentive plan that lets Vestas employees earn an extra months pay. A holistic approach Improving the performance of installed wind turbines is the job of the Operations division of Vestas Technology R&D.

and keeping performance tip-top.

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Prediction is better than cure The Vestas Performance and Diagnostics Centre makes an art out of predicting turbine faults before they happen. The result is a new global service culture.

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62Global warming in the boardrooms If the climate battle is to be taken seriously, industry must take the lead and many companies are already well under way.

Well on the way towards Four Sigma At 63 of Vestas strategically important suppliers, work is well under way on a range of quality initiatives with a common goal: to raise the Sigma level to at least four.

Expanding inwards4

Increasing capacity has to do with more than simply building new factories and taking on additional staff, so while Vestas is investing around EUR 500 million in new facilities in 2008, productivity from the existing factories has to skyrocket. And there are plenty of options from the smallest electronic components to the biggest tower sections.

We are removing whatever does not generate value for the customer, explains Sren Husted, President of Vestas Nacelles, with regard to the process that Vestas production system is currently undergoing. The goal is clear: to make optimal use of the factories resources and to boost productivity signicantly. The tool to be applied is a switch to ow-based production, which involves making considerable reductions in run-through time, i.e. the time from receiving the order to completion of the product in question. You can compare it to having to draw ve sets of lines on a piece of paper, using ve different colour pens held by ve different people. The traditional solution is to have each person draw ve lines, one by one. However, if each person draws a line and then passes on the pen to the next person, it is possible to reduce the time from the rst to the last line appreciably typically by 3040 per cent. At the same time, this approach increases the likelihood of the result being the same every time. This is a simplied image of what the process entails, explains Sren Husted.

Sren Husted is the sponsor of the Group initiative targeted at accelerating productivity improvements throughout the Vestas organisation. Production Excellence is one of the 12 highly prioritised Must-Win Battles at Vestas. Focus on shorter run-through times and reduced costs by removing waste factors are key elements of Production Excellence, as Sren Husted explains. Faster run-through Reducing run-through times and minimising waste opens the door to a range of obvious advantages. For example, we can manufacture more products at our existing factories rather than having to build new ones, he says. Firstly, standardising the work processes and minimising waste factors such as internal transport, waiting time and unnecessary movements will reduce production costs and thus improve our competitiveness. In this context, we are working with a goal of moving from index 100, measured in 2007, to an index of less than 80 in 2012, so there is appreciable potential.

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Secondly, we can postpone or even obviate a number of investments in new facilities by reducing the run-through times at our factories, thus increasing capacity, says Sren Husted, who has already seen in several areas of the Group what an individual factory can actually achieve by implementing improvements. Back in 2002, we were considering expanding our factory in Viborg, Denmark, which had an annual capacity of 200 units at that time. The expansion would have doubled the size of the factory. However, we decided instead to remodel production using the Lean principles, and today the same factory manufactures 700 units a year without our having to expand the production area, he relates. A rule of thumb states that if you reduce the run-through time by 50 per cent, capacity will increase by 25 per cent. Experience from our assembly facilities demonstrates that this calculation certainly applies at Vestas, says Sren Husted. In different ways, all Vestas four production units have already started focusing on improving productivity. For example, Vestas Blades has been working with the Total Production Management (TPM) system for many years. This move is intended to increase productivity and makes sense for two main reasons:

Blade production is still a craft that takes time to learn, and it is not usually possible to ll all the positions with new employees who have experience with the processes. So even though the ramp-up time has improved for a new factory, we still anticipate that it will take several months before production reaches full capacity, explains Nina Skovby Lundkvist, Director of the TPM & Lean Competence Centre at Vestas Blades. In addition, the production equipment at a blade factory is extremely expensive, so there are major nancial gains to be made by optimising production at the existing factories, she continues, and adds that experience from Vestas Blades indicates that the introduction of TPM can help increase productivity by around 30 per cent. Eliminating waste Vestas Towers, too, is focusing on ensuring the best possible utilisation of the factories large and cost-intensive production equipment, as Bo Michel, Manager, Production Development, explains: We constantly differentiate between value-creating and non-value-creating processes, and optimise the production process step by step. We identify the bottlenecks in the production ow and analyse the wasted time,

i.e. the time during which the machines are not producing. We reduce machine downtime, for example, in connection with wire changes, waiting time and other periods during which the central production machines are not used. In this way, we improve the degree of utilisation of the machines, explains Bo Michel. In 2007, the target for the Lean optimisation at the tower factory in Varde, Denmark, was to improve the degree of utilisation of the welding machines by 15 per cent. As the area was a bottleneck, this improvement can be translated directly into a 15 per cent increase in productivity. Vestas Towers differs from the other production units at Vestas in that Vestas itself manufactures only a limited share of the nished towers for the Groups wind turbines. Most of the towers are actually manufactured by Vestas suppliers. However, the improvements in efciency have already had a positive effect on the ratio of Vestas own production to that of its suppliers. In just two years, and without increasing the number of tower factories, Vestas has succeeded in raising the share of wind turbine towers manufactured in-house from 1215 per cent to 1520 per cent. What is more, this improvement was made at a time when Vestas total production increased signicantly. And the improvements in efciency

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are to continue. For example, the number of hours spent on each tower at the tower factory in Varde, Denmark, is to be reduced by 15 per cent annually. In addition to focusing on bottlenecks, the company is continuously adapting the machine eet, production methods and work processes to match market requirements. This allows us to identify the best practice in each process at each of our factories, and we can then prepare the most appropriate solution for all our facilities, explains Bo Michel. 30 per cent gain At Vestas Control Systems, which supplies electronic components and control systems for Vestas turbines, it is not the utilisation of the production equipment that imposes limits on production. Instead, it is rst and foremost a matter of making the best possible use of the employees time, which is why all production lines are currently being reorganised for owbased production. This change process demands the unswerving attention of 40 full-time employ-

ees who have been assigned to the task, and who are working closely with the staff of the individual production sections to reorganise production. The process typically takes two months for each production line. In all, Vestas Control System operates 40 lines, which are all to function according to the same principles by the end of 2009, as Jacob Bhme Christensen, Director of Process Development, explains. We look at the work content of each individual line. Typically, we lm the processes to analyse them. Then we break the work down into the separate operations performed. After we have done that, we can create a standardised process that ensures a short and stable run-through time, he says. This systematic approach has improved efciency by around 30 per cent on the lines where production has already been restructured. Vestas Control Systems has the same goal for the rest of the factories in step with the restructuring of the production process. However, the process provides benets other than simply saving time.

By creating a standardised process, we can identify the subsidiary processes that may cause problems in the form of faults and defects, which enables us to make changes and minimise the number of assembly errors which would take a lot of time and resources to deal with later in the production process, explains Jacob Bhme Christensen. Improved quality is a constant bonus from the work to improve productivity, as Sren Husted emphasises. The process we are currently working on has to do with eliminating waste. Once the processes have been mapped out, we can cut out all the parts that do not generate value. Waste in the form of over-processing the products, waiting time, unnecessary transport and, in particular, the number of faults and defects.

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OffshoreopportunitiesThe booming offshore wind industry is an important part of Vestas future plans. With the improved V90-3.0 MW turbine back on the market, prospects look good.

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The announcement in February that Vestas agship V90-3.0 MW turbine will be back on sale at the beginning of May created a collective sigh of relief big enough to power a whole eet of wind turbines. Since its launch in 2004, the V90-3.0 MW has been key to Vestas future in the booming offshore wind market. I would not say that we will never see the V80-2.0 MW offshore again after all, we are currently installing 60 of them on the Q7 project in the Netherlands (see Challenges at IJmuiden, page 12), says Anders Se-Jensen, President of Vestas Offshore. But the V90-3.0 MW is denitely our workhorse for now. Problems with the gearbox led to Vestas taking the V90-3.0 MW of the offshore market early last year. The issue only appeared in offshore turbines because of the high wind speeds and turbulence they face. Its a very harsh environment, with much more wind, which of course is why we are there in the rst place, explains Anders Se-Jensen. With the technical problems identied and put right, a thorough testing and approval process has ensured that newly-built V90-3.0 MW turbines will deliver the reliable performance customers expect. Vestas products are subject to continuous improvement, says Finn Strm Madsen, President, Vestas Technology

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Offshore wind has to compete against onshore, which is always less risky. So we have to make sure that the extra prot in offshore projects compensates for the extra risk.Morten Melin, Vice President, Projects & Technology, Vestas Offshore.

R&D. That is also true of our competitors products, and of other industries as well. Just as important is the process of bringing installed turbines up to the new standard. Vestas has already replaced V90-3.0 MW gearboxes offshore at Kentish Flats and Barrow in the UK, and replacements are ongoing at the NoordzeeWind site near Egmond aan Zee in the Netherlands. Vestas customers have faced the issue in a professional manner and have been co-operative in nding solutions, Anders Se-Jensen says; above all, neither Vestas nor its customers has ever doubted that a solution would emerge. Customers are certainly not happy about the problem, but they are happy with the way we have handled it, adds Morten Melin, Vice President, Projects and Technology, Vestas Offshore.

It has been an annoying period for both Vestas and our customers. It will be wonderful to be back in the market, and to be able to contribute again to Vestas position as No. 1 in Modern Energy, Anders Se-Jensen says. The fact that we have a sales business unit dedicated to offshore shows how seriously we take this market, and in terms of our installed base we are still No. 1 offshore. And despite putting a stay on signing contracts, we have continued to negotiate with potential clients. The promise materialises As offshore wind begins nally to ramp up, potential clients are not hard to nd. The offshore market has lagged behind some of the more optimistic estimates, says Morten Melin, but prospects now look very promising: The customers are there, the banks are becoming more willing to lend, and the big utilities are continuing to invest in offshore projects. In its 2007 wind power report, specialist consultancy BTM predicted that installed offshore wind capacity would rise from 1.4 GW in 2008 to 8.2 GW by 2012. The German government alone has proposed 25 GW of offshore wind power by 2030. This is rapid growth, though it is starting from a low base: offshore projects currently account for only around 1 percent of the worlds installed wind capacity, Bottlenecks ahoy Its not all plain sailing offshore. Obstacles to development include planning rules, availand on BTMs predictions the corresponding gure for 2012 will be less than 5 percent. Vestas Offshore is currently in the last stages of the Q7 project in the Netherlands, scheduled for completion this summer (see page 12). As Q7 draws to a close, attention is moving to the west coast of the UK for the next offshore development. With its 60 V903.0 MW turbines, the Robin Rigg project is set to be one of the worlds largest offshore wind plants when it is commissioned in spring 2009. Robin Rigg, owned by power company E.ON, is in Scottish waters just north of the border with England. The relatively sheltered waters of the Solway Firth meant that piling for the foundations was able to start last December and continue through the winter. Vestas will start installing the turbines this spring.

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ability of installation vessels and equipment, and at least in the UK a lack of deep-water harbours close to suitable offshore sites, says Morten Melin. Permits are taking a long time to be issued, and every country seems to want to reinvent the wheel, he says. The NoordzeeWind project at Egmond aan Zee in the Netherlands, which preceded the Q7 project, was intended as a demonstration yet the new generation of German projects are demos too. There is more than 1,100 MW installed offshore now, and its time to acknowledge that offshore wind works. Especially in the Netherlands and Germany, public acceptance issues are driving wind turbines far out to sea which means deeper water. Maximum working depths for the current generation of jack-up vessels used to install turbines and foundations will become an issue, says Morten Melin. There are also not enough vessels, and some of them will not be able to lift

the next generation of turbines, he adds. Maintenance will probably be done from oating hotels instead of land bases, especially when hundreds of turbines are involved. High prices for copper and steel are doing nothing to help the tight market in turbines, subsea cables and other components, Morten Melin says, while there is also a lack of qualied people. And, of course, there are the constraints imposed by wind and weather the factors that make offshore turbines a good idea in the rst place. Offshore work is potentially dangerous, so above all we have to make sure that everyone returns safe and well at the end of the working day, says Albert Winnemuller, Senior Project Manager Offshore. Having to wait for the weather, and relying on large ships and barges, means that costs are easily ten times what they would be for the same job onshore, so the next priority is to get things right rst time.

Training, attention to quality, and exible working methods are the key to smooth offshore projects, Albert Winnemuller explains. Intensive audits and inspections, and a rigorous cycle of check, act, verify, ensure that mistakes are few and are caught early in the production chain, where they are cheaper to x. Multi-skilled teams and lean operations ensure efcient workows in which problems are solved at source. Typical examples include shipping complete towers including switchgear, as Vestas did for the Q7 project (see page 12), and carrying out nal quality inspections before a component leaves the factory. Offshore wind has to compete against onshore, which is always less risky, says Morten Melin. So we have to make sure that the extra prot in offshore projects compensates for the extra risk.

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Challenges at IJmuiden12

The Q7 wind power project off the Dutch coast is unusual for its distance from shore, water depth, and innovative nancing. It was also the scene of an accident that wrecked Vestas plans to stay ahead of the winter weather.

On 29 July 2007, the operator of a 60-metrehigh crane aboard the jack-up barge Sea Jack ran out of wire rope. The cranes huge steel boom crashed down onto the quayside. Luckily no-one was hurt, but the incident could easily have thrown the Q7 offshore wind project into chaos. Thanks to good teamwork and a lot of hard graft by Vestas and its subcontractors,

that did not happen, and all the signs are that the Netherlands second offshore wind power plant will nish on time this summer. The accident took place in the Dutch port of IJmuiden, the supply base for the Q7 project. From October 2006 to April 2007, the Sea Jack had been busy installing monopile foundations for the 60 V80-2.0 MW turbines,

located 23 km out in the North Sea. By the end of July the vessel was preparing to lift the turbines themselves into place, though ironically its charter to Vestas was not due to start until the following week. With a vital part of the supply chain out of action, this was not the time to argue about who was responsible for the accident. Instead,

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With perseverance and good teamwork, Vestas and A2SEA managed to make up most of the lost time as soon as the early spring brought better weather. As Win[d] went to press, 45 turbines out of the total of 60 were in place, and 14 were already running. All the installation work should be nished by mid-April, which means the project as a whole will meet its schedule, said Albert Winnemuller. Further out and deeper Under pressure to get the job nished on time, the Vestas team was grateful to be working from a familiar port. IJmuiden had previously formed the base for the Netherlands rst offshore wind Vestas engineers joined forces with the Sea Jacks owner, specialist offshore wind power contractor A2SEA, to work out what to do next. We had to decide whether to repair the crane or replace it, says Vestas project manager Albert Winnemuller. When it became clear that the repair option would take longer than rst thought, the decision was taken to replace the crane: We sourced a new crane, installed it on the barge and had it approved in just three weeks. When unexpected things happen, we respond quickly! Such a setback was never going to be easily overcome, however. The delay pushed the project closer to the storms of winter, when offshore work becomes difcult, and the amount of time needed for the installation work grew. The weather last autumn was worse than anyone or any weather statistics predicted, says Albert Winnemuller. Much of the wind was from the north, which creates long waves that make it hard for even a big vessel to hold its position. By the winter the project had slipped around four months behind the rst construction schedule, notes Anders SeJensen, President of Vestas Offshore. project at nearby Egmond aan Zee, for which Vestas supplied 36 V90-3.0 MW turbines. Many other aspects of Q7 were novel, however. Named for the Q7 sector of the North Sea, the site was chosen for planning and environmental reasons to be outside Dutch territorial waters and all but invisible from land. This means that Q7 sets records in the wind power world for water depth as well as distance offshore. Though the Sea Jack can operate in water more than 40 m deep, Q7s maximum depth of 24 m makes accurate positioning more difcult than in shallower seas, Albert Winnemuller explains. And because of the long distance to shore, the high-

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When unexpected things happen, we respond quickly.Albert Winnemuller, Senior Project Manager, Vestas Offshore.

voltage substation is located out at sea, rather than onshore as in previous projects. Now that the V90-3.0 MW is rmly established as Vestas standard offshore turbine (see Offshore opportunities, page 8), Q7 is also unusual in using the V80-2.0 MW turbine. The project was originally designed for the V661.75 MW, Albert Winnemuller explains, and later uprated to the V80-2.0 MW. Changing to the V90-3.0 MW would not have been possible without redesigning the foundations and applying for new permits, he notes. The use of the V80-2.0 MW combined with the strong winds offshore made it possible to choose a relatively low hub height of 59 m. This brought the great advantage that Vestas Esbjerg factory in Denmark could build the 42 m-tall towers in one piece, instead of the usual two, and send them out with switchgear and control cabinets already tted. The one-piece towers denitely made the job easier, but this method is only possible for low hub heights and when the towers dont have to travel long distances by road, says Albert Winnemuller. Financial innovation Q7 also broke new ground in its contractual and nancial arrangements. The project is a joint venture between sustainable energy

group Econcern, investment company Energy Investments Holding and utility ENECO Energie. In contrast to previous offshore projects, the partners split the work between two main contractors Vestas and Dutch marine specialist Van Oord to reduce the overall risks. Vestas is responsible for supplying and erecting the turbines, while Van Oord deals with turbine foundations, cable laying and other electrical work, and protection from tidal scour. As is usual with big projects of this kind, banks supplied much of the nance. What is not usual is that Q7 is the rst offshore wind power project to have full non-recourse nance, meaning that the bank loans are paid back entirely from the revenue generated by the turbines. According to the Q7 partners this is a milestone in the development of offshore wind, and will act as a template for future projects until the market matures. The somewhat complex project structure Q7 has seen several changes of ownership since it was rst planned in 1998 was no barrier to effective working, says Albert Winnemuller. The client is not a technical specialist in offshore construction, but they have taken plenty of good technical advice, and they are good to work with. They have been very understanding during the course of the project, he says.

End in sight This project is in familiar waters, and with experience and good preparation we all expected a smooth run, says Anders Se-Jensen. But then there was the accident, which with hindsight was a one in 100,000 chance. It was a severe setback, but most importantly, no-one was hurt. The work to get the project back on track was extremely professional a real team effort, with everyone pitching in, and the customer has been with us all the way. So now we are waiting to nish the job. For months now we have had everything ready, but we do not compromise safety by taking risks with the weather, so we have only managed to install 15 turbines since December. In the last window of good weather, we installed one turbine a day for ten days. So the team has proven that they have what it takes to carry out a successful offshore project. As soon as the weather allows, we will be back out there to install the remaining 15 turbines. By April Im sure everything will be nished, and we will have met our deadline.

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Down but still determined16

The survey results underline that the Must-Win Battles we have launched are the right ones.Ditlev Engel, President and CEO.

The Vestas Customer Loyalty Survey 2008 is complete, and the results are clear. Vestas still falls short of customer expectations.

Where we are failing is on the service side, which covers service and maintenance, reporting and communication, he says. The good news is that, with the right focus and attention, we can solve these issues. This is what Vestas Americas is demonstrating. Vestas Americas on target Of the six sales business units, Vestas Americas

Hopes were high after the positive upturn in customer loyalty in 2007. The tide had apparently turned at last. But the results of this years Dialogue for Development survey show a different picture and that Vestas has a long way to go before customers really feel their needs are met. The survey marks the third year in a row that Vestas has asked customers about how they perceive the company. Scores given to each question provide the basis for calculating the customer loyalty index, a numerical indicator of Vestas overall performance. In 2007 the loyalty index went one point forward. Now, in 2008, the index has gone two points back. Ditlev Engel, Vestas President and CEO, is disappointed but undaunted. For, although there are many aspects of performance that are clearly unsatisfactory, every cloud has a silver lining. And, in the 2008 survey, that silver lining is Vestas Americas.

alone has not only reached but also exceeded this years customer loyalty goal. Whether working with sales, the project phase or service, customers have awarded the Americas team a consistent score throughout a clap on the back that recognises a concerted effort to pick up performance in key areas. Among the noteworthy initiatives introduced at Vestas Americas over the past year is a structured process for resolving customer issues that closely involves the management team. Safety branding is another key focus area, as Jonathan Barringer, Executive Administrator, Constitutional Initiatives at Vestas Americas, explains: We have been working hard to improve safety for more than just this year. Only our customers weren't aware of it. Our safety branding project was an effort to better communicate what we were already doing and involve the customer more in the dialogue around our safety performance, he says.

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All bonuses paid out are closely linked to the customer loyalty score. Like the Must-Win Battles, the bonus scheme is part of creating the performance-driven culture necessary to bringing about the desired result: Optimum customer satisfaction.

Safety branding pays off. This year the majority of customers point to Vestas Americas as the wind systems supplier that best matches their health, safety and the environment needs. From positive to negative On a global scale, Vestas employees earn praise for their ability to establish strong customer relationships and their high level of knowledge and expertise. Customers comment further that they view Vestas sales, project and service staff as being both trustworthy and responsible. But this is where the positive statements start to run out. For, on the other side of the silver lining, the cloud still hovers. The truth is that, while customers are generally satised with the quality of Vestas turbines, they are less than happy with the execution of their projects. On the service side, customers highlight a number of areas in need of more attention. The Must-Win Battles Although this years result is way below expectation, Ditlev Engel nds encouragement in the fact that, prior to the survey, Vestas had already taken action in the areas that attract most customer criticism. The 12 Must-Win Battles launched in January this year represent the most focused and determined initiative yet aimed at solving key loyalty issues. The survey results underline that the Must-Win Battles we have launched are the right ones, says Ditlev Engel. Of the 12 battles, half are dedicated to giving the quality of Vestas products, processes and customer services a major boost reducing lead times, enhancing turbine reliability and generally ensuring the needs of all customer segments are met. Others focus on preparing Vestas to tackle the needs of the future. The deadline for winning all the battles is 31 December 2008 a date when Kristine Mrch, Manager of the Must-Win Battles

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Strategic Portfolio, plans to pop the cork on a bottle of celebratory champagne. Behind each battle, we have appointed a high qualied and enthusiastic team, she says. We anticipate their success will be directly reected in an improved customer loyalty score in the coming years. Motivating a performance-driven culture This years introduction of an employee bonus scheme is also aimed at motivating a higher level of performance. All bonuses paid out are closely linked to the customer loyalty score.

Like the Must-Win Battles, the bonus scheme is part of creating the performance-driven culture necessary to bringing about the desired result: Optimum customer loyalty. Vestas Americas is the role model that shows what a joint customer-oriented effort can achieve. In recognition of this, the sales business unit receives the 2008 Vestas Dialogue Award swapping its 2007 runner-up position with Vestas Mediterranean, the winner of last years prize. But, as the overall customer loyalty report points out, even Vestas Americas still has plenty to improve on. Reaching the 2009 customer

loyalty goal a signicant step up from the 2008 goal which all but Vestas Americas failed to meet will be a big challenge for everyone. We are disappointed that the improvements we have initiated so far have not been ltering through to the customers, says Ditlev Engel. This will change. Initiatives are underway across the Vestas organisation to make that happen. Determination to improve customer loyalty and meet the 2009 goal is stronger than ever.

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W A R D I N G S A F E R E W A R D I N G S A T Y R E W A R D I N G F E T Y R E W A R D I N A F E T Y R E W A R D G S A F E T Y R E W A R D I N A F E T Y R E W A R D I N G S E T Y R E W A R D I N G S A Y R E W A R D I N G S A F E T E W A R D I N G S A F E T Y R A R D I N G S A F E T Y R E W D I N G S A F E T Y R E W A N G S A F E T Y R E W A R D S A F E T Y R E W A R D I N G F E T Y R E W A R D I N G S A T Y R E W A R D I N G S A F R E W A R D I N G S A F E T YJakob Larsen, Vice President of Environment and Occupational Health and Safety

Rewarding

safetyA new bonus programme for all Vestas employees places a premium on improving safety statistics.20

E T Y A F E G S A N G S D I N N G S S A F F E T T Y R R E W W A R R D I I N G G S A A F E E T Y Y R E

Safety is not a plus it is a business prerequisite. Without safety, we risk losing much of the business value we are able to create.Juan Araluce, President, Vestas Mediterranean.

Being serious about safety has always meant a genuine concern for preserving human life and health. But a good track record on safety can also bring other benets. Since 1 January 2008, Vestas employees have had an extra reason to be aware of this, thanks to a new bonus scheme designed to reward improvements in safety statistics. Unlike many management-level bonus programs, this one applies to staff at every level of employment. Safety is just one of the performance indicators that will affect bonus payments (see box on page 22) but it has been included as a natural part of the new system, in order to underline the importance of achieving safety targets and facilitating further improvements. We do not yet live up to our own expectations, or the expectations of our customers in this area, says Jakob Larsen, Vice President of Environment and Occupational Health and Safety. Throughout 2006 and 2007 we have seen a decrease in the number of accidents, but we will not be satised until we reach our target number, which is zero.

New ideas Safety is specically mentioned as an issue that can affect bonus payments for employees in the sales and production business units at Vestas. Managers in both areas stand solidly behind the new initiative. Safety is of course the responsibility of management, but it begins with the individual employee, remarks Sren Husted, President of Vestas Nacelles. In many areas, our statistics are on the good side of the industry average, but Im hoping this scheme will sharpen the individual employees safety awareness even more. I also hope the scheme will help generate new ideas on how safety can be improved. For the company, safety improvements can also bring other types of rewards. As Sren Husted points out, having a reputation as a safe workplace can help attract and retain good employees. A recent TV spot in which the Danish union 3F praised the Vestas factory in Viborg, Denmark for its safety record is a case in point: When a labour union backs us up in this way, it helps us become a place where people want to work, because we show that we care about our employees, Sren Husted says. Life and death Rewarding safety as part of the bonus system is a natural step forward in the eyes of Juan

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Safety is of course the responsibility of management, but it begins with the individual employee, says Sren Husted, President, Vestas Nacelles.

An extra months wagesIf employees at Vestas achieve top performance goals in the new bonus scheme, they could end up earning what amounts to an extra months wages in 2008. Performance on a series of company-wide nancial targets will determine part of the bonus payment. The rest will depend on achievement of targets that apply to specic business units. Safety improvement, for example, is a business unit target that applies to the sales and production business units. In general, the size of the cash payment will be calculated as a percentage of each employees annual base salary. If 80 per cent of the company and business unit targets are achieved, bonus payment will be 3 per cent. The percentage will gradually rise to 8 per cent if targets are exceeded by 30 per cent. There will be no payment for an overall performance of less than 80 per cent. However, an exceptional performance on one target can help outweigh a poor performance on another. All 16,000 Vestas employees are included in the bonus scheme. Araluce, President of Vestas Mediterranean. And he is passionate about moving ahead where safety is concerned: Unfortunately Vestas Mediterranean has one of the highest rates of injuries in the company. This cannot continue it has to come down rapidly and signicantly. Safety needs to be embedded in the hearts and minds of everyone. For Juan Araluce, who came to Vestas last year after a 19-year career with BP in Spain and Great Britain, safety is a matter of life and death not only for the individual employee, but for the company as a whole. Major accidents, he points out, can destroy the trust of customers, investors and the authorities who ultimately give the company its license to operate. Safety is not a plus it is a business prerequisite. Without safety, we risk losing much of the business value we are able to create, he says.

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Juan Araluce, President, Vestas Mediterranean.

A passion for safetyAn extra dimension The new bonus system was approved by top management and the Board of Directors at the end of 2007. If the system has the desired effect, bonus payments for 2008 will be made after publication of the companys Annual Report in the spring of 2009. The bonus scheme is part of a larger focus on safety that last year included a worldwide safety training initiative for some 2,500 service technicians and managers. As the vice president responsible for health and safety, Jacob Larsen hopes the bonus program will give even more depth to the companys safety efforts: We have been keeping safety statistics for years; now were giving these statistics an extra dimension with a cash reward for those who do well. We want to make it clear that safety is important to us, and with this initiative we hope we can affect behaviour by affecting the wallet. When Vestas Mediterranean President Juan Araluce speaks out on the subject of safety, one of the sources he draws upon is the bitter experience of his former employer, BP. Juan Araluce spent 19 years working for the BP Group in Spain and Great Britain before he was hired by Vestas in July of 2007. After an initial training period, he took over his current position in October. He comes to Vestas with the memory of how a single, disastrous accident a 2005 renery explosion in Texas can paralyse a company. Fifteen people were killed, 180 injured, and BP ended up paying a compensation of more than $2 billion. But this is just the tip of the iceberg. Lack of trust affects a business much more than a $2 billion payment, he says. Seeing how BP virtually shut down part of its operations while existing and new safety processes and procedures were pre-assessed and re-dened was enough to make Juan Araluce passionate about safety. In his business unit at Vestas, he is supplementing the new bonus initiative with a series of measures based on awareness, education, process review and disciplinary action. Juan Araluce is 45 years old and holds a degree in economics and business administration from the University of Madrid. He has taken doctorate level courses in economics and has participated in management programmes at the University of Navarra in Barcelona and the Kellogg School in Chicago.

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Improving the performance of installed wind turbines is the job of the Operations division of Vestas Technology R&D. The main drivers are to look at what is important to customers, and to focus on systems rather than components.

A holistic approachReliable wind turbines generating low-cost electricity are a priority for the new Operations division of Vestas Technology R&D, explains Senior Vice President Anders Vedel. The job of the Operations team is to monitor the performance of installed Vestas turbines, spot opportunities for improving their design, and get these improvements into the eld in ways that help both Vestas and its customers. We focus on the turbines from the time they leave the production facility, he says, and help the sales business units keep them operating at peak performance. The new organisation is rooted rmly in Vestas system of Continuous Improvement Management (CIM), which has been running for nearly two years now. Under CIM, engineers use suggestions from customers and sales business units, plus operating data from the turbines themselves, to identify improvements that can be retrotted to existing turbines or built into new ones. A single failure of an item such as a bearing or a switch is a job for the sales business unit concerned, Anders Vedel explains. But if the same item fails on several different turbines, there may be an opportunity to improve the design. Even when nothing is broken, CIM can work proactively: upgrading or redesigning a component may increase performance or safety, or forestall a problem later on. Until October 2005 Vestas handled CIM improvements in a somewhat decentralised25

The Vestas Performance and Diagnostics Centre is a part of the Operations division under Vestas Technology R&D (see the article on page 56).

manner, depending on the initiatives of the individual sales business units. Now that it is the responsibility of Vestas Technology R&D to issue global roll-outs, when we develop solutions we are able to work more closely with the engineers who design the products, Anders Vedel explains. This feedback is important in designing new products, as well as improving the turbines going out of the factory today. And for products that are upgraded in the eld, we need to make sure this is done in a consistent way, he adds. Changes must be rolled out globally, and for that we need centralised delivery and operation.

Customer perspective As the CIM system matures, it has become clear that individual components are often not what matters most to customers. Accordingly, Vestas Technology R&D/Operations has broadened its approach to embrace turbines as complete systems rather than simply collections of parts. The CIM approach is still valid, but we have moved the emphasis towards improving the mean time between inspections (MTBI) and the availability of the entire turbine, says Anders Vedel. Safety has always come rst, but after that we used to prioritise CIM cases by the cost to the customer and to Vestas of xing them. Now we dont start a project unless there is also a business case from the customers point of view, which means how it affects the cost of energy. The key was to get the CIM framework in place, Anders Vedel continues. Once we had a mechanism for tracking product performance, it was relatively easy to expand our focus from components to entire turbines, and to add constraints such as MTBI, availability and the overall cost of energy.

Technical support As well as looking after design changes prompted by the CIM system, the Operations team also works closely with the sales business units as a source of inspiration and advice. During installation, normal operation and troubleshooting, any unusual issues that are beyond the experience of the sales business units eld technicians or central staff can be referred to Operations as a source of third-line technical support. Current issues and performance gures are monitored during weekly conference calls with the sales business units. We also operate a system known as Site Improvements, where selected Operations Supervisors go out to sites and assist the local service teams optimise the operation of the turbines, says Anders Vedel. Vestas is growing fast, and this helps to improve technicians skills and ensure consistency and best practice. Operations is also responsible for the special tools needed to transport and install turbine components, including blades, hubs, nacelles and towers. Examples include the yokes used to lift blades and nacelles into place, and the special crane mounted inside the nacelle that is needed to remove the turbines yaw gears or transformer. Any tool that you cant buy from a shop is our responsibility, says Anders Vedel.

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The new focus for R&D

In November last year Vestas announced a reorganisation of its Technology R&D division to meet growth and improve performance. According to President Finn Strm Madsen, the new Vestas Technology R&D features clearer roles and responsibilities, and stronger relations with the sales business units and production business units. The aim is to help Vestas respond to the needs of its customers, especially by cutting the cost of wind power. The new Vestas Technology R&D has three parts: Global Research (see Win[d] no. 11, page 16); Engineering & Products; and Operations. Together, these All this means that the Operations staff combine detailed knowledge of individual turbines with wide-ranging background expertise on issues affecting large numbers of machines. As a result, every site visit is an opportunity used to the maximum. In the past, when a turbine has stopped, someone has gone to look at it. They nd that, say, a bearing has failed and then quite often there has been a delay while we decide what to do next, Anders Vedel explains. With the new system, there is a good chance that when the technicians rst visit the turbine they will have all the spare parts and documents they need. We keep the number of visits to a minimum, yet we are getting better at proactive maintenance, which reduces the chance of an unexpected shutdown. MTBI is a key indicator for both us and our customers, and we are all focused on the target set by the group. organisations are helping Vestas operate on a global scale, keep up its tradition of innovation, and improve the performance and reliability of its existing products.

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Global warming in the boardroomsThe volume of scientic evidence now seems to be overwhelming: Global warming is a reality, and human-generated emissions of CO2 are playing a crucial role. A look at the climate-political landscape clearly shows that the message is nally sinking in among political leaders in most parts of the world. But what about the leaders who bear responsibility for the majority of the emissions? What about the industrial sector?

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A few days before the climate summit kicked off in Bali last December, heads of state and environmental ministers from all the countries involved received a memo. It was signed by the leaders of more than 150 global companies, and its message was brief and to the point: Set up an international and obligating agreement concerning global CO2 emissions, and we promise to become actively involved in the work to create a low carbon economy. This initiative is one of many examples of the fact that industrial players who are often singled out by the media as the biggest climate wreckers are becoming increasingly aware of the scope and severity of the problem. It also shows that in the boardrooms of a large number of multinational industrial concerns, work is well underway to make the move from words to action. Comprehensive report One of the international media that has worked in-depth on the role of the industrial sector in the climate battle is The Economist. In June 2007, this respected British magazine published a comprehensive Special Report entitled Cleaning Up: Business and climate change. On the same day as the report was published, The Economist ran an editorial whose tone was set by a number of perceptive com-

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Business leaders can no longer make do with simply having their photo taken with Al Gore. They have to start investing in cleaner energy technologies.The Economist.

The Pew Center on Global Climate Change The Pew Center on Global Climate Change was founded in 1998 as a nonprot, politically neutral and independent organisation. The mission of the centre is to supply trustworthy information, straight answers and innovative solutions with regard to efforts to nd solutions to global climate change. During the rst nine years of its existence, the Pew Centre has become a leading proponent of sensible action with a view to getting to grips with the most pressing global environmental

ments, including a particularly pithy observation to the effect that business leaders can no longer make do with simply having their photo taken with Al Gore. They have to start investing in cleaner energy technologies. The editorial also emphasised that things are actually beginning to happen in both Europe and the United States, and that it is absolutely crucial to the industrial sectors increasing commitment and willingness to invest that politicians be prepared to put a price on carbon. And as the nal part of the Economist editorial stresses: the costs of doing that are not huge. The costs of not doing so might be. Hurricane Katrina The author of the thought-provoking special report from The Economist is Emma Duncan, Deputy Editor of the magazine and one of todays most incisive writers on the economics and business of sustainability. Emma Duncan highlights a number of reasons why, over the course of the past 23 years, the business community has dramatically altered its stance on the issue of climate change. She also believes that the situation in Europe is very different to that in the United States. In Europe, action on climate change came about principally because of the actions of NGOs and politicians, but I think things have

been quite different in America, she says, and stresses that the American business community has played a crucial role in turning attitudes around, not only among the American population, but also among many politicians in Washington. According to Emma Duncan, the reason why American business leaders have gradually begun to change their views on the issue has to do with the weight of science mounting up. Many American senior executives have a scientic background, which is why they are very receptive to evidence of this kind. Moreover, Emma Duncan believes that one single event has had a major inuence: Hurricane Katrina. Suddenly, these characters were actually seeing pictures of the massively destructive impact that climate change could have on their balance sheets and I believe that this was a decisive wake-up call for a great many people. Prots in sight Even though corporate social responsibility and a genuine concern for the global situation have without a doubt played a role in the considerations of numerous corporate leaders on both sides of the Atlantic, there is no getting away from the fact that concern for prots and companies shareholders will always be given the highest priority. You cannot base

problems of the 21st century.

any analysis on the assumption that business is doing stuff for the good of the world as a whole. Executives are making decisions that are in their own interests and those of their shareholders, says Emma Duncan, and adds that this is how things must unavoidably be: Ultimately, that is much healthier, because it is a motivation that can be expected to survive both the peaks and troughs of an economic cycle. As regards the nancial side of the motivation, two factors in particular are decisive. Firstly, the rapidly and constantly rising price of oil has had an indisputable effect on the willingness of companies to invest in alternative energy technologies. And even though from the socio-economic perspective, it may seem bizarre to speak of oil prices of around USD 100 per barrel as an advantage, the high oil prices are nevertheless completely essential to the development we are currently witnessing in relation to the battle against climate

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USCAP The Unites States Climate Action Partnership (USCAP) is a group of businesses and leading environmental organisations that have come together to call on the federal government quickly to enact strong national legislation to require signicant reductions in greenhouse gas emissions. USCAP has issued a landmark set of principles and recommendations to underscore the urgent need for a policy framework on climate change. Members of the organisation include Shell, BP, Ford, Caterpillar, Chrysler, General Electric, Xerox and other similarly prominent companies. The price on carbon The other economic factor that is crucial to the industrial sectors serious commitment to reducing global CO2 emissions through investments in new technology is a global price on carbon. And even though the European capand-trade system (ETS), which was introduced in 2005, has had its fair share of teething troubles, it has still demonstrated that a system of this kind is probably the best way to go. Looking at the European experiences, the American power sector in particular has noticed that there is gigantic earnings potential in getting a cap-and-trade system of this kind up and running. Therefore, it is precisely towards this area that organisations such as USCAP (United States Climate Action Partnership ed.) and The Pew Center on Global Climate change. In this regard, Emma Duncan stresses that should oil prices crash, this would mean that many of the enormous investments made or planned by the industrial sector and, in particular, the energy sector would be wasted from a purely nancial perspective. However, I do not think that there is a serious risk of oil prices falling and remaining steady somewhere below USD 50 per barrel, and even if the current price were halved, most investments in CO2-neutral energy technologies would still generate a reasonable return, she says. A tricky balancing act Even though most business executives are agreed that the establishment of a cap-andtrade system is the right way to go, there is a general awareness that the most extreme Change are channelling the majority of their lobbying resources, relates Emma Duncan, and adds that in Washington, the debate has already been started regarding which allocations and how many permits are to go to which sectors and which companies. The important choice of the Americans Yet another signicant reason why so many American blue chip companies are now actively backing federal regulations in the form of a cap-and-trade system, for example is the fear of the alternative: i.e. facing a patchwork quilt of different laws and regulations in the separate states. Particularly on the west coast and in a number of the north-eastern states, authorities have already begun to introduce regulations, and this is something that major companies are consequence of such a move might involve a risk of derailing the global economy. No matter which way you turn it, there is no getting away from the fact that in practice, the system will function as a tax. And raising prices via a tax on such a crucial aspect of the global economy as energy will unavoidably reduce demand and consumption. This issue is best with uncertainties, and that makes it difcult to put a price on carbon that does not overly affect global growth, stresses Emma Duncan who does not, however, believe that the impact on the global economy would be too serious. The prices of many alternative technologies, such as wind power, have already fallen to a level where they are not much more expensive than conventional carbon-based sources of energy, she says.Hurricane Katrina showed the massively destructive impact that climate change can have.

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Did you know that with oil prices superior to USD 64 Fact le: wind energy Wind is an inexhaustible, free source of energy Wind power can compete nancially with conventional sources of energy Wind power reduces dependence on imported energy Wind power makes it possible to establish extensive production capacity quickly Wind power helps cut emissions of CO2 and other greenhouse gases possible for countries such as China and India simply to leapfrog some of the more polluting phases of their development, which would mean that they could more quickly achieve sustainable societies with regard to climate issues. For example, look at how the private sector in developing countries has embraced the mobile phone. In practice, they have sidestepped xed line telephony, and this has comnot at all keen on, says Emma Duncan, who goes on to emphasise that initiatives of this kind, in particular especially the wide-ranging regulations that Arnold Schwarzenegger, the Republican Governor of California, has introduced have helped to provide added impetus for the process. There are no two ways about it: America has a vital signicance when it comes to preventing climate change. The only serious question is what the attitude of the next American president will be. Everything else is secondary at this stage. The crucial voice of the industrial sector Emma Duncan stresses once again that the industrial sector has a crucial role to play in the context of putting pressure on the legislators. We need clear initiatives and signals from the business community, as when the Edison Electric Institute the trade organisation for China and India adding their weight While the United States is the country that emits most CO2, there is every indication that in just a few years, it will be overtaken by both China and India. So there is a clear need to encourage the industrial sectors of these two countries in particular to commit actively to limiting their carbon emissions. At the moment, there is little indication that they are planning to make any special effort in this area, and the pressure being applied by their own governments is negligible to put it mildly, says Emma Duncan. In contrast, she believes it is The toughest challenge If you ask Emma Duncan what, on the basis of her extensive research into the area and the American power utilities announced in January last year that they wanted regulations. This was a signicant milestone because even though it left out the work obligatory, the statement marked a key U-turn in the understanding of the climate battle among the biggest carbon emitters. pletely changed entire economies. In the same way, I can easily envisage some of the developing countries that have not yet invested so massively in carbon-intensive industry as the industrialised countries being able to bypass this phase more-or-less completely. As a specic example, Emma Duncan mentions the fact that hydrogen-powered buses are already on the streets in China, and that this country is well underway on the construction of completely new cities the size of Shanghai. In other words, they have the opportunity to take climate change into consideration from the very earliest phases of their urban planning processes, in contrast to the rich countries which have already built their cities and this makes a signicant economic difference.Source: HSBC Bank Inc., Company Report: Vestas

per barrel, shore-based wind power is just as competitive as coal and gas?

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Even though the political aspect is incredibly complex, the technological and nancial aspects are actually relatively simple.Emma Duncan, The Economist.

Emma Duncanher deep insight into the issue, constitutes the toughest challenge, she has no hesitation in replying: The political aspect. Because no matter how active a role the industrial sector voluntarily chooses to take on, it is essential that coherent political solutions be on the table before anything serious can happen. But why is the climate issue so much more difcult to deal with than any other political problem? There are three reasons, explains Emma Duncan. Firstly, it involves a high level of uncertainty, which makes it impossible to perform precise calculations. Secondly, it is a completely global issue, much more than negotiating trade agreements, for example. Finally, it is a transgenerational problem. In other words, we are doing the donkey work for something that may or may not benet people two, three, four who knows how many generations into the future, she says, but nevertheless concludes with an expression of optimism in as regards ultimately nding a solution to the problem: Even though the political aspect is incredibly complex, the technological and nancial aspects are actually relatively simple. That is why I am not so worried about our eventually nding a solution and making progress. With luck, we will do so as early as next year in Copenhagen. Emma Duncan is Deputy Editor of The Economist and the author of two special reports on the role of the industrial sector in the climate battle: The Heat Is On from September 2006, and Cleaning Up: Business and Climate Change published in June 2007. Emma Duncan previously worked for the TV station ITN, and is a regular columnist for The Sunday Telegraph. In addition, she has written articles as a freelancer for publications including The Times, The Sunday Times, Vogue and Cosmopolitan.

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1909

Maccarty Glacier, Alaska.

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Maccarty Glacier, Alaska.

2004

35

Global economy 2.036

If something serious and sustainable is to be done about climate changes at global level, it has to be done within the framework of the global market economy which, in return, needs to undergo a major makeover. One of the top industrial executives who has taken the lead with regard to this market-economical transition is Lars G. Josefsson, President and CEO of the Swedish company Vattenfall, one of the largest energy companies in Europe.

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In our culture, people are not predisposed to think far into the future we want delivery here and now.Lars G. Josefsson, President & CEO, Vattenfall.

When the Swedish Government offered Lars G. Josefsson the position of CEO of the stateowned company Vattenfall in spring 2000, he could not imagine what it was to entail: i.e. that within just a few years he would have developed a burning commitment to the climate battle. That ve years on, this same commitment would put him on TIME Magazines annual list of the greatest heroes in Europe. That in 2006, he would be appointed special advisor to Angela Merkel, the German Chancellor. Or that in January 2007 he would be instrumental in establishing the rst global opinion group of business leaders to demand the integration of climate issues into global trade. The acid test Lars G. Josefsson makes no secret of the fact that before taking over as President and CEO of Vattenfall, his knowledge of climate issues was relatively supercial. Today, eight years later on, he takes a rather different view on global warming. It is extremely important and I have no hesitation in calling climate change the acid test for the human race, he says.

The rst time Lars G. Josefsson turned his attention to CO2 emissions, he was forced to do so by business matters. In 1999-2002, Vattenfall purchased a number of coal-red power stations in the east of Germany and in doing so acquired, in Lars G. Josefssons own words, a stack of fossil fuel. The new investments required him to take a closer look at the issues surrounding CO2 and global warming, and he was, to put it mildly, surprised to nd out how little had been achieved up to that point. At the same time, it was clear to him that the industrial sector was obliged to take on a completely different and considerably more active role than previously. The way forward Generally speaking, the business community has two important roles to play in the climate battle, explains Lars G. Josefsson. One has to do with supporting politicians in making the difcult decisions that constitute an inevitable part of the solution. The other quite simply concerns delivering the goods. He goes on to add that it could facetiously be claimed that politicians have plenty of know-what, while the business community possesses the necessary know-how. As Vattenfall gradually built up greater and greater insight into global warming and

the inuence of the industrial sector on the issue, the company started to become involved above and beyond the challenges facing Vattenfall itself. As such, Vattenfall published a comprehensive report entitled Curbing Climate Change in January 2006. The report presented a qualied proposal for how the nations of the world can reduce their CO2 emissions over the coming century. The report lists 10 overriding principles for a global solution, including a statement to the effect that every country of the world must participate, while no poor country is to be stripped of its rights to economic development. At the same time, it is emphasised that the model must not change the relative competition situation between the different countries. According to the report, the rst step is to establish a binding cap on total global emissions of CO2. It goes on to say that reduction targets should be shared among the different countries according to an allocation model based on the GDP of the individual countries. In other words, the Vattenfall report gets to grips with one of the difcult questions that has not yet been accorded much prominence on the climate-political agenda, but one which sooner or later will develop into a hot topic: i.e. how to share the economic burden fairly between the different countries.

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Source: Vattenfall.

Notre Dame was not built in a day Lars G. Josefsson is keenly aware that the long time horizon makes it difcult for many people to comprehend a solution model such as the one presented in Curbing Climate Change. In our culture, people are not predisposed to think far into the future; we want delivery here and now. However, it is important to remember that we are talking about creating a whole new world here and projects like this take time, he says with a wry smile. Lars G. Josefsson is looking for more of what one of his American colleagues Jim Rogers of Duke Energy in North Carolina has termed cathedral thinking. During a visit to Paris, he visited Notre Dame and was fascinated by its history. The cathedral took so long to build that the people who dug the foundations never saw the rst stones laid; and the people who laid the rst stones never saw the nished walls, relates

Lars G. Josefsson, and continues: In the same way, we have to take the rst important steps along the path to a climate solution, even though our grandchildren or great-grandchildren will be the rst ones to benet from it. Mission possible According to Lars G. Josefsson, the basic idea behind the Curbing Climate Change report was to plug a gap in the climate debate. At the time it was written, there were no models for how to solve the problem or how to create a fair distribution of the burden. The report was thus intended to show that it is actually possible. On the other hand, what the report did not provide an answer to was the question of how we are to get from where we are today to such a system, emphasises Lars G. Josefsson. Precisely this issue the transition to a long-

term CO2 economy forms the basis for the new report Vattenfall published in January 2007 entitled Climate Map 2030. The purpose of this report is to show the way. Here, we focus on the transition period up to 2030 and look specically at what could and should be done, and how much it will cost. Put another way, the two reports address different periods of the journey towards the ultimate solution. In Climate Map 2030, Vattenfall lists 27 specic initiatives, which, together, will result in a 26.7 billion ton reduction in CO2 emissions in 2030. The initiatives are divided between six different sectors: Power, Industry, Transport, Buildings, Forestry, and Agriculture & Waste. However, what is perhaps more interesting is the fact that calculations have been carried out to produce a cost curve that illustrates the marginal costs of reducing CO2 emissions per ton through the various initiatives. As Figure

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FACT FILE: 3C 46 companies (2/3 are Fortune 500 companies) 4.5 million employees Combined turnover of EUR 1,250 billion Active in 220 countries and territories Headquarters in 11 of the G8+5 countries 15 per cent of global electricity production

www.combatclimatechange.org

1 shows, an estimated market price of EUR 40 per ton of CO2 emitted has been entered (the dotted orange line) to illustrate the initiatives that would be immediately protable at current cost levels including wind power. From words to action As Lars G. Josefsson and Vattenfall began to work in greater depth with the climate issue, he came into contact with more and more leading business executives from all parts of the globe who, like him, had recognised the seriousness of the situation. And who were prepared to turn words into action. On the initiative of the Vattenfall CEO, a press conference was therefore called in January 2007 to present the rst global climate opinion group of business leaders. The name of the initiative is 3C, which stands for Combat Climate Change, and it currently involves almost 50 companies that, together, represent an annual turnover of EUR 1,250 billion. Our role is to be the voice of the industry in the global climate debate, explains Lars G. Josefsson, before going on to stress that from the very start, the initiative has attracted appreciable attention from leading politicians. Many politicians recognise 3C and are very grateful for the initiative. And they really do listen to our recommendations. To underline

the political impact of 3C, Lars G. Josefsson and other representatives have held meetings with Tony Blair (Prime Minister of Great Britain at that time), Jos Manuel Barroso, President of the EU Commission, and Angela Merkel, the German Chancellor, during her time as President of G8 in 2007. By maintaining focus on both the problem and the role the industrial sector can play in the solution, 3C can contribute to charting the right course towards a global agreement in Copenhagen next year, I hope, says Lars G. Josefsson. Cap-and-trade Until now, the most signicant outcome of the 3C initiative has been a set of nine specic recommendations to politicians, presented in a report entitled A roadmap to combating climate change. One of these recommendations is for the establishment of a global market for trading in CO2 emissions. As mentioned in the article entitled Global warming in the boardrooms (see page 28), most industrial leaders agree that a cap-and-trade system of this kind is essential to reducing global warming with the assistance of market-economic forces. As Lars G. Josefsson puts it: The starting point is to have a cap. The idea here is to create a shortage. And if you have a shortage of something, that something will have a price

in exactly the same way as we have prices for cars, food everything else. Because there is a shortage. Following on from this, the reasoning is that when goods or services are in short supply and therefore come at a price why not trade in them? According to Lars G. Josefsson, this would automatically encourage businesses to seek the lowest possible cost. This, in turn, would generate the effect that is the whole idea behind the introduction of a global trade system for emission rights for CO2. The article on page 28 mentioned above states how some sceptics fear that a cap-andtrade system would have such a drastic effect that it could actually eventually derail the global economy. However, Lars G. Josefsson calls this fear chasing ghosts. Firstly, the alternative would be much more expensive, and if you look at the calculations of which there are now plenty that have been performed on the likely costs, it is very clear that if you organise it properly, it will be quite affordable and not contradictory to growth or anything else. Lars G. Josefsson also refers to the fact that just a few years ago, we were paying USD 20 for a barrel of oil. Today we are paying ve times as much. And no-one is complaining, he says.

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The nine recommendations from

3CSimple solution. Complicated politics Fundamentally, Lars G. Josefsson believes that the solution to the climate problem is very simple. It should be cheaper to save CO2 than to emit it. However, at the moment we nd ourselves in a situation where everyone is pointing at everyone else and saying that they should take the rst step. To illustrate the problem, he relates how a highly developed society on the Easter Islands in the Pacic Ocean collapsed in just 500 years (around 1200-1700), because the Polynesian population destroyed the ecosystem by felling all the trees. Of course, they were aware of the negative development, but they nevertheless continued to chop down the trees probably because they thought that if they didnt do it, then their neighbours would, says Lars G. Josefsson. He believes that this is precisely the situation we are facing today, although on a much greater scale. If we stop emitting, the others will surely continue and then we will be hit by unemployment and so on. So from a rational perspective, we all know that we are on the wrong track, but politically, the necessary steps are just not acceptable, he says, and concludes by stating: That is the role business can have as well. We can make it politically acceptable to do something about the problem, which is a very important insight, I think. 1. Set a global goal to limit the maximum temperature increase and dene emission reduction targets for 2030 and 2050 based on the best available research. 2. Employ business and the market to power the change to a low-emitting society the dynamism of the global economy makes the switchover truly feasible. 3. Develop a global, long-term credible emissions trading system as a fundamental mechanism for promoting abatement measures. 4. Establish minimum requirements for energy and CO2 efciency to complement the price mechanism, especially in the building and transport sectors. 5. Make an international effort to design targeted systems to tackle abatement opportunities in forestry and agriculture. 6. Increase cost-efcient public support to a limited number of emerging technologies with a substantial abatement potential, and systematically reduce hurdles to their deployment. 7. Share the burden of inevitable adaptation between nations in a fair manner that reects the global nature of the challenge. 8. Encourage the G8+5 countries to take the lead in the ongoing process to establish a global system and act as good examples in the emission reduction process. 9. We, the 3C companies, commit ourselves to support the worlds political leaders in implementing this process and to extend our internal efforts to reduce emissions.

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Its all change at Taranto, as the Italian nacelle assembly factory starts to produce V903.0 MW turbines and transfers manufacturing know-how for the V52850 kW to China.

Taranto technology transferA year after a dramatic transformation in production methods increased capacity by half with almost no investment, Vestas Nacelles factory at Taranto, southern Italy, has done it again. Manager Francesco Velluto and his team are now manufacturing Vestas V903.0 MW turbine alongside the V52850 kW, which has been built at Taranto since 2002. The rst V903.0 MW rolled off the production line on 13 March, precisely on schedule. Not only that, but Taranto has successfully transferred manufacturing know-how for the V52850 kW to the Vestas Nacelles factory at Tianjin in China, 120 km from Beijing. The rst Chinese V52850 kW appeared in late January, again on schedule. We originally would have preferred to handle these two technology transfers one at a time, Francesco Velluto says. That turned out not to be possible, so we accepted the challenge that it was going to be a busy period!43

I have fond memories of meetings in Taranto with Italian, Chinese, Danish and Indian people: this is the Vestas world, the Vestas life.Francesco Velluto, Manager, Nacelle Factory, Taranto.

Technology and culture In parallel with the physical preparations, Taranto needed to get up to speed on how to assemble the new turbine. At the beginning of October 2007, Taranto employees visited Ringkbing to train for several months alongside Danish colleagues on the V903.0 MW production line. We have had great support from our Danish colleagues, says Francesco Velluto. Room for expansion The rst step was to make room at Taranto for a second production line effectively a third project alongside the two technology transfer projects, as Francesco Velluto puts it. In January 2006 a factory reorganisation created a ow production system that increased output by 50 percent with almost no extra investment (see Transformation at Taranto, Win[d] No. 08, p. 52) and freed up former production areas for other uses. Further space became available thanks to a new policy on sourcing. Previously, Taranto imported all its components and raw materials from Denmark; now eight out of ten parts come from local suppliers, whose shorter delivery times mean that less warehouse space is needed. With less work in progress and less stock, we had room for a new production line, Francesco Velluto says. But we have still had to change the existing V52850 kW production to a completely different layout, and move the warehouse. Unlike the previous reorganisation, the V903.0 MW project involved serious spending. The new turbine is much larger and more complex than the V52850 kW, especially electrically, says Francesco Velluto. We have invested a lot of money in new cranes and tools, and employee numbers have risen by 25 percent. One area that has needed reinforcement is the logistics department. A V903.0 MW nacelle contains over 2,000 different parts thats twice as many as in a V52850 kW, points out Nicola Andriulli, who provides operational support for logistics. Under the old system that would have meant a lot of extra warehouse space, but using lean methods we have been able to t everything into the existing area. The number of suppliers has grown by a manageable 30 percent, he says. The general culture is quite similar between Denmark and Italy, but the Danes are more experienced than we are in lean production and Six Sigma. And without the lean philosophy, we would not have been able to t the new production line into the existing space. In fact, I decided to arrange a lean and Six Sigma training course in Taranto in the second half of 2007 just to share the lean concept among our employees and make them ready for the new challenges. For example, we found that the warehouse staff in Ringkbing were more empowered than their counterparts in Taranto, adds Nicola Andriulli. They can make quicker decisions without having to pass the matter on to someone else, so they avoid double handling. Changing to the Danish model of warehouse operations has been very useful for us, especially now that we have two production areas and the logistics function is more challenging.

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People are the key to the future of Vestas. Not every company can inspire this degree of loyalty, and I am proud to be part of it.Francesco Velluto, Manager, Nacelle Factory, Taranto.

The more pronounced cultural gap between Italy and China has also created interesting opportunities for sharing knowledge. To prepare for the production of the V52850 kW at Tianjin, Chinese employees trained for two months at Taranto. So that we could give the best welcome to our colleagues from Tianjin, we arranged a course in Chinese culture beforehand, Francesco Velluto says. Then, once they arrived, we trained them but we also learned from them. What we especially appreciated about our Chinese colleagues was their courtesy in relationships and their strong will to learn. They are deeply interested in learning Vestas knowhow, adding professional and industrial skills as quickly as possible to the knowledge they gained at school. But, of course, this is not a simple or quick process: the concepts of safety rst and the high level of quality assurance we need in Vestas Nacelles have to come before the actual technology transfer. Whether we have succeeded, we will see later on in Tianjin. Suddenly around the factory in Taranto have appeared labels and signs written in Chinese, while on the shopoor we use English as the common language. I have fond memories of meetings in Taranto with Italian, Chinese, Danish and Indian people: this is the Vestas world, the Vestas life.

In December 2007 a team from Taranto went to Tianjin. Although Tianjin already builds blades and generators for the V52850 kW, as well as nacelles for the V80-2.0 MW, preparing to assemble V52850 kW nacelles has still meant big changes, according to Francesco Velluto. Tianjin has had to change its factory layout to provide space for the V52850 kW assembly line, he says, and take on more employees people fresh from school. They come to Taranto for two months training, and considering their lack of practical experience, they learn a lot in that time. By now our Chinese colleagues should be well able to assemble a V52850 kW by themselves, but we Italians will always be there, ready to help them at any time. Meanwhile, the Taranto factory has had orders to meet. The employees who were not directly involved in the technology transfer projects have put in a lot of work training our new employees and making sure we keep to the production plan. In fact, I call this the fourth project, says Francesco Velluto.

People power Genuine sadness marked the departure of the Chinese employees from Italy and the Italians from Denmark, Francesco Velluto says: There were many good times both on and off the job, with families and friends. I overheard some people from Taranto saying that they would be happy to be home, but also sad to leave their Danish families. This has been a busy time, and everyone has had to put up with harder work than usual. But thanks to good planning, passion and a willingness on all sides to share knowledge and culture, Im condent that we have succeeded. People are the key to the future of Vestas. Not every company can inspire this degree of loyalty, and I am proud to be part of it.

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A framework for loyal relationships

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Last year, Vestas production units launched a project intended to reinforce working relationships with strategic suppliers. The sales units, led by Vestas Mediterranean, are now following suit and turning the spotlight on partnerships with their suppliers. The objective is to ensure long-term delivery reliability, improved quality and controlled costs.

Most people consider it only logical that Vestas production units purchase constant streams of components. However, the connection between a sales function and the purchase of goods may not be immediately evident. Nevertheless, Vestas sales units also enter into agreements with suppliers, for example regarding the rental of cranes for erecting wind turbines, and for services and equipment in connection with transport and installation processes. The idea to launch the supplier project at Vestas Mediterranean stemmed from the fact

that a year ago, the company faced a number of challenges with regard to suppliers. One of these was that the project managers negotiated agreements with their own suppliers individually, rather than using standardised Vestas purchasing contracts, as Francisco Milln Rios, Purchasing Manager at Vestas Mediterranean, explains: This meant that we were not perceived externally as a unied company, which is why we were unable to build up long-term relationships with our suppliers, or to achieve the benets of scale. For this reason, Vestas Mediterranean decided to set up a purchasing

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It is crucial that we identify the suppliers who can assure Vestas growth in the future, and that we enter into binding agreements with these suppliers so that we build up a working relationship based on mutual loyalty and mutual obligations.Francisco Milln Rios, Purchasing Manager, Vestas Mediterranean.

Francisco Milln Rios, who continues: With the state of the market today, you cannot necessarily take it for granted that suppliers can deliver the volumes we need at the time we need them. For this reason it is crucial that we identify the suppliers who can assure Vestas growth in the future, and that we enter into binding agreements with these suppliers so that we build up a working relationship basedFrancisco Milln Rios.

on mutual loyalty and mutual obligations. Our suppliers will therefore also benet from the new initiative, because they will be in a position to plan their production from a long-term per-

department to deal with improving the way in which working relationships with suppliers were run. Great demand Another of the challenges had to do with the current market situation for wind turbines. The huge demand that distinguishes the market at present makes it essential to nd a mechanism which can not only ensure that we can actually deliver the wind turbines our customers require, but also make sure that costs remain controllable in the future, says

spective to a much greater extent than today, for example. Thus far, the project has resulted in all current suppliers being identied and evaluated. At the same time, a concept intended for use in evaluating all future suppliers has been implemented. The next step is to identify the suppliers who can meet the requirements laid down by Vestas Mediterranean, and then to enter into long-term working relationships that are based on standardised contracts and framework agreements. The intention is for the project to be fully implemented during 2008.

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Being No. 1 in Modern Energy demands no. 1 leaders. The rst corporate executive development programme for Vestas vice presidents and senior vice presidents is underway with that very need in view.

Training is also for

the top51

Joachim Nisgaard, Leadership Development Director.

Vestas is growing and growing fast. Managers, who had a staff of just 20 two years ago, today may nd themselves with a staff of 200. In recognition of this fact, Vestas Business Academy has initiated the Vestas Executive Development Programme to give vice presidents and senior vice presidents the necessary skills and a common language to move successfully with the times and growth. The programme is the second global initiative aimed at lifting the level of leadership competences throughout the company. In November, the Vestas Leadership Development Programme for managers and directors kicked off with similar goals.

Both programmes are central to Vestas leadership pipeline. Roald Jakobsen, President of Vestas People & Culture, emphasi