Threat of entry - Low

Page 63 of 107 own home country” (Peng, Li, Pinkham, & Chen, 2009). Thus, it is crucial for Danish firms operating in Denmark to get to know the rules of the games of their own country, namely the formal as well as the informal institutions.

5.2 What are the features of Ørsted’s competitive

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• Similar to the fossil fuels and nuclear power plants, large wind power plants produce less expensive energy compared to their smaller version, given the same wind conditions.

• Energy deriving from wind farms is best produced when the windfarms are in locations with the most favorable conditions, that is often offshore, and then distributed long-distance.

As a matter of fact, when the wind turbines are higher, the blades longer, and collocated in a windier place, than more energy is produces compared to smaller wind turbines in less windy places. When the height of a turbine is doubled, then the cost of energy falls of 17 percent, and when the rotors’ size is doubled, the energy cost is reduced by 75 percent.

(Farrell, 2017). The Wind Technologies Market Report (U.S. Department of Energy, 2016) shows that the capacity of wind turbines is directly proportional to the heigh and rotors’

diameter of the wind turbines (Figure 10):

Figure 10: Average turbine nameplate capacity, rotor diameter, and hub height installed during period (U.S. Department of Energy, 2016)

In recent times, the price of the energy generated from wind is continuing to decrease due to the cost reduction of the windfarms’ plants construction, and the falling prices of wind

Page 65 of 107 turbines, which have decreased between 44 and 78 percent from 2010 to 2020, mainly due to the larger diameter of the rotor and the higher heights of the hubs. The worldwide weighted average cost of the energy generated from offshore windfarm in 2019 was of USD 0.115/kWh, with Denmark’s cost at USD 0.087/kWh. (IRENA, 2020). Wind farms that utilize large wind turbines require half the installations and less downtime for operations and maintenance. Up to fifty percent of the levelized cost of energy in the future years is expected to derive from the upgrade from 8 MW to 12 MW rated turbines. (Jennings, Tipper, Daglish, Grubb, & Drummond, 2020).

Since the industry of wind energy, and in particular of energy generated in offshore windfarms, has already reached economies of scale, new entrants in the industry clearly face a disadvantage. Economies of scale force potential new entrants in an industry to

“either come in on a large scale or accept a cost disadvantage” (Porter M. , 1979). Thus, the industry’s economies of scale sets higher the barrier’s to new entrants.

5.2.1.2 The Effects of the Learning Curve

Europe, apart from having provided strong economic and regulatory support, produces more than 90 percent of global capacity; thus, the region has built efficient supply chains and a high level of competence in the construction and operation of onshore and offshore windfarms. The increasing use of crew transfers vessels, helicopters and barges for the transportation of wind turbines’ components, also represent elements that contribute to increase the economies of scale in the industry. (de Pee, Küster, & Schlosser, 2017). In 2019 Europe has installed 15.4 GW of new wind power, accounting for 27 percent more compared to 2018. Denmark possesses the largest share of wind in the energy mix, namely

Page 66 of 107 48 percent. (WindEurope Business Intelligence, 2020). The Danish wind power industry has almost more than half century experience in the development and installment of innovative wind turbines (since the Gedsen turbine in 1957). According to the Danish Wind Industry Association (2015), the success of the Danish industry is the outcome of special skills that were acquired through decades based on R&D and innovation. Thus, Danish firms have developed innovative solutions that represent a model worldwide. (Danish Wind Industry Association, 2015).

According to Porter (1979), the costs of an industry decrease when the experience in that industry increases; this is the case of the Danish wind power industry. The fact that Denmark has been at the forefront of wind turbines development and installation, made Danish firms become global leader, and nowadays there are in Denmark more than 500 companies operating in all areas of the wind industry. (Danish Wind Industry Association, 2015).

5.2.1.3 High Upfront Costs

The installation and operational costs of wind turbines can be divided into five categories:

• Turbines

• Project development and management

• Balance of plant

• Installation and commissioning

• Operation and maintenance

In the wind power industry, nearly 75 percent of the total cost regarding a wind turbine is associated with upfront costs, e.g. the material, transportation, foundation, equipment, grid connection etc. (Krohn, Morthorst, & Awerbuch, 2009). It his thus required for firms that wish

Page 67 of 107 to enter the industry to have enough capital to sustain the upfront costs, such as the costs of the turbine’s elements (the blades, the rotor, the nacelle, the tower), construction costs for the site preparation (such as the construction of the towers’ support), the costs incurred to connect the wind turbines to the energy grid (which can comprise transformers and substations), and other costs such as for control systems and project consultancy. (The International Renewable Energy Agency, 2012). For example, the installations costs for offshore wind turbines have reduced from around £ 4 million per MW in 2010 to around £ 2.5 million per MW in 2019 (Figure X) (Jennings, Tipper, Daglish, Grubb, & Drummond, 2020).

Despite the cost reduction over time, the high upfront costs of entering the wind supply chain represent a relevant barrier to entry (Jennings, Tipper, Daglish, Grubb, & Drummond, 2020).

5.2.1.4 Access to Distribution Channels

If a new firm wishes to enter the wind power industry, meaning that the firm possesses the capital and skills required to build and operate wind farms, the firm will also have to consider

Figure 11: Project Costs per MW, £m/MW (Jennings, Tipper, Daglish, Grubb, & Drummond, 2020)

Page 68 of 107 its connection the national grid, so that the energy generated in the new firm’s wind farms will be able to be transmitted and distributed.

The Danish transmission grid is of the Danish TSO’s property, a non-profit company part of the Ministry of Energy. The distribution grid is owned by a number of Danish grid firms.

According to the Renewable Energy Act framework, Denmark may give the rights of use to private companies to utilize wind in the Danish territories. One way to receive the permit for construction and operation of wind farms is through tenders: the Danish State invites tender regarding a wind farm in a specific location and for a specific capacity. Another way in which the rights can be obtained is through the open door procedure: a private party submits an application regarding a project to receive a license, and the party has already designated a location and capacity. Both the tender and the open door procedures require the acquisition by the company of four licenses: the first one to conduct pre-investigations, the second to build the wind farm, the third one to get the right for utilizing the wind, and the fourth to produce electricity. (Bech-Bruun, 2017).

When a newcomer enters an industry, it must secure the distribution channel for its products or services (Porter M. , 1979), which, in the case of wind power is represented by the electricity grid. The procedures required to obtain the rights to build, operate and connect the wind turbines to the national grid represent a factor that raise the entry barriers of the industry.