A Second Wind for Aging Wind Turbines

The 100 or so inhabitants of the Isle of Gigha, off the west coast of Scotland, aren't your typical trendsetters. Yet when this small island community spent $870,000 for three secondhand Vestas (VWS.CO) back in 2004, it became one of the first buyers to tap Europe's blossoming market for used wind turbines.

Now churning out enough power to meet almost all of Gigha's annual electricity needs, the 675-kilowatt wind farm has significantly cut the island's carbon dioxide footprint while generating an annual $150,000 profit for Gigha Renewable Energy, the locally owned company that operates the turbines. "To be honest, we bought them for financial reasons," says Jacqui MacLeod, manager of the Isle of Gigha Heritage Trust.

The success of Gigha's reconditioned turbines—known locally as the Dancing Ladies—highlights a fast-growing new market created by the global boom in wind-generated power. The almost two-year waiting period (BusinessWeek.com, 2/27/08) for new turbines from the likes of General Electric (GE) and Siemens (SI) is forcing some buyers into the secondhand market to meet the European Union's CO2 reduction targets (BusinessWeek.com, 1/23/08). Moreover, used turbines cost 40% less than new turbines, and their typically smaller size makes it easier to get local approval for their installation.

Strong Demand from Corporate Customers

While secondhand turbines have been sold in Europe for almost 15 years, the slow trickle now reaching the market will soon turn into a flood. Utilities such as Germany's E.ON (EONG.DE) and Spain's Iberdrola (IDRO.F) plan to upgrade their existing renewable capacity (BusinessWeek.com, 2/25/08) over the next five years. That means more than 5,000 secondhand machines are expected to go on the market by 2013. At roughly $230,000 each, that's more than $1.1 billion worth of Dancing Ladies.

Who's likely to buy them? Windbrokers, a turbine dealer based in the Dutch city of Maarsbergen, says it has already sold more than 350 to companies such as GlaxoSmithKline (GSK) and Nissan Motor (NSANY), which installed them to generate electricity for their plants across Europe. Utility companies in emerging markets also are buying. "We're seeing huge demand from Eastern Europe, Asia, and Latin America," says Dick Vermeulen, Windbrokers' managing director.

Besides their relatively low cost, secondhand models are attractive to companies and utilities that are just getting into the wind-power business, giving them a chance to gain a few years' experience with smaller turbines before upgrading to newer models.

A Boon for Big Utilities

The emergence of this secondary market also is a boon to big utilities looking to dismantle outdated wind farms. Although wind turbines usually can operate for 20 years, many utilities retire them after 10 years and install more-efficient equipment. "If you can recycle the turbines, then that's a cost you don't have to incur," says Juliet Davenport, chief executive of British renewables firm Good Energy.

Reconditioned turbines may not be right for everyone. They're frequently not covered by manufacturers' warranties, and repair costs on aging equipment can mount quickly. Those expenses, along with investment needed to connect turbines to the electrical grid, puts them out of reach for some customers.

Even so, Windbrokers reckons demand for used turbines will continue to outstrip supply. The company, founded by Vermeulen in 2002, has seen revenues soar from $3.1 million in 2004 to an estimated $108.6 million this year. It's now starting to sell new turbines, as well as offering services such as guarantees on reconditioned equipment.

View of a Cleaner Future

With soaring energy prices and increasing pressure to reduce carbon emissions, analysts say the economics of secondhand turbines are likely to look better and better in the next few years. For the Isle of Gigha, those Dancing Ladies are already looking very good indeed.

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