Vestas wind company in Portland brings in Chris Brown to manage through the upheaval

Source: Ted Sickenger/The Oregonian • Posted: Tuesday, April 30, 2013

Chris Brown is the new head honcho at Vestas Wind Technology’s Portland sales and service office.

Chris Brown, president of Vestas Wind System’s North American sales office in Portland, says he likes a challenge. And he knows a things or two about managing in the midst of turmoil.

Before joining Vestas in November, Brown, 52, spent a year as chief operating officer of the city of Detroit, Mich. The Motor City sits at the top of the “worst-of” rankings of U.S. cities — unemployment, murders, etc. — and has the distinction of being the largest U.S. city on the brink of bankruptcy.

“It was a very tough job,” he said. “Very humbling.”

Vestas’ problems may be orders of magnitude smaller, but it is in the midst of a two-year global turnaround effort. It has slashed jobs and cut excess capacity as clean energy investment plummets worldwide in the face of lower government subsidies.

From Brown’s standpoint, the renewables industry is evolving from its gold rush infancy into a slower growth and hopefully more sustainable business. If Vestas is going to thrive, he says, it needs a cultural makeover into a more aggressive, customer-centric sales and service organization.

There’s little time to waste. While 2012 was a record year for turbine installations nationwide as renewable developers rushed to beat the December expiration of the federal production tax credit, that activity was based on sales booked in prior years. January’s one-year extension of the tax credit brought a small resurgence in activity, and Vestas just booked its first big turbine sale in North America in more than a year, according to a spokesman.

In the long run, the wind industry’s sustainability may turn on its ability to compete with or without the production tax credit. Brown suggests that changes in the federal tax code that would allow developers to bundle projects in financial vehicles like master limited partnerships and real estate investment trusts would open the door to more and cheaper financing, and ultimately level the financial playing field with fossil fuels.

In the meantime, the subsidy window is limited, and Vestas faces tough competition from other turbine manufacturers as well as peristently low prices for natural gas, which makes wind energy look expensive.

Brown says his mandate from Denmark is simple: sell sell and sell some more. While he contends that Vestas turbines are still the best value in the business, he acknowledges that the business is increasingly commoditized. Success will depend on how aggressively the company can drive down manufacturing costs, scrap for sales, and bring deep expertise to customers to optimize their installations and lower their cost of energy.

Brown last week discussed the state of the industry and his plans for Vestas’ U.S. sales office. Questions and answers have been edited for length and clarity.

Q: You took a circuitous route to this job. Are you a turnaround guy or simply attracted to particularly tough situations?

A: I have been attracted to challenges. The City of Detroit experience was a very tough job, very humbling. The problems of big cities in the United States are huge, especially in a city the scope of Detroit where you had a number of factors kicking you in the teeth all at once. My parents are both on the university side and there was a civil service calling. So that was hard but rewarding. But my background is in the energy industry. The ability to make a difference and be challenged is pretty important for me.

Q: Outside this building, Vestas is perceived as a company that’s gasping. It has big cutbacks in Colorado, globally and even in the Portland office. What is it that you think you can do to drive this operation?

A: If you look at the history of the industry, it has these massive ups and downs. On Jan. 2, Congress passed the PTC extension and we breathed this new life into it. I don’t think that a lot of developers or utilities had projected that extension, so you’re seeing a bit of a spike. Ultimately we have to figure out in the renewables industry, especially on the manufacturing side, how we have sustainable production, getting away from the peaks and valleys, and getting to a specific baseload.

We at Vestas are doing that by introducing new products and by new methods to listen to our customers and really trying to understand their issues. It’s much more competitive than it has been historically. That takes a certain level of intensity or relentless pursuit of business. And that’s what I think are some of my strengths. Let’s set the targets and let’s go hit them.

Vestas has a great brand. We’re really the founder of this entire industry. But we’ve all been hit about the same.

We thought the business was going to take off and frankly we probably went too far in that vertical integration. We grew really quickly. We had foundries. We had a number of things. But it was because demand outstripped supply. We’re tightening our belt, we’re getting refocused as to how we drive value. I don’t look at this as a startup, or even a turnaround. It’s straight management. How do you get to get to be competitive, to compete again and compete on value.

Q: What was the fundamental misjudgment?

A: When you think you’re going to be in a market that grows 15 percent a year and instead it grows 5, it doesn’t take too long to be upside down. I don’t think there was any anticipation that shale gas would have such an impact. If you look at $2 or $3 a million Btu gas, nobody would have said that was sustainable. Now it’s a brave new world. Okay, so gas is going to be $3 a million Btu how are you going to compete? What you have to do is shrink your employees and your asset base to compete and at the same time create that flexibility, that adaptability, that optionality. We have to be faster and more agile in the market.

Q: So what is driving the value you provide to customers these days?

A: What we’re competing on is cost of energy. At some level it’s a mathematical formula: The larger the turbine blades the more megawatts hours you generate. But you have to have the capability to say what the wind was like here for the last 15 years so we can go to the bank and say you can bank that megawatt hour of electricity. We probably used our wind and site guys more defensively than we have offensively. We’ve said we have to make sure our turbines can do that, but we’re not necessarily going to share it with our customer.

Now we’re inverting that model. We have 15 years worth of wind and site data that we’re sharing with customers, and saying this, this and this are bad sites. Or if you take this turbine and this turbine and match them together you have a superior outcome at a cheaper cost.

We didn’t so that before because the market was booming and we were worried about getting product out the door. Are you good enough to own a Vestas turbine? Stop it. We simply sell and service wind turbines.

Q: What is your mandate from Denmark?

A: The mandate is go get transactions, go get turbines. We have a thing called firm order intake. It’s FOI, FOI, FOI. That’s priority 1, 2 and 3. That translates as sales, sales, sales. We had our highest install last year, but that was off a book of business two years before. Last year we had very low sales. So when you put that in perspective, the first quarter we have a pretty good run on the board. It’s not a time to pat us on the back. We need to go get more sales.

Q: The Northwest is looking pretty slow except for incremental renewable additions to meet state mandates. And now California is going solar, and prohibiting most imports of renewables. Is there a hotspot regionally in the U.S.?

A: You do have opportunities in California that are niche-y. You have a fair amount of opportunities in the West. In Colorado, there are four RFPs out on the street. Maine and Massachusetts is a very active market. New York had bids on the street. We’re trying to make sure we set up sales offices regionally to be close to those markets and use Portland as our headquarters where the technology is, where the evaluation and knowledge is. All that expertise resides here and we have those nodes out there to make sure we bring that business in, getting closer to the customer.

Q: Near term, the market still looks very tough for wind.

A: Beyond 18 months, yes. But I’m feeling pretty positive. In the next 6 to 18 months, we do have a little bit of a window to carve out some value, and we’re going to. We just announced one of our largest orders in Canada, and we have some stuff with local utilities that we’re trying to bring down, we’re going to compete like hell to win that. Those are must-win deals.

Q: So are you talking about Portland General Electric’s renewable request for proposal? It sounds like the bids were all wind.

A: Yes. We’re located here in Portland. Our employees are voters. We’re extremely proud of the new products we’re introducing. We think they’re the best and cheapest in the industry. So why not us?

Q: So the industry was saying a few years ago that as natural gas prices stepped up, wind would reach grid parity with natural gas (equal long term costs). Now it looks like all the new baseload plants and most of the coal replacement will be natural gas, and grid parity doesn’t look realistic.

A: By and large, the statement is right, $3 a million Btus makes it increasingly difficult. That same factor goes for solar. If gas is $3, none of us are competitive. What we need to be thinking about is how gas and wind work together. They need to be partners, not combatants. Natural gas can be a bridge (to more renewables and lower emissions). But if we start exporting natural gas, it doesn’t take long to figure out what the price of natural gas could be. If you’re in utility land, if you’re looking to make sure you’re stable to ratepayers, wind has a pretty nice profile. It can be an inflation hedge, so the question is, how can wind hedge gas and vice versa.

Q: There is some cynicism about Vestas based on the soft job guarantees in Portland’s subsidization deal for its new building, like maybe taxpayers were taken for a ride. How should Portlander’s think about Vestas?

A: I wasn’t here, but I can appreciate a feeling, having been around the block a few times. We’re not going anywhere. We have roots here. We’ll shrink and expand based on where the business is, but that’s normal for any business. At the end of the day, we have to make money, and we’re going to find a way to do it. This is not a utility. We’re not in an environment where we can continue to get subsidized by ratepayers. We need to scrap and be very competitive, go into those corners and use our elbows hard when we need to win deals, both here and throughout the U.S. I want you guys to see us 24-7, 365 with these lights on, cranking it. I don’t know what the expectations were in terms of whether we’d be cranking out thousands of jobs, but we’re holding our own.

Q: So what do you see happening with the employment base here?

A: We’re stable if not growing. We’re going to change folks out here because maybe they weren’t appropriate for the company’s stage in its evolution. But we still need good folks and it’s still a great place to work. I’m not coming here as a turnaround guy in terms of slash and burn. No, no.

We need to be able to compete and win and we need to be able to do it in a constructive fashion, where all of our employees are engaged in fighting for that next turbine sale. To be frank, I’ve been happy with the way this team has come together.

We have about 300 employees now, and that’s where we would expect it to be. I’m positive. We’re learning to compete and work as a team again. That’s important. You have to have that shared sense of destiny.