IT Week Blog, July 10, 2007

Windpower: switch off the heart and let the mind decide

I was impressed today to hear about the Ford Motor Company's efforts in greening its business, not least because its push into sustainable energy provision started more than four years ago - long before the topic was quite such a big tick in the public relations box.

In August 2003 Ford gained planning permission to erect two 85m wind turbines on its Dagenham site in East London, where it builds engines.

According to Ford, its latest calculations show that its pair of windmills have cut the site's carbon emissions by 6,500 tonnes of CO2 a year. Or, put more meaningfully from a business perspective, the turbines produce about six million kilowatt-hours of electricity per year. If bought from a conventional supplier at current industrial rates, this juice would cost in the region of £325,000 per annum including VAT. Also, as renewable energy, wind power is exempt from the government's Climate Change Levy, saving Ford about £26,000 per year in CCL tax.

This is not bad for sticking turbines up in a part of the world not exactly renowned for its wind.

Of course all this doesn't mean the turbines make financial sense. At a reported cost of about £2.5m for the pair, the turbines might take more than seven years to pay for themselves, not including the cost of maintenance and repair. There is also a balance-sheet cost to stumping £2.5m upfront rather than gradually. But if energy prices rise, the time to payoff helpfully falls.

Or that would be the situation if Ford owned the turbines. It doesn't - they were built and are now owned, maintained and operated by green energy specialist Ecotricity, which has a 12-year contract with Ford. That term suggests there is a healthy period of five years or so in which the venture can create the roughly £1.5m profit that makes it worthwhile for both parties - a gross return of about 60 percent over 12 years is OK, if my envelopmathics is to be trusted.

Plus, of course, there is plenty of potential for further profit, assuming the turbines are not simply fit for scrap at the end of the agreement. My guess is that these monsters are built for long duty cycles.

And they are monsters. It's one thing to say that a turbine stands 85m to the hub and 120m to the tip of the top blade, but it's another to see that translated into huge lumps of engineering on the ground. There are a series of fantastic pictures showing the building work on Ecotricity's web site. I particularly like the shot of just one out of the six turbine blades, sitting pretty on the back of an enormous 18-wheel lorry. At 35m, each blade is about 1.5 times the length of an America's Cup yacht. Not a small venture then, and not suitable as a model for every business, but instructive nonetheless.