I interviewed Dhananjay Joshi who discussed SCM Business Models for Wind Industry.
Dhananjay Joshi, who is the Senior VP and Head of a Wind Business. And we're going to discuss some SCM Business Models for the Wind Industry. So, Joshi, can you first provide a brief background of yourself?
Hi, Dustin, myself Dhananjay Joshi. I am basically a postgraduate mechanical engineer and a management graduate, and I have about more than a decade experience in the field of wind, out of which most of it is in the supply chain management and the business strategy.
I have been working with companies like Vestas Wind Technology, Asia Pacific, which is the largest company in the world providing wind solutions, ReNew Power Ventures, which is a part of Goldman and Sachs, and [inaudible 00:01:10], which is an Indian company. And I now head the wind division of SL Group, one of the largest media houses and infrastructure companies in India. So, that's my brief introduction.
Well, my first question is what are some of the SCM business models for the wind industry?
So, to answer to your question... Globally, if you talk about let's talk about the stakeholders in the wind business. The first stakeholder is the supplier of the equipment that is the wind turbine. Second stakeholder is the developer. Developer has the role of development of the land, the wind site, and the balance of [inaudible 00:02:15]. The third stakeholder is an investor. And the fourth stakeholder is actually the buyer of the power, which is normally a utility or a private segment customer.
And if you see the internal relationship, you would normally, the investor would send money with a contract either to the manufacturer of the turbine. And the developer who keeps the site ready develops the site, installs the turbine, and then of course, after that, runs the turbine. Operation and maintenance also can be done by either developer or the turbine equipment manufacturer.
So, the first business model, which has been there for quite some time is the investor has a contract with the turbine manufacturer, and it's the turbine manufacturer who gets everything done —contracting with the developer, contract with the selling of power to the utilities through the power purchase agreement.And its entire responsibility of the [inaudible 00:03:53] manufacturer, that is the turbine manufacturer. And this is called [inaudible 00:03:57] business model. Excuse me.
So, in that case, the buying of equipment, land, balance of [inaudible 00:04:10] and everything lays within the scope of the manufacturer. But it's a very straight business model.
The second model, which got [inaudible 00:04:25] in the history of wind industry is actually, this is called a self-development model, which means the developer develops the land and the other infrastructure buys the turbines, installs and actually commissions the wind farm and sells to the investor or the customer and also runs the wind farm.
So, here, the responsibility of manufacturer of turbines is limited to only supply and at the most is required commissioning.So, here, the supply chain of scope of only manufacturing of turbine. Turbine has basic anatomy of four measured parts. One is nacelle, which is under top of the wind turbine. Second is rotor blade, which are the fans assembly. The third one is a [inaudible 00:05:38] tower over which the entire assembly gets fitted. And the fourth one is control system, which is inside which controls the wind turbine.
So, in this anatomy, all these things are being supplied by the turbine manufacturer and the developer does the rest of it — that is, the power transmission and evacuation [inaudible 00:06:03].
And the seller buys it. The investor buys it. Here, the supply chain is divided in two, between two groups. One is the developer group and second is turbine manufacturer group.
The third business model which also got evolved especially in the countries like China and some parts of Southern America, that the turbine manufacturer, actually, their skill is mainly into the manufacturing of turbine and technology development. So, they are focusing right now on the basic turbine and the rotor blades. Now, the customer is actually, which has been traditionally investor. In China, government is the only customer, that is, the utilities. And they even take the control of the tower. Tower reach is a very hairy component, and that is all they...that has become a commercial trend in China, to control the purchase of the towers.
So, this is a third business model, which got evolved. The only thing is, while the got evolved, the best part of optimization... These are basically three business models which I have explained.
So, any questions on this, Dustin?
And what are some of the challenges with these business models?
The challenges are the following. The more the supply chain, which is kept in the first model if you [inaudible 00:08:17] turnkey. It is impacting the cash flow of our turbine companies, because, you know, the cost of turbine is quite high. Between various countries, various levels, it could be about roughly $1 dollars a megawatt. The cash flow impacts because the cycle time to complete the project is sometimes quite high. And that is why it is a challenge of cash flow.
Now, [inaudible 00:08:58] investor has the money. The project completion could be a challenge. Now, second challenge is if in the second model, which is the technology. You know, once you try to develop a price to manufacture the tower and also the other electrical parts, the technology and the supplier quality becomes a big challenge. The cash flow issue is resolved, but then the technology of manufacturing, process technology could be a challenge. Right now, the globally this challenge is being fixed.
And obviously, most of the companies, in order to reduce their cash flow issues, they try to divide the [inaudible 00:09:59] and so their challenges can be reduced. So, these are, basically, I would say, our challenges which are faced currently.
My last question is what innovations can be done in the current business models?
Right now, what can be done is the best innovation could be the turbine manufacturer could offer the technology to the developer. And with their supervision, you know, they could buy the raw material and under their supervision, with the cash flow of investors, they can handle the production so that the productivity, quality, and execution can be on time.
So, if it is worked out jointly, like the turbine manufacturers who's strength of the skill is a great technology and process technology, they know who the best supplies are. The investors have money, and the cash flow can come, and the developer can work on actually the [inaudible 00:11:23] of the project.
This is actually the best innovative model, which could really work all over the globe, which would be acceptable by most of the companies, which would be a win-win-win situation.
Thanks, Joshi, for sharing today.
I think this is good for the 10-minute interview. We could always do a follow up discussions in the future.
About Dhananjay Joshi
SVP & Head of Wind Business