Sustainable Supply Chain Management in the Wind Energy Industry

An assessment with special focus on rare earths as an input material to wind turbine manufacturing


Bachelor Thesis, 2015
45 Pages, Grade: 1,3

Excerpt

Table of Contents

List of Abbreviations

List of Figures and Tables

1. Introduction.
1.1. Background motivation and aim of the paper
1.2. Scope of the assessment
1.3. Structure of the paper

2. Sustainability in Supply Chain Management – Literature review.
2.1. Definitions of sustainability
2.2. Motives for sustainable conduct in business
2.3. Sustainability from supply chain perspective

3. The wind energy industry – Case study
3.1. Overview of global wind energy industry
3.2. Functionality of a wind turbine

4. Sustainability in the wind energy industry – Analysis
4.1. Benefits of wind energy
4.1.1. CO2-emissions reduction.
4.1.2. Stable energy prices and bigger autonomy in the long-run.
4.1.3. Decentralisation of energy production.
4.1.4. Advantages of new PMG technology over DFIG.
4.2. Negative aspects about wind energy
4.2.1. Rare earths mining
4.2.1.1. Definition of rare earths and their economic use
4.2.1.2. Supply of rare earths
4.2.1.3. Ecologic and social harm caused by mining in China
4.2.2. Increased need for backup capacity
4.2.3. Increased bird mortality due to wind parks
4.3. Assessment of sustainability performance
4.3.1. Economic sustainability
4.3.2. Social sustainability
4.3.3. Ecologic sustainability

5. Possible solutions to the REE dilemma
5.1. Reduced use of rare earths
5.2. Closed-loop supply chains for permanent magnets
5.3. Biomining of REE.

6. Summary and Conclusion.

Bibliography

Appendices
Appendix A – Anatomy of a DFIG wind turbine
Appendix B – Anatomy of a PMG wind turbine
Appendix C – Greenhouse Gas Emissions by Economic Sector
Appendix D – An overview of PMG and DFIG drive trains
Appendix E – Baotou’s Location in China Map

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Figures and Tables

Abbildung in dieser Leseprobe nicht enthalten

Introduction

1.1. Background motivation and aim of the paper

“For most firms, the majority of energy and water use and waste and emissions occurs in the extended supply chain outside their own enterprise. Thus, to truly have an impact on sustainability, powerful players must look at the extended supply chain and work with their suppliers to improve performance” (Chopra & Meindl, 2013, p. 519).

This statement of Chopra and Meindl summarises well the increasing awareness in management literature that a measurement of the performance on sustainability cannot be done from examining one single entity. Only the end-to-end perspective provided by supply chain management can help assess the real impact of any product in terms of sustainability and thus make it manageable.

In this thesis, such an assessment shall be done for the global wind energy industry, which is perceived to be an unquestioned sustainable and clean power source in the greater public (Ipsos Public Affairs, 2010, p. 9). However, the assessment will take stages in the supply chain for wind turbine manufacturing into account that might cause the reputation to be changed.

1.2. Scope of the assessment

This paper will take into account various effects the use of wind energy has on different levels of the environment. However, only the most promising benefits and pressing challenges will be presented to allow for a differentiated assessment of the sustainability performance of wind energy as a power source. This will also be done in comparison to other forms of energy generation both fossil and renewable ones.

From supply chain perspective, the paper will focus on the supply of rare earths as an input material to wind turbine manufacturing. The reasons for which this is to be considered the most questionable aspect of the supply chain will be explained as well as solutions proposed for how effective supply chain management can help improve the situation. Nonetheless, even if rare earths are the most important aspect and therefore should be addressed first, there will surely be other aspects also providing opportunities for improvement. Especially when taking into consideration that a modern wind turbine consists of more than 8,000 different components (American Wind Energy Association, 2015). The focus on rare earths has been chosen due to the limited format of this bachelor thesis.

1.3. Structure of the paper

First of all, it will be explained in chapter 2 based on a literature review which understanding of “sustainability” is used for the assessment in this thesis. Furthermore, a theoretical framework for the enhancement of sustainability in supply chain management will be developed.

Subsequently, chapter 3 will provide an introduction to the case of the global wind energy industry including turbine manufacturers and major markets for wind energy. Also, two rivalling technologies in the industry will be presented that are especially relevant for the later assessment of rare earths as an input material to wind turbine manufacturing. Chapter 4 will then present both advantages the use of wind energy has in terms of sustainability as well as disadvantages in the supply chain that these benefits need to be weighed against. The results of the analysis of the current situation will also be presented in this chapter.

Based on the developed framework for sustainability in supply chain management in chapter 2 and the issues identified in chapter 4, possible solutions will be presented in chapter 5 that can help improve the sustainability of wind energy by suggesting relevant means of supply chain management to manufacturers of wind turbines. A summary will be given and an overall conclusion of the work will be drawn in the last chapter of this paper.

2.Sustainability in Supply Chain Management – Literature review

2.1. Definitions of sustainability

In 1987, the “World Commission on Environment and Development” published a report that for the first time defined sustainability in a way that was agreeable by all (or at least most) countries on the globe. This so-called “Brundtland Report” – named after the commission’s chairman Gro Harlem Brundtland – stated in a positively connoted manner that “Humanity has the ability to make development sustainable to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs” (Our Common Future, 1987, p. 16).

This very report is considered having started the global discussion on environmental change and sustainability efforts. It also laid the foundation for today’s most common understanding of sustainability, which distinguishes the three different dimensions ‘social’, ‘environmental’ and ‘economic sustainability’ (Finding and Resolving the Root Causes of the Sustainability Probelm, 2014):

Social sustainability describes a societal model that is able of supporting a life of all its members in wealth and harmony over an indefinite period of time1.

Environmental sustainability describes an economic model that only extracts resources from and brings pollution into the environment as this can support it over an indefinite period of time.

Economic sustainability describes an economic model that is able to support a given level of production over an indefinite period of time.

However, this three dimensional view on sustainability is not exclusively the only one being discussed in current literature. E.g. Christina Schwarze (Schwarze, 2009, pp. 31-34) identifies three different understandings of sustainability:

Sustainability as a normative responsibility model towards society: In this understanding there is no direct connection between social, environmental and economic sustainability due to the measurement of these dimensions being subjective (esp. social aspects). Thus sustainability is the balancing of interests on intra- and intergenerational scope.

Sustainability as an innovation-oriented model of rationality: The consumption of resources shall be optimised to result into a reasonable usage. This shall be assisted by innovations that enable a more efficient use of resources, thus either reducing the amount needed or increasing the wealth obtained from consuming a resource. In this context, Schwarze (2009, p. 41) defines eco- and socio-efficiency as the relative damage to the environment or society caused by producing one unit of ‘economic welfare’.

Sustainability as a preservation-oriented model of rationality: A balance between resource extraction and reproduction results in the preservation of the resource base for coming generations. Gains can only be extracted once the resources invested have been reproduced. However, while this model is easily applicable to the economic aspect of sustainability the integration with environmental and social aspects is harder to realise.

2.2. Motives for sustainable conduct in business

After presenting different understandings of the term ‘sustainability’, it will be interesting to take a look at the reasons (“motives”) which lead businesses to undertake efforts to increase their performance on this subject.

In this regard, Christina Schwarze (Schwarze, 2009, pp. 1-11) identifies two different motives for sustainability in business administration:

Social responsibility (non-business case): Managers can choose to enhance the sustainability performance of a business due to the responsibility interest of its owners.

Economic success (business case): Managers can choose to enhance the sustainability performance of a business to increase the financial success of it. This can either be to meet social or regulatory requirements to be allowed to stay in business (“Licence to operate”), or to meet the demands of an increasingly sustainability-minded customer base. Often times, such a customer base is willing to pay an extra for sustainably produced goods and services. For the concerned business, this can result in higher revenue and/or increased profits.

In the attempt to assess the importance of these two motives, Chopra and Meindl (Chopra & Meindl, 2013, p. 513) state that “most concrete action has been observed in reducing risk (…) and improving financial performance. Much less success has been driven by customer demand or the desire to make the world more sustainable”. Hence, the authors argue that most improvement on sustainability performance will be achieved only if there is a financial benefit for the business driving it. This leads to the conclusion that such efforts will halt once financial gains can no longer be obtained.

However, the European Logistics Association (ELA) developed a framework (Cetinkaya, et al., 2011, p. 21) that illustrates how all economic activity2 impacts on its social, economic and ecologic environment. This in turn influences the economic activity itself (comp. Figure 1). Thus all efforts to increase sustainability will lead to a more stable general business environment3. Such stability is desirable from a business perspective as it facilitates long-term strategy formulation and enables the infinite survival of a firm by not decreasing the resource base of its operations. It is a circular model that does not stop at a specific price for enhancement.

Abbildung in dieser Leseprobe nicht enthalten

Source: Cetinkaya, et al., 2011, p. 21

Figure 1: Supply chain strategy as a bridge between competitive strategy and sustainability

2.3. Sustainability from supply chain perspective

So far, this thesis has examined different understandings of ‘sustainability’ (comp. chapter 2.1.) and has also explained what drives businesses to foster sustainability (comp. chapter 2.2.). In the following it will subsequently be explained why sustainability needs to be measured on a supply chain basis to assess the real impact of a product on all aspects of sustainability. Also, some concepts of how to make supply chains more sustainable will be presented. Finally, a framework will be developed that defines the understanding of sustainability used in this paper.

Taking the example of emissions as an issue in ecologic sustainability, the Greenhouse Gas Protocol (The Greenhouse Gas Protocol, 2012) distinguishes between direct (caused at the reporting entity) and indirect emissions (caused in the supply chain of the reporting entity) of greenhouse gases. When assessing the importance of these two categories of emissions, Chopra and Meindl (Supply Chain Management, 2013, p. 517) state that for most firms indirect emissions account for the significantly bigger share of all emissions caused by their outputs. Hence, firms should measure pollution “across the entire supply chain from the consumer to the lowest tier supplier to capture the full impact of the supply chain on the environment”.

This ecologically-focussed explanation is also applicable to the social and economic aspect of sustainability because when a firm uses inputs from other entities not just emissions have been incurred by these. All social, economic and ecologic aspects of the inputs become a part of the resultant output.

Developing this idea further, it can be said that sustainable outputs can only be produced by using sustainably produced inputs (Schwarze, 2009, p. 9). Thus if an end-output is designed to be sustainable, this will also require the integration of sustainable inputs. Bringing this into a business context, this means that focal firms4 have the biggest influence on the sustainability of any product as they are the ones who design it.

A theoretical model of how to design ultimately sustainable products (from a resource consumption point of view) is called ‘closed-loop supply chains’ (Chopra & Meindl, 2013, p. 520). In such a supply chain products are not just being designed recyclable, but the supply chain also covers the return of products after use to ensure recycling actually happens. This is important because often even recyclable products end up on a landfill when there is no infrastructure or incentive to support the recycling process.

However, in practice there are several open questions remaining about how to construct working closed-loop supply chains, e.g. who is responsible for collecting the products after use and what economic interest suppliers would have in providing components that can be reused by the client. In addition to that, there are often technological issues towards the remanufacturing of products.

Overall, this model of closed-loop supply chains can be seen as a description of an ideal state towards which efforts to increasing the sustainability of supply chains should be aiming. On the way to achieving this goal there are many different steps that will have to be taken to enhance the performance on sustainability. Figure 2 illustrates the process of moving from traditional economically focussed supply chain management (SCM) over socio-/eco-efficient SCM (comp. chapter 2.1.) towards sustainable SCM5 (comp. Sommer, 2007, pp. 63-66).

Abbildung in dieser Leseprobe nicht enthalten

Source: Own illustration following Sommer, 2007, p.64

Figure 2: The evolution of sustainability within Supply Chain Management

Moving from traditional SCM to socio-/eco-efficient SCM will mostly be driven by the motive of direct economic success (comp. Chapter 2.2.). The move further to sustainable SCM however will be backed by the benefits of creating a more stable business environment identified and illustrated by the ELA (comp. Figure 1).

When comparing this model to the different understandings of sustainability defined by Schwarze (comp. chapter 2.1.) it can be said that the process of moving from traditional SCM to sustainable SCM is best fitting with the innovation-oriented model of rationality. By contrast, the defined target state of sustainable SCM is better to be compared to the preservation-oriented model of rationality.

The above developed model of sustainability in supply chains as an improvement process in all three dimensions of sustainability shall be used for a sustainability assessment of the wind energy industry in the later chapters of this paper.

3. The wind energy industry – Case study

3.1. Overview of global wind energy industry

On a global scale, wind energy contributed about 2.5% to the total electricity supply in 2012 (Technology Roadmap - Wind energy, 2013, p. 7). This might imply a marginal significance of wind energy as a source for electricity. However, taking into account the rapid development this power source has seen over the last years, which is expected to continue, the picture changes. It has only taken four years for globally installed wind energy capacity to double from less than 150gigawatt (GW) in 2008 to almost 300GW in 2012. The rate of nominal capacity installation is even still expected to speed up resulting in a globally installed capacity of 2,300 to 2,800GW by 2050. That would then account for 15% to 18% of global energy supply.

Putting these figures into a financial context, the huge market size of the wind energy industry becomes apparent. In 2012 alone, investment into new wind energy capacity has accumulated to USD 78bn (Wind power seen generating up to 18% of global power by 2050, 2013). In the coming years the annual investment is expected to successively increase to about USD 150bn until 2050, thus doubling the market size compared to today’s situation.

Figure 3 shows the current market shares of the major wind turbine manufacturers as of 2014 (Statista, 2015). From this it can be seen that almost 70% of global production is concentrated by the ten major manufacturers situated in Denmark, Germany, China, USA, India and Spain. However, there is no single player dominating the global market as Vestas – the biggest producer – has a market share that is only about one and a half times as big as the one of fifth-ranked Enercon or three times the market share of tenth-ranked Envision.

Abbildung in dieser Leseprobe nicht enthalten

Source: Own graphic based on Statista, 2015

Figure 3: Top wind turbine manufacturers by market share 2014

On the demand side for wind turbines, the three biggest markets in order of size are China, USA and Germany6 (Technology Roadmap - Wind energy, 2013, p. 13). However, even though these markets are the biggest in total size it is worthwhile mentioning that in some countries such as Denmark, Portugal, Spain and Ireland as of 2012 wind energy already accounted for an energy supply share of 33.7%, 20.0%, 17.8% and 14.5% respectively.

But there are not only different manufacturers and markets to be distinguished in wind turbine manufacturing. Increasingly, there are different technologies being used as will be presented in the next section.

3.2. Functionality of a wind turbine

The idea of using wind for human purposes has been developed and used long before the existence of modern wind turbines7 (Whitburn, 2012). What is new about the concept of wind turbines is that the kinetic energy provided by the wind is transformed into electric current, which can then be transported and used in another location. Thus the harvesting of energy and the consumption of it has been decoupled making electricity produced from wind turbines a feasible power source for modern societies.

In order to assess the sustainability of wind turbines as such, it is necessary to create an understanding of how electricity is generated within one. In this regard, it is important to realise that there are different options of how a wind turbine can be designed to produce electricity.

The World Wind Energy Association (WWEA) distinguishes the following five main component groups of a wind turbine (World Wind Energy Association, n.d.):

Tower and foundation are necessary to establish a solid base for the turbine and bring the wind extracting parts into a height were there are greater wind speeds available than on ground level.

Rotor and rotor blades are attached at the top of the wind turbine and function to extract the energy from the wind and transforming it into mechanical rotation.

Nacelle with drive train is placed between the tower top and the rotor connecting these two parts. The nacelle contains most of the equipment of a wind turbine including the drive train that propels the electricity generator.

Electronic equipment comprises all parts of the wind turbine that are necessary for the electricity production and infeed into the grid. These include the generator, sensors and wiring.

[...]


1 As social sustainability is often the dimension of sustainability that is hardest to recognise, it might be reasonable to describe an easy example of a societal model that is not sustainable. E.g. when a society sees the constant development that some small parts of it get ever wealthier, while the majority of the population has to cope with massive poverty, this will lead to upheaval of the less fortunate parts of the society.

2 The source uses the example of supply chain management to explain this interplay between economic actions and the business environment. However, the framework is generally applicable since all economic activity results in social, economic and environmental effects.

3 Some aspect of a stable business environment would be e.g. both the availability of resources over an infinite period of time and society accepting certain business activities on a long-term perspective.

4 Focal firms “are defined as the entity that owns and governs a supply chain, and that furthermore sells and markets the final product” (Leppelt, 2013, p. 13).

5 Closed-loop supply chains are only one kind of sustainable SCM. Another example would be full biodegradability of products, so that these can be completely reintroduced into the ecologic environment. This could e.g. be a model for textiles and non-metal furniture.

6 In the face of the dominance of these markets, most examples given in the later chapters of this paper will be given from these three markets.

7 Some examples for the historic commercial use of wind as an energy source are ship sailing or wind mills for pumping water (e.g. in the Netherlands) and processing grain.

Excerpt out of 45 pages

Details

Title
Sustainable Supply Chain Management in the Wind Energy Industry
Subtitle
An assessment with special focus on rare earths as an input material to wind turbine manufacturing
College
University of Applied Sciences Münster  (Fachbereich Wirtschaft)
Grade
1,3
Author
Year
2015
Pages
45
Catalog Number
V455543
ISBN (eBook)
9783668887459
ISBN (Book)
9783668887466
Language
English
Tags
Sustainability, Rare earths, Wind energy, renewable, supply chain
Quote paper
Thomas Hillmann (Author), 2015, Sustainable Supply Chain Management in the Wind Energy Industry, Munich, GRIN Verlag, https://www.grin.com/document/455543

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