Two years ago, Tomas Marutz became the head of the Nordseewerke in Emden, Germany. The shipyard is one of the biggest and oldest in the country. But Marutz's most important task now is, he says, "to get shipbuilding out of people's heads."
That's no easy task for a man who speaks about ships like a father talking about his children. He is fascinating by the process of shipbuilding, from the lucky penny that is tossed under the first sheet of steel used in construction to the moment when a finished ship is launched from the docks. Building ships isn't just a question of "welding individual pieces together," he says. "It is a holistic creation."
But these days, Marutz doesn't have the chance to enjoy such moments. Submarines and container ships are no longer being built at the shipyard, which once belonged to German steel and shipbuilding giant Thyssen. Nowadays, the company is building towers and steel bases for wind turbines used in offshore wind farms off the German coast.
End of an Era
On Dec. 11, 2009, the Frisia Cottbus became the final container ship to leave the Nordseewerke docks. It was the end of shipbuilding at the docks; the order book was empty. In 2010, steel company Siag, which is currently undergoing insolvency proceedings, acquired the business in order to gain access to the sea and to secure a chunk of the multibillion-euro offshore wind farm business.
Indeed, it's not only the 780 remaining workers at the Nordseewerke for whom Germany's "energy revolution" is the last hope. After years of decline, the German shipyard industry is facing a decisive transformation: It will only have a future if it succeeds in abandoning its past. The industry's former customers, shipping companies, have been replaced by large electricity utilities and technology companies.
As part of its energy revolution, the German government is planning a complete phase-out of nuclear power by 2022. Between now and that deadline, offshore wind farms are expected to deliver a large share of the clean energy that is slated to replace atomic power. Special ships and towers will be needed as well as transformer platforms and foundations that can anchor the steel colossuses in depths of up to 40 meters (130 feet).
Together with consultants at KPMG, the German shipyard association VSM has calculated that wind power could be worth up to €18 billion in possible revenues for German shipyards between now and 2020. The new sector has the potential to secure 6,000 jobs. Still, that's not a great amount of hope for the future, as becomes apparent when one takes a closer look at the German shipbuilding industry. Since 1990, the number of jobs at German shipyards has shrunk from 59,000 to about 16,000. Last year, German firms only delivered 31 seagoing vessels. German companies simply no longer stand a chance against shipbuilding plants in Asia where container ships can be mass produced.
'That Industry Is Finished'
"Orders for traditional ships will never come back. That industry is finished in Germany," says Fred Wegener, the technical director at the Nordic Yards docks in Wismar, a port city on Germany's Baltic coast.
The covered dock at the shipyard smells of welded steel. A huge team of builders is at work on an enormous steel structure that will become one of the key pieces of Germany's transition to renewable energy: the transformer platform "HelWin alpha." The platform will be a good 35 meters (115 feet) high, over 50 meters (165 feet) wide and weigh more than 12,000 metric tons, with two gigantic transformers inside. The plan is for this platform to transmit to the mainland all the power generated at RWE's Nordsee Ost wind farm off the coast of Heligoland, a small German archipelago in the North Sea.
In a couple of months' time, the Nordic Yards dock will be flooded with about 200 million liters (53 million US gallons) of water and the platform towed out to sea. "Then all of us here can take a deep breath," Wegener says.
This shipyard, once known as the Mathias Thesen Shipyard, after a fighter with the anti-Nazi resistance, has a history of change behind it. It began as a state-owned company in socialist East Germany but was privatized after German reunification in 1990. It was known as Aker MTW, then as Wadan, but despite the new names and new owners, business went downhill. The shipyard ended up going bankrupt in 2009. Russian entrepreneur Vitaly Yusufov bought the former East German shipyard and renamed it Nordic Yards.
The company still plans to manufacture specialized ferries and ice-going ships, but at the moment it has no contracts in those areas. Instead, Nordic Yards will focus on becoming a "global player in the offshore wind industry," Wegener says. The company's fate now hangs on the success of Germany's energy transition.
'Not Just a Flash in the Pan'
At the moment, though, the offshore wind industry is the source of bad news. The mammoth, politically driven project is turning into a financial fiasco for many companies. Of the 10,000 megawatts planned to be in operation offshore by 2020, only 200 have been installed. Two wind farms are completely operational and three more are under construction, but nearly all of the projects are lagging months or years behind schedule. In particular, the connections to the mainland grid have been delayed, because the companies in charge of them lack capital. Some wind farm operators and subcontractors are running short on funds as well, with the result that there are few new contracts for the shipyards.
Nordic Yards is behind schedule on all three platforms it's currently building, though that's mostly due to the time-consuming process of obtaining the necessary construction permits. "We're just now learning how complex the offshore business is," Wegener says, adding that this is "a research project that needs to adapt to the real economy quickly." If Siemens, the German engineering giant, weren't shouldering a large portion of the risk, the project could easily end up endangering the shipyard's very existence.
Still, Wegener is optimistic. "Provided the energy revolution isn't rolled back, the offshore industry isn't just a flash in the pan," he says, arguing that these platforms and wind turbines will be used in the end.
Marutz at the Nordseewerke likewise sees no other alternative. "We've burned our bridges and there's no going back," he says. "If it doesn't work, then that's that." Marutz has converted operations completely, with the result that it's no longer possible to build ships here at all. He feared that even in the area of special-purpose ships, Germany wouldn't be able to hold out in the long term against Asia's superior strength.
Instead, steel rings 6 meters (20 feet) across, component parts for a wind turbine, are being welded together in the new factory building here. The workers placed a lucky one-cent piece inside the first wind turbine they built, but after that they stopped. "We're not a shipyard anymore," Marutz says. "Now we're a normal industrial operation."
In the past, the workers had 52 months to deliver a submarine, 10 months to weld together a cargo ship. Now the factory will operate like an assembly line in a car plant. If all goes according to plan, it will soon produce a wind turbine's steel foundation every nine days. Marutz believes this mass production is the only way to keep the shipyard fully utilized in the long run.
Right now, though, reality is lagging behind those plans. Six half-finished foundations sit in front of the building, giant steel tripods that look as if they're made of enormous Legos. Of the first 19 foundations that were supposed to be manufactured here in the space of a year, only three are completely finished, due to problems with a key subcontractor. For the next 40, which are to be delivered to the North Sea wind farm "Global Tech 1" by 2013, the shipyard will get by without the subcontractor. Still, the delay means it will no longer be possible to keep to the planned budget, and it is unclear how things will proceed after next year.
The shipyard does have another contract lined up after the current job, but it's had to provide a guarantee to the client that its business won't run into trouble during the construction period. Because the parent company Siag is insolvent, banks had to step in and guarantee the project.
Problems with Financing
Marutz isn't the only one with financing problems. All of Germany's shipyards are in a difficult position with banks. Most have a poor credit history. There are hardly any large shipyards that were not bankrupt or almost bankrupt at one point. Many scrape by from one state-backed guarantee to the next.
It is difficult to plan in regard to such offshore projects, most of which are worth billions of euros. Any one of them could, in a worst-case scenario, spell a shipyard's downfall. A €5 billion program to support the offshore industry, run by German state-owned bank KfW, has so far benefited only the wind farm operators. Shipyards have sometimes had to turn down major contracts, because the cost of obtaining the necessary bank guarantees is so high.
Jürgen Grossmann, who retired as head of energy giant RWE this June, complained at the recent launch of two special-purpose ships for the company's own wind farm that not a single German shipyard was willing to build these ships for him for €100 million. The reality is that several shipyards were interested, but high financing costs made their bids much more expensive -- or they didn't obtain the guarantees they needed at all.
Marutz takes a matter-of-fact view of things, but there's clearly a note of bitterness there as well. When Germany made the decision in the 1950s to obtain its electricity from nuclear power, he says, it was still the good old days of "Deutschland AG", when German companies, banks and the state worked together as a team. The government placed orders, provided financing and shouldered a share of the risk. There was even a minister in charge of nuclear energy. "Now the government wants to transition to renewable energy, but all the risk lies with mid-sized Mittelstand companies like us," Marutz says.
'The Energy Revolution Will Fail'
The initial offshore euphoria among German shipyards has long since given way to a soberer assessment. One example of this is the Nobiskrug shipyard, which has facilities in Rendsburg and Kiel in northern Germany. The shipbuilder, which became part of the Abu Dhabi Mar group four years ago, is one of the first ports of call for billionaires. Nobiskrug doesn't manufacture any yachts under 60 meters long, and is just as happy to make them 100 meters. But luxury yachts are a difficult business. If no new orders come in for one or two years, the shipyard comes to a complete standstill. The offshore industry is meant to provide a second, dependable line of business.
Nobiskrug is currently building a small platform for RWE's Nordsee Ost wind farm on behalf of Siemens, but construction is behind schedule. Shipyard director Susanne Wiegand is sure of one thing based on her experiences so far: "The way this industry is organized at the moment, the energy revolution will fail."
These projects haven't been profitable for the industry, she says, partly because there are no specific, consistent standards, meaning every provider ends up experimenting with each new project. Additionally, safety regulations for wind power platforms currently follow the strict specifications for oil and gas platforms, even though, in contrast to the latter, people only set foot on the wind power platforms occasionally, to perform maintenance work. "Of course safety always comes first," Wiegand says, "but in some respects the rules are unnecessary, inappropriate or contradictory. That makes it horrendously expensive and insanely complicated."
The shipyard itself doesn't have full control over construction in any case, since Siemens is RWE's general contractor for this project and it is Siemens that decides which company lays the cables or installs the ventilation for the platform, and when it happens. The lesson Wiegand has taken away from the project, she says, is that "in the future we'll only build platforms that we have designed ourselves and where we alone have the say."
Thinking of the Future
Nobiskrug is working together with an engineering company to develop its own model that energy utilities could order directly. "The shipyards are almost always the last link in the chain," Wiegand explains. "We don't get the opportunity to show we're capable of successfully completing these sorts of projects."
The competition at Nordic Yards is thinking along similar lines. The company has designed its own ship to be used for erecting wind turbines, and hopes to use it to assemble entire wind farms. Nordic Yards is currently hiring 100 engineers for this work. "We want to be able to provide a one-stop shop," explains technology director Wegener.
His greatest dream, though, is something much simpler. "When people hear the word 'shipyard,' I don't want them to think of rusty steel, but of the future."