Finland’s Vaasa region is home to a strong and growing cluster of energy technology companies. From established giants to startups, the region’s firms have gone from strength to strength since 2000 despite a downturn in the larger national economy. Tildy Bayar visits Vaasa Energy Week to find out how they do it
The area surrounding the western Finnish coastal city of Vaasa holds 2 per cent of Finland’s population of around 5,500,000, but one quarter of its energy sector. According to Robert Olander, communications director at business development firm Technology Center Merinova, this regional ‘power powerhouse’ – the largest energy cluster in Scandinavia – features over 140 companies, employs around 11,000 people, generates around €4 billion ($4.5 billion) in annual revenues, and has created 1400 industrial jobs in a single year. “Every family in Vaasa has someone who works for an energy technology company,” says Olander.
Finland has a long and successful tradition of technology and high-tech entrepreneurship, he adds. Everyone knows Nokia, the former mobile phone giant that, in its heyday, supplied the world and was a major driver of Finland’s economic growth until the advent of Apple’s iPhone drove it to cut over 76,000 jobs worldwide over six years. (In fact, Nokia was so important to Finland’s GDP that the nation received an aid package in February 2014 from the European Globalisation Adjustment Fund to support its laid-off Nokia workers.)
Fewer people may know that pulp and paper manufacturing were the traditional drivers of the nation’s economy, until the sector – including the two largest such firms in Europe, Stora and Enso – fell prey to the global decline in print media. Those manufacturing jobs have been “outsourced through the years”, says Olander, while in 2013 Nokia sold its mobile phone business to Microsoft, which still maintains some manufacturing in Finland, but “the exports are very small compared to what they were 10 or even five years ago,” he adds.
In late 2014, Paul Jonker-Hoffrén of the London School of Economics wrote that Finland faces a “perfect storm” of economic problems which are due in large part to structural changes in its industries, most significantly the fall of Nokia, but also the loss of over 4500 forest sector jobs as paper manufacturing slowly and painfully transitions to the production of bioenergy materials. The IT and forestry sectors have been designated ‘sudden structural change areas’ by the government, entitling them to enhanced support and special access to employment services.
However, energy technology may be the nation’s salvation. “Today cleantech is chosen as the ‘future Nokia’ for Finland,” Olander says, and “energy and environmental technology are becoming the engine of Finnish exports”. Of Finland’s total export, 30 per cent is energy technology – and one third of that comes from the Vaasa region. Together the Vaasa companies export over 80 per cent of what they produce each year, and employ 25 per cent of Finland’s energy sector workers.
The western Ostrobothnia region, which contains Vaasa, is home to over 120 small and medium-sized enterprises (SMEs) that operate as energy technology subcontractors. They have a rich field of research partners to draw on given the region’s five universities, and a large pool of potential employees in the students.
The region’s energy focus is so strong that it now has its own Vaasa Energy Week multi-venue conference and trade show. According to Olander’s presentation at this year’s event (16-19 March), the energy cluster began at the turn of the twentieth century with one Jan Wickström, who built Chicago’s first automobile, the Caloric II, after emigrating to the US. He then returned to Vaasa to found the Bröderna Wickströms Motor Factory, known largely for its long-lasting boat engines, and was joined in the region in the 1940s by generator and motor manufacturer Strömberg, which later became energy technology giant ABB, with engine manufacturer Wärtsilä following in 1954.
Olander emphasizes that Finnish companies have always had a “strong spin-off tradition”, with firms such as variable-speed AC drive manufacturer Vacon, formed by employees of ABB, joining the cluster in 1993 and pulp, paper and power firm Valmet, a demerger from Metso, in 2012.
The energy environment
Despite Finland’s woes, the energy cluster is booming according to Olander, who says the region’s population growth in 2011 was the biggest in 30 years. “The closer we get to 2020 [environment targets] the more investment there is in the energy sector,” he says. Finland has set a renewable energy target of 38 per cent by 2020, from a current amount of about 33 per cent. As the nation has forests in abundance, a well-established forest industry and a surplus of available waste wood and wood products, most of the energy sources used to meet the target will be biomass-based, although a number of wind farms and the country’s fifth nuclear power plant are also under construction. Olander says “every home” in Finland has a fireplace or wood stove for heating, and almost all new homes are built with heat pumps.
According to Mauri Blomberg, managing director of utility Vaskiluodon Voima, the pulp and paper companies “are competing” with biomass-based renewable power installations for use of the nation’s waste wood, and “at the moment [the paper companies] are winning”. Biomass is “a political question”, he says, “because the use of wood for energy takes some sort of incentive”. Vaskiluodon Voima has converted its 230 MWe/175 MWth coal-fired power and district heating plant in Vaasa to biomass but, Blomberg says, “if the competitiveness of biomass remains as it is now, we must, at one point, reconsider the situation and maybe totally stop using wood biomass. At the moment we are positive and hope that this will not happen. We still have some belief that the [European Emissions Trading System] and/or national feed-in tariff will improve the position of biomass in relation to fossil fuels.” To remain competitive, he says, “We would quickly need some new decisions on the national and EU level.”
Finnish investment by the numbers
Security of supply is also a concern, with an action plan for the development of a regional gas market in the works so that, as Blomberg says, “we will be able to get gas from somewhere other than Russia”. On the positive side, Finland is still feeling the effects of 1998’s energy market reform, which has continued to encourage new investment.
Most importantly for the energy cluster, “the EU’s 2020 [environment] goals have affected our market quite a lot,” Olander says, adding that Ostrobothnia has exhibited a higher growth curve than the rest of Finland, including during the global economic crisis. And R&D investment in the region has tripled over the past five years, leading to 1390 new research-related jobs (while Finland’s number two region created just 300).
How do they do it?
As Finland’s young generation has watched the decline of once-mighty Nokia and seen the secure employment of their parents’ generation erode after the global financial crisis, a vibrant entrepreneurial culture has risen from the ashes. Because higher education at innovation-hub universities is free and abundant financial support exists, for many younger people starting a company is seen as a low-risk option, and startups have become the norm rather than the exception. Events such as the national Startup Sauna and Slush, Europe’s largest startup conference, provide ready opportunities. For just one example of a successful global company nurtured by this new environment, everyone with a smartphone knows Finland’s most recent technology export, the game Angry Birds, which now has its own theme parks in Finland, the UK, Malaysia, Spain and China.
However, energy sector success is a tougher nut to crack and, according to Merinova’s Olander, Vaasa’s energy cluster has grown mostly through spinoff companies. “This is a very difficult high-tech area to be in,” he says. “We don’t so often get new companies with new ideas. The Finns are masters of reinventing the wheel, and one third of our patent applications are rejected on the basis that the concept already exists somewhere in the world.” Larger companies tend to subscribe to the ‘innovation mill’ concept through which employees are encouraged to come up with and present new ideas. (Nokia has been very active in this respect, and its former workers have provided ideas for over 100 startups, helped by funding from the parent company.)
Olander notes that the energy market is “very competitive and difficult” because of the necessity for significant investment in R&D. But while, in other countries and even other Finnish regions, the bulk of investment in cutting-edge R&D tends to come from universities, in Vaasa it comes from “the companies themselves”, with a corresponding boost in employment and over 2000 people working in R&D alone. ABB and Wärtsilä together invest around €350 million in R&D per year.
The planned renewable energy-powered Wasa Station events centre and concert hall in the heart of Vaasa
Like the energy sector giants – Wärtsilä exports over 98 per cent of what it produces – Vaasa’s SMEs tend to set their sights on a global market from day one, said Olander: “Because Finland is a small country, SMEs need to export almost all of what they produce.” But, he adds, “they also need to be strong internally, and that’s where the cluster comes into the picture – we all need to work together.” And indeed, many of Vaasa’s SMEs started out by supplying technology or services for the region’s larger companies, an easy option in the case of spinoff firms.
There is plenty of support available from outside the cluster as well, with Vaasa selected by the national government’s smart cities programme to drive Finnish energy technology on the export market. Through the programme “a medium-sized company can get 30-40 per cent support for products for export,” says Olander, and a number of R&D projects have already begun with this funding.
Raine Hermans, head of strategic programmes at government-backed funding agency Tekes, says his agency’s total investment last year in Finland’s technology sector totalled €550 million, with 35 per cent allocated to companies under six years old and another 35 per cent going to companies with a maximum of 500 employees that show growth potential. In 2014, he says, Tekes supported 660 new Finnish startups, and a large part of its mission is to support new firms by “taking the high risks” that other lenders wouldn’t consider. And it is a special kind of support: Tekes offers loans which are paid back not to it but to the government, so “Tekes does not act as a bank”, Hermans says, and thus can take riskier decisions. And if a company fails, its loan is converted so the startup does not have to pay it back. Tekes funds are generally combined with private funding (to the tune of €364 million per year from venture capitalists and around €380 million from ‘angel’ investors); if a company has already secured some private support, Hermans says, this is “a market signal showing whether it is worth funding”. When asked how Tekes avoids funding fraudulent startups which might be formed just to take the money and run, he says funds are paid only after a company has incurred a legitimate expense and can submit proof.
Tekes also offers support for startup companies in the form of “knowledge and insight,” Hermans says, “especially for the smaller companies”. In 2010 the agency started a strategic intelligence unit to provide “industry foresight signals” for small enterprises. “It’s more helpful for SMEs if the discussion is evidence-based,” says Hermans. “It will help CEOs think about not only the immediate future but encourage them to take a look to the more distant future.” And, in another reality check for small companies, a Tekes division titled Young Innovative Companies consists of a panel composed of private venture capitalists, to which Tekes “outsources” a number of its funding decisions.
Tekes also fosters cooperation on R&D between companies and universities, an area where Finland leads the world by a wide margin.
According to technical research centre VTT’s Sfinno innovation database, Tekes funding has played a role in 65 per cent of publicly disclosed Finnish technology innovations – a crucial role in 53 per cent and a minor role in 12 per cent. In developing and enabling innovations new to the global marketplace, it has played a crucial role in 58 per cent of cases and some role in 71 per cent. And it has featured in 88 per cent of innovations based on scientific research.
Companies powering ahead
One of the energy cluster’s strengths lies in its diversity, Olander says. Vaasa’s energy technology companies include a range of products and solutions including renewable energy technologies; smart grid technologies; power generation; energy efficiency technologies for industry, buildings and the marine sector; consulting and planning, and services. They manufacture diesel engines, electric motors, complete power plants, power transmission and distribution systems, frequency converters, wind power components… the list goes on.
Vaasa Energy Week participants are introduced to a wide range of companies, from established giants to successful SMEs to those currently seeking funding. A sampling from a single presentation included:
• Uwira, a spinoff of the Leinolat Group, which offers metal services for industry. ABB, Wärtsilä , Caterpillar, Siemens, Vattenfall and MAN Diesel & Turbo, among others, are their customers. They have made machined and welded components and piping for ABB’s subsea transformers, a gas reformer solution for converting recovered gas offshore into fuel for the China National Offshore Oil Corporation, and LNG piping for ships operated by Statoil.
• Arcteq, a 25-person firm founded in 2010 by employees of ABB and arc flash protection specialist Vamp (now part of Schneider Electric), with revenues of €2 million in 2014, 97 per cent of which came from exports. Their slogan is “Born Global” and they now compete with Vamp, ABB and Siemens in the field of arc protection and protection relays for power generation, transmission and distribution, as well as intelligent measurement, control and alarm units. They say they have “big R&D investments” and an employment programme in cooperation with Vaasa University.
• The DEMVE (Development of the Educational Services of IEC 61850 in Multi-Vendor Environment) programme, an R&D project of the Vaasa University of Applied Sciences. Presenter Jari Koski, a senior lecturer at the university, says the project seeks to establish an industry-wide training programme for employees working to reconcile substation equipment from different vendors with international communication standards, and has developed a training environment.
• Lumitar Array Lighting Technology, a startup that claims to “reinvent the way we produce light” for “demanding industrial environments”. According to presenter Sami Gräsbeck, Lumitar’s lights use new kinds of optics to provide even lighting from different heights, including from the roof of a sports arena to the floor, where they can average over 750 W (as opposed to 320 W at floor height for traditional lighting). The firm says its lights save 85 per cent more energy than traditional lighting, as well as being maintenance-free, which will save around €70,000 per year, and a lifespan of 200,000 hours. The lights “will last for 40 years if used for eight hours a day,” Gräsbeck says.
• IoT-Ticket, or “Ticket to the Internet of Things”. CEO Pasi Tuominen gives an example of how the firm’s product works for vibration monitoring and control, integrating control of hardware (camera and sensors) with reporting functions, an “analytics cloud” and a customizable web-based interface for real-time reporting of the most relevant data for the customer. The firm has 270 programmer-employees, Tuominen says, and its product “enables operational efficiency and business model innovation for industrial companies”.
A good example of a successful spinoff company is engineering and information management firm Citec. Founded in 1984 by a former Wärtsilä CEO, in 2014 it posted revenues of €77 million, of which 80 per cent came from energy customers in 150 countries. Its employees have worked on thermal, nuclear and gas-fired power plants as well as in onshore and offshore oil & gas. Its services cover the engine engineering value chain: project development; front-end engineering and design; and engineering, installation, commissioning and maintenance. In addition, the firm offers technical documentation services and software development. Michael Smirnoff, director of group marketing and communications, says the firm is the country’s seventh largest technology consultancy, but has the highest level of exports.
A presentation at Vaasa Energy Week
The firm’s core expertise is in balance of plant technology, with a focus on biomass, waste-to-energy, combined heat and power (CHP) and combined cooling, heating and power (CCHP) plants, district heating systems, pumping stations and substations, as well as nuclear power plants in Finland and Sweden. Their customers are utilities and OEMs; Smirnoff adds that the firm has designed over 1000 power plants worldwide, specializing in modular plant concepts.
Mats Soderlund, global director of energy and civil projects, says Citec’s advantage over its competitors lies in its documentation arm: due to a legacy business the firm produces all technical manuals associated with a project and handles documentation control. For an example, he offers a Wärtsilä project in Amman, Jordan for end customer AES. Citec provided engineering services as well as “everything from the first sales layout to the station manuals” for a tri-fuel 250 MW plant featuring 16 20-MW gas engines.
Energy for the future
“Cooperation and strong networks” are the key to the Vaasa energy cluster’s success, says Olander. If Finland faces a “perfect storm” of economic problems, its energy sector also perhaps features the perfect convergence of multi-level support to help drive its recovery. And, he adds, all this takes place in the near-perfect environment of the Vaasa region, with salaries comparable to Helsinki but with a much lower cost of living and “money left over for leisure”, a location within a UNESCO world heritage nature site, an award-winning regional clean energy programme, high demand for its products and services worldwide and booming employment. No matter how the wider economy fares, the Vaasa energy cluster will seemingly continue to power ahead.