Wind Rush: Turbine Wars

on November 18, 2011 at 6:00 AM

Indications that fierce competition in the global wind turbine industry is about to intensify came with news from the world’s largest wind turbine manufacturer. Vestas abandoned its forecast of €15 billion in revenues in 2015 and said that job losses and restructuring will follow instead.

The Danish manufacturer’s third quarter results signal the challenges ahead as established players seek traction in emerging markets to compensate for oversupply, market expansion slows and the US and EU face potential double dip recessions, just as Chinese companies entice overseas customers with knock-down prices.

Vestas cited “expected weak economic growth in the OECD area” and the potential expiry of the US Production Tax Credit (PTC) in 2013 which “could prove a very challenging year”.

“We believe that at least the western economies are heading for even more economic difficulties in the years ahead. This will affect Vestas and the rest of the wind power industry,” said Ditlev Engel, president and CEO. “Vestas overall must improve its ability to absorb adverse events, for example if the PTC tax scheme in the USA is not extended after the end of 2012.”

This article is part of a week long investigative series on the state of the wind industry. For more coverage, check out the Wind Rush tag on the site, and follow and participate on pressing industry issues in the Groups tab of Breaking Energy.

The global wind turbine market saw a record 39.9 GW of turbine deliveries in 2010, with Vestas delivering some 5.8 GW in 32 markets, taking its global market share to 14.7%, according to IHS Emerging Energy Research (IHS EER).

But last year marked a major shift in market share in favor of Chinese players. Sinovel, Goldwind and Dongfang, accounted for 3.6% of the market in 2006 – last year that figure reached 27%.

For the first time, Sinovel, China’s largest wind energy manufacturer, took a larger market share (11%) than rival GE Wind (9.2%).

Paced Internationally

“GE is highly exposed to the US. And it’s very important for GE to continue to capture market share,” said Matt Kaplan, associate director of IHS EER’s North America wind energy advisory. “But one of the challenges is making sure it is able to expand beyond the United States.”

Vic Abate, vice president of GE Energy’s Renewables business, says that the company is already positioning itself to expand in other markets, shrugging off his company’s drop to third place turbine supplier.

“More than half of our orders this year were outside the US,” he says. “We’re growing in Brazil, Europe, Canada, Australia and China. Our strategy is to position for 2013 beyond the US and if the Production Tax Credit goes, it’s upside.”

“You’re going to see more and more international players, I welcome that. I think the competition’s healthy but you’re not going to be able to do it without building out a business in key markets and that takes time. Just shipping equipment from one market to another economically tends to be challenging.”

Wind In The Developing World

Vestas has been operating in India since 1997, capturing just some of the growth from 12 GW installed capacity to a potential 49 GW.

But India’s own leading manufacturer Suzlon, has dropped global market share from 6.6% to 4.7%, as other European players start to establish a production presence in India, including Gamesa, Siemens, Leitwind and Kenersys.

Worldwide, all turbine manufacturers are struggling with oversupply, largely thanks to a 50% increase in Chinese assembly capacity between 2009 and 2010. But China’s technical challenges with grid connections and transmission problems have driven Chinese manufacturers overseas to cash-strapped European countries and undeveloped or underdeveloped markets in South Africa, Turkey, Brazil and Australia.

Chinese Puzzle

But issues over quality and lack of experience could put the brakes on Chinese companies’ overseas ventures.

“If you are going to operate a wind farm for 20 years or more you want to have the certainty that the turbines will perform as expected. You need a track record and that [Chinese] track record in most cases is unknown to European and American developers,” said Andy Wickless, associate director of the energy practice at Navigant. “We need to see more Chinese turbines in the American and European markets for investors and developers to feel comfortable that Chinese turbines can compete with GE or Vestas. The installed cost isn’t really the right way to look at it – it’s the life time cost of the wind farm.”

Regulations introduced in China this year may also moderate overcapacity. From June, the Chinese government stopped giving preferential treatment to original equipment manufacturers unable to produce turbines with a capacity of 2.5 MW or higher, or with less than 1 GW of annual assembly capacity.

We need to see more Chinese turbines in the American and European markets for investors and developers to feel comfortable that Chinese turbines can compete with GE or Vestas – Wickless

Caitlin Pollock, IHS EER’s Asia Pacific Wind Energy senior analyst, says: “Prices have really plummeted. One reason is that companies have managed to achieve economies of scale simply because of the volumes they’re pumping out. But on another level there’s just a price war to get an order to get into the market or defend market share.”

But many Chinese companies claim that shipping blades or towers can be achieved by tapping into its busy export shipping market, even though a nacelle alone can weigh around 60 tonnes, she says.

“It remains to be seen whether Chinese manufacturers can ship components to foreign markets cheaply enough. They say they don’t find it to be that expensive. They say they have a lot of in-house or industrial capacity,” she said.

In China, market share of non-domestic manufacturers is being squeezed. Vestas’s share of the Chinese market is tiny (4.9%), compared with its dominance in Sweden (54.3%), the UK (38%) and Italy (25.2%).

But it’s an open question as to whether the Chinese manufacturers will prevail globally against US and EU competitors, says Wickless.

“Historically, less than 1% of the US and European wind markets has been served by Chinese turbine suppliers,” he says. “In 2010, only 10% of the Chinese market was comprised of turbines made by EU and US companies,” he says. “There really hasn’t been significant global competition to date: you have China and then everything but China. As Chinese turbine manufacturers begin to compete more in the American and European markets, we don’t know how this global market share will shake out.

“In the near term are the Chinese OEMs going to over take the US and European markets? No. In the long-term are they going to do so? We don’t know yet.”

Photo Caption: A worker walks past a giant wind turbine blade at the Vestas factory in Lauchhammer. The Danish company is one of the largest producers of wind turbines in the world.