Answer Is Blowing In The Wind For Vestas

Source: David Winning • Wall Street Journal • Posted: Tuesday, December 6, 2011

Despite headwinds elsewhere in the world, Danish wind turbine maker Vestas Wind Systems is certainly making the most of Australia’s drive to use more clean energy.

Vestas secured a contract Tuesday to provide 56 turbines, each with an installed capacity of 3 megawatts, to the proposed A$400 million Musselroe wind farm that will be the biggest in Tasmania state.

The company is no stranger to the wind farm’s developer, Hydro Tasmania, having built the turbines used at its existing Bluff Point and Studland Bay developments in the state’s windswept northwest. They are among 554 turbines shipped by Vestas to Australia since 2001, equating to 1,061 MW of installed capacity, and capable of producing enough electricity to power more than 600,000 Australian homes.

The contract win is a timely shot in the arm for Vestas, the world’s largest wind turbine manufacturer, which warned on profits at the end of October due to problems commissioning a new factory in Germany.

Makers of wind turbines and components such as gearboxes are facing an uncertain outlook as governments in Europe and elsewhere cut back on subsidies to renewable energy projects as they battle to get the fiscal houses in order.

Monday, Vestas warned that if a U.S. wind energy production tax credit expired in 2012 it would have dramatic consequences for the U.S. wind power market.

U.S. lawmakers are to vote on whether to extend the production tax credit next year, and according to estimates from consultancy IHS Emerging Energy, the credit’s expiration could lead to an 85% drop in new wind power production capacity installations in the U.S.

That would come at a time when the U.S. market is showing signs of sustained weakness. Just over 5 gigawatts of new wind generating capacity was installed in the U.S. last year, roughly half of the capacity installed in 2009, according to BTM Consult.

Australia, one of the world’s leading producers of carbon emissions per capita, is a bright spot for turbine makers as the government promotes a target of generating 20% of its electricity from renewable energy sources by 2020. Recent legislation putting a price on carbon will likely help support projects here.

However, Vestas and Western peers are facing tougher competition from Chinese rivals able to manufacture parts more cheaply. Whereas Chinese companies in the past focused on selling turbines at home, many are starting to undercut Western companies on their own turf, including in Australia.

Xinjiang Goldwind Science & Technology Co., one of China’s big renewable energy national champions, already has an office in Australia led by a former Hydro Tasmania executive. Earlier this month, it signed agreements with Powercor Australia to connect 13 of its 1.5 MW class turbines in Victoria state to the Australian grid.

Ominously for companies like Vestas, Goldwind said earlier this year that it expects overseas sales to account for a third of its revenues within three years from less than 5% now.

Separately, renewable energy company Hydro Tasmania said Tuesday it expects to complete the process to sell up to 75% interests in two wind farms that it operates in the northwest of Tasmania by the end of the year.

Hydro Tasmania has been seeking private sector investors for the 65-megawatt Bluff Point and 75-megawatt Studland Bay wind farms–collectively known as Woolnorth–since September.  The buyer will also have the chance to join the A$400 million Musselroe project, which will begin construction this month.