Turbine maker thinks big as companies crowd into rebounding wind power market

Source: Special to E&E • Posted: Tuesday, September 17, 2013

Vestas Blades

A Vestas worker passes a pile of blades built for a giant 8-megawatt turbine. Photo courtesy of Vestas.

COPENHAGEN, Denmark — With blades as long as nine double-decker buses and a rotor sweeping an area bigger than the world’s largest Ferris wheel, the world’s most powerful wind turbine is being built by Vestas Wind Systems A/S as analysts predict a renaissance in the hard-hit industry.

The Danish wind turbine manufacturer has produced and is now testing the 80-meter (262-foot) blade prototype at its research and development center on Britain’s Isle of Wight, while a 300-ton nacelle that will hold the gearbox, generator and other equipment for the turbine dubbed V164-8.0 MW is assembled at an old shipyard in Denmark.

If all goes well, the massive V164 prototype will be installed in the first quarter of next year at the Danish national testing center in Osterild, and then it will be offered for sale to developers of offshore wind farms.

It’s a high-stakes affair. Vestas has lost most offshore orders in recent years to rival Siemens AG, which offers a 6-megawatt machine. Vestas needs to win the megawatt arms race if it is to take part in the expected boom in offshore wind installations.

“There are 37 manufacturers trying to get into the offshore turbine market,” said Uffe Vinther-Schou, senior vice president in the offshore department at Vestas. “The market will probably be dominated by three to five companies. Only big, financially strong players will survive. There will be exits and consolidation.”

Last year set a record for global wind turbine installations with 44 gigawatts, largely driven by a rush to build U.S. projects before the expiration of tax incentives. Global installations may dip below 30 GW this year before recovering to 35 GW in 2014 and 2015, according to a Bank of America Merrill Lynch report.

Recovery expected next year

“In 2013, activity slowed down in key markets like the U.S., Spain and India,” Bank of America analyst Pinaki Das said. “However, we expect a recovery in 2014 as the U.S. wind market returns, while demand picks up in other regions with improved subsidy clarity like U.K. and India and demand-driven growth in Latin America.”

As demand for wind turbines slowed earlier this year, manufacturers shut down plants, and the global industry capacity is likely to fall by 35 percent toward 50 GW by 2015 from close to 80 GW in 2011-12, according to the analyst.

“Vestas, for example, has halved its capacity from close to 10 GW in 2010 to 5 GW for 2014,” Das said. “We estimate industry utilization can improve from less than 50 percent in 2013 towards 70 percent by 2015. Outside China, which largely remains a domestically focused market, we believe utilization can improve above 80 percent for top tier players like Vestas.”

The wind industry benefited from rapid growth in installations until 2008 and 2009, helped by generous subsidies, rising electricity demand and economic growth. Volumes, pricing and margins significantly expanded during this period.

The market was dominated at first by early starters such as Vestas, Gamesa Corp., Enercon GmbH and Nordex, with industrial heavyweights such as Siemens and General Electric Co. joining them and emerging as global leaders. Goldwind Science and Technology Co., Sinovel Wind Group and Ming Yang Wind Power Group became important producers on the local Chinese market, while India’s Suzlon Energy Ltd. tried to expand its reach by owning Germany’s REpower Systems SE.

The financial crisis hit the wind turbine manufacturing industry hard. At first, older orders helped support volumes, but increased competition and a lower level of new orders led to price cuts, all but wiping out profit margins.

Vestas was one of the companies overinvesting despite weaker demand, which eventually led to losses and a significant change in strategy. The company has cut its workforce by 30 percent, capacity by 50 percent and capital expenditures by 60 percent. It also hired a new CEO, chief financial officer and chairman.

Competing with fossil-fueled plants

“The first priority is to continue to execute the turnaround plan,” said new Vestas CEO Anders Runevad. “We will have a strong focus on profitability. I’m confident renewable energy is the future and that we as a society need to change our energy mix.”

According to analysts, wind economics have significantly improved. Onshore, it is now competitive with thermal power even without subsidies in most regions except the United States, where it cannot yet compete with shale gas.

“Orders have started to gradually stabilize versus the low base of 2012, although still well below peak years,” Das said. “Pricing discipline has improved as margins are already low and companies are now too financially constrained to pursue orders at weak margins. Visibility also improved in the key U.S. market following the extension of the production tax credit. Wind is also becoming more established in new markets like Latin America, Africa and Eastern Europe.”

Unlike in the solar market, Western producers like Vestas are not yet feeling significant competition from Chinese companies outside China itself. Chinese turbines are 30 to 40 percent cheaper than established Western products, but that advantage disappears when performance, installation costs and maintenance are taken into account, Das said

Meanwhile, new sources of investment are flocking to wind. Wind farms offer relatively reliable returns, which attract pension funds and other investors seeking yields higher than bonds but with the same safety. “Nonutility players are now more comfortable to invest in wind projects,” Das said.

Vestas itself is looking to partner with pension funds and private equity funds on a project-by-project basis, Vinther-Schou said.

“We want to be a strong top-two player in the U.K. and Germany and to win a substantial part of the Danish market,” he added. “We also want to lower the market vulnerability by playing an active role in getting new, emerging markets to mature.”