Windbiz

Coming up Next...WTG X

Despite the economic downturn, the new turbines just keep on coming.  Beyond the Vestas V112, we've seen a spate of new announcements this year, including rotor extensions on the Siemens 2.3, Nordex 2.3, and of course the REpower 3.X (complete with Star Wars style flash website). What's going on? With orders down 50-70%, staff reductions of 10-20%, and rumors of profit warnings - is this the time to be launching new products?

Perhaps more than ever. Why? Take a look at the target markets for these machines:

• Mature West Europe. These markets are now asking for 3 MW and larger machines at Class III sites, with 100 meter and higher towers. The larger rotors offer an incremental step towards these markets. A cheaper approach than going for a 6 MW monster at 138 meter hub height.

• High wind North America. Canada, US, maybe Mexico are still packed with sites requiring Class I machines. Scaling a turbine up to 3 MW, in REpower's case, while keeping the rotor size under 110 meters may be a strong bet this market.

• Emerging markets. This is a new one. Typically you're used to seeing aging sub 1 MW models shipped off, or licensed, to Africa Middle East, Asia, or Latin America where they can withstand winds topping 10 m/s. Vestas' V60 is a new take on its older V50 model - will Gamesa take a cue with its G52 offer in China? This is where the growth is, and a well-proven smaller turbine may fit this opportunity.

The billions in profits these WT suppliers generated in the last two years with rising prices will now find their way into the market through these R&D investments. The appetite for any wind turbines, let alone unproven new ones with bells and whistles, is at a three year low in Europe and the US. Nevertheless, now is the time to look further out-with most of these machines aiming for serial production and major rollouts by 2010.

Wind Turbines by '08-'09? Who's Asking?

While the industry continues to underline a turbine shortage, utility and IPP heavyweights are scoring more product by the bushel - with less than a year lead time.  How is it that, despite the quarterly advisories that until 2009 or later there's no capacity available to supply more turbines, customers such as EDP can step in and buy 500 MW in the next 24 months from GE? How about 201 MW from Vestas just 18 months before delivery?

For those mid-size players stuck with turbine-less projects, or excruciatingly long lead times on their 2006 orders, the answer is clear: order intake strategy.  With an eye on building competition in markets like the US, Europe and China, suppliers are turning away riskier non-strategic customers, while bending over backwards to meet the needs of utility market leaders. 

The increase in turbine prices due to component shortages, and lack of product availability have been the supply side's argument for tight delivery since January 2006.  But with recent deals, and continued capacity build up, it seems we're seeing some daylight on the whole supply crunch--or at least clarity in strategic account management.  Turbine OEMs will have to tread carefully in to 2009-2010 when more product hits the market and control shifts away from the seller.  While no two customers are equal, they all deserve honesty about availability.   

EWEC07 - Bearing a Shortage

Back for another EWEC show, this time Milan.  The fears in February 2006 of turbine shortage were confirmed time and again over the past 13 months, as one OEM after another reported component unavailability, challenges delivering.  But we are beginning to see a light at the end of the tunnel:

• Gearbox capacity may be doubling to well over 22 GW by 2009 if you talk with big suppliers such as Winergy, Hansen.
• Blade supply build out is bursting, with dozens of new plants going into the US, China, plus European expansions (Vestas, Acciona, LM all adding capacity recently).
• 'Component secured' turbine supply announcements are generally increasing (Gamesa, Vestas) to indicate tighter management and transparency of the critical path for assembly.

That said, the big X factor still appears to be bearings.  As a non wind-specific component, what is actually being made available for the wind industry seems a bit of a guess.  Wind turbine bearing supply is more a question of order book management than capacity increase for non specialty bearings like those used in gearboxes.  This will be a key pinch point to watch.  OEMs report adding new supply options wherever they can, from Europe to Asia and anywhere in between.  In any case, the message is to 'bear with' the bearings issue - it's being sorted out, orders still being taken, and as turbine OEMs become better, more predictable customers for components, the suppliers will respond.   

Wobben's Patent War

Enercon CEO Aloys Wobben has learned a trick or two from GE in using patents to push out competition - while still playing on his 'power for all', grass roots PR play.  The German manufacturer has not gotten around GE's variable speed patent in the US and sought to punish the American manufacturer in Germany.   That was around 2003 - and GE sought to defend its patent rights in the UK as well, though a stay was granted.   Well, Enercon has taken up the patent crusade in true Wobben fashion, going after lightening protection , and now a grid codes patent violation against Vestas. 

The grid codes patent is as threatening as GE's variable speed in that it attempts to put up barriers around a fundamental technical concept of turbine functioning - grid connection.  The patent infringement charges signal that Enercon is feeling the heat from its bigger competitors, and is having to dig deep to stay in the game.  It recently called off its whole offshore turbine development program, a main driver for Germany's offshore industry, and is struggling to solidify its presence outside of Germany. 

These are trying times for Wobben; however, his impressive achievements in turbine development and pushing the industry forward in Germany suggest he can do alot better than lean on patents for market share.      

Chipping Away at the Big Guys: Exploiting Shortages for Market Share

A year ago it was all Vestas, Gamesa, and Enercon for combined global turbine market share of over 70%.  Besides the steady flow of projects for Siemens and GE, the order flow in the past month is showing strong competition from upstarts like Suzlon, REpower, and Nordex extending their reach into Europe, the US, and Asia.  You're also seeing the emergence of guys like WinWinD, MTorres, and Clipper pitching new turbine designs to build the order book.  Contracts for these smaller players relieve the turbine shortage to some degree, however most expect continued supply chain bottlenecks.  Having a gearless turbine, pouring concrete towers, and doing blades in-house are some strategies up their sleeves.  2006 will prove who can capitalize on shortages for market share - and it isn't necessarily going to be the big guys.       

Gamesa Regroups During Spain Slowdown

Taking a look at Gamesa's profit warning for '05, I see they've confirmed my lower estimations for the Spanish market (they say 1,332).  That's where they took the biggest hit, along with winding up the aeronautics division.  Gamesa has applied some interesting make up to their numbers with 'works in progress' , though their installations in MW fell around 11%, along with renewables EBITDA down 6%.  It's clear they lost some ground to Vestas and GE as they didn't quite have the US plant ready last year and Spain slowed down...but, the order book is looking good in Asia.   

'05: A Tough Year for a Boom

It's too early to tell who's done what market share-wise for turbines in 2005 beyond the smaller guys (REPower - 366 MW).  What you can say is that capturing a chunk of the US's 2,500 MWs was key for positioning - and that over 85% of it went to Vestas and GE.  Gamesa and Enercon dug into each others' markets, while Siemens, Suzlon, REpower, and Ecotécnia also picked up their expansion. 

But perhaps the more important question is: market share at what cost? When Vestas had to push down their profitability targets despite bumping up revenues, and all vendors cite gearbox and component bottlenecks, it's clear it was a tough year to expand.      

Goldwind Scores Big in China

What did I tell you...here comes a big Chinese turbine supplier.  This is REpower's subsidiary Goldwind scoring 300 MW in Jiangsu and Gansu.  With Vestas, Gamesa, GE, Ingetur and others present there - it looks like REpower's got a pretty strong partner.  They've also got some range from 600kW - 1200 kW.  Nonetheless, let's see how order books shape up after the big five close the year (Vestas, GE, Enercon, Gamesa, Siemens). China's gunning to overtake India within 5 years or so -- and healthy turbine supplier competition will be an important part of that.   

Rise of Chinese Global Turbine Supplier

The question is not if but when.  When will a low cost Chinese turbine supplier arise with a clone 2.0 MW machine, undercutting European and US manufacturers globally?

Acciona Energía has already begun accelerating the process with the Ingetur- CASC partnership to license and manufacture its 1.5 MW machine.  At the same time, Gamesa, REPower, Vestas and LM Glasfiber are all manufacturing in China to cover 70-80% local content requirements, with varying levels of technology transfer.  Vestas even plans to use China as a manufacturing hub to serve Asia and the US. 

Market conditions are evolving for such a low cost Chinese turbine supplier to materialize.  The government has upped wind targets to 30,000 MW, and it's only a matter of time before some ex-employees of a western supplier put together a manufacturer able to compete on a global scale.  China is already the world leader in micro turbine manufacturing.  If only they would hurry up with some large turbine gearbox capacity...   

Scaling Profitably: Who Can Weather the Storm?

A money manager in the US sent in a good question worth posting. He asks:

Recently I took a hard look at Gamesa and was shocked to see that it earns close to $300 million a year right now. Meanwhile, Vestas is losing money hand over fist. In this post, you identify Vestas as a gauge for the industry, so how can the industry be so misaligned financially right now? Vestas loses money, Nordex is on the verge of profitability and Gamesa has been making money consistently for years.

First I’d clarify by saying Vestas results are an industry gauge in the sense that they give you a read on key issues: global demand, technology trends, and supply chain. What I’m not saying is that they are the model to follow.

From my point of view, the range in profitability among these players can be attributed to different supply chain and value chain approaches. Gamesa serves mostly regional (Southern European) demand, tries to source components internally as much as possible, and engages in project development to extract more value from the wind farm value chain. Vestas, on the other hand, serves more global demand, does not do development, and is forced to outsource more which has led to problems this year. Nordex finds itself in the middle, is doing development to bump up its order book, though it is also feeling the pressure of bottlenecks from its outsourcing partners.

Bottom line: global wind power demand is still unstable, which produces a lot of risk in the supply chain, which firms deal with differently. Wind turbine suppliers will have to get better at managing this risk to scale profitably, otherwise they will have trouble competing with the likes of GE, Siemens, and Mitsubishi that have less trouble weathering the storm.