In the past month, I’ve visited not one but both of the major wind energy trade fairs in Germany, in Hannover and Hamburg. Why there are two trade shows targeting the same audience less than a month apart is a long and silly story – suffice it to say that Americans have no monopoly on pettiness.
Germany has about 20,000 installed megawatts of wind capacity. There’s a wind turbine seemingly every kilometer in the northern half of the country. Many of the world’s major wind turbine manufacturers are either based in Germany or have a major factory there. Thus, Germany can be fairly considered the epicenter of the wind industry.
From this central vantage point, what’s up in wind?
1. Continued consolidation of the manufacturers is expected. There are many manufacturers, but relatively few with long-term staying power. The survivors could include GE, Siemens, Vestas, Gamesa, Enercon and Suzlon. But, even six majors is probably too many in a fully mature market, meaning that it’s even more difficult to see less well-capitalized players as Nordex, REpower, Fuhrlander, Ecotecnia and the like as remaining independent.
2. Can newbies succeed? The most visible newcomer to the wind party is Clipper, founded by Jim Dahlsen, who previously founded Zond (which became Enron, and is now GE). Dahlsen is back and has what he claims is a better mousetrap for many different reasons. However, no matter how good the promises, developers and financiers are leery of buying/installing new wind turbine designs, until they’ve been shown to work well in the field for extended periods. In a market of this type, it’s very hard for new entrants to penetrate. Good luck to Clipper: they may in fact succeed because of Dahlsen’s track record, which has enabled them to raise enough capital to finance some of their own wind projects to demonstrate their technology. Other potential entrants may not be so fortunate – unless the market remains desperate for turbine supply, in which case some buyers may be inclined to take a risk on a new turbine design.
3. Vestas on the wane? Even though Vestas is number one in market share, it’s clear that Vestas is no longer viewed as the darling of the industry. It’s said to be having serial problems with one of its more recent and widely-used designs. Furthermore, by several accounts, Vestas is losing its corporate shirt from its recent offshore efforts (more on this below). Vestas has been talked about as a takeover candidate for a while now, but the most recent rumor has shifted from Shell to Chevron as the potential suitor.
4. Suzlon on the rise? In contrast to Vestas, Suzlon really appears to be seizing leadership in the industry. Its production in India enables a much lower cost structure (wages about 40% of German levels), and whereas most turbine companies in the industry are alleged to be making mediocre profits (or worse), even in a tight market where pricing is not under pressure, Suzlon is said to be able to generate operating margins on the order of 25%. If that’s accurate, wow!
5. Improved US wind policy is expected. As everyone knows, the on-off nature of the PTC over the past several years has caused the entire global wind industry to go through booms and busts of tightness and slackness. Most everyone believes that the PTC will in fact be extended beyond 2007, although there is also a recognition that it will (should?) be on a declining basis, to wean the industry off of subsidy-dependency. Seemingly, that would be acceptable to the players – they just want predictability of policy rather than short fits and starts. For some reason, Bush’s almost passing comment a few weeks ago about the potential for 20% of US electricity supply from wind by 2020 seems to be viewed by the wind industry with a great deal of seriousness, as an indicator of a real and major policy shift. I don’t see it, but, OK, whatever.
6. More turbine manufacturing is likely in the US. While the US is still viewed with wariness, because of the inconstant history of the PTC, everyone recognizes the massive size of the potential market, and the limited remaining upside to the market in Europe. Right now, almost all turbines are manufactured in Europe, thus implying that all US windfarms are composed of imported equipment. If wind economics in the US are really to improve, the cost structure has to be lowered, and more of the major (heavy, difficult to transport) components must be produced domestically. I believe you’ll see several announcements of US facility decisions in the next year or so.
7. New (but well-proven) names likely coming to the US wind market. Some of the major European turbine manufacturers have been largely foreclosed to date from the US market by GE’s holding of a US patent that has been ruled (by the US PTO) to be infringed by several of the most common and successful European designs (especially Enercon, but also Nordex, REpower and Fuhrlander). The remaining time on the patent is running down, meaning that GE is probably more in a mood to negotiate. Further, with the US wind market being the world’s largest and with lots of remaining growth in the foreseeable future, any serious wind player cannot afford to be shut out for much longer. Thus, it would seem that commercial arrangements between GE and other players to accommodate their entry into the US can be anticipated.
8. Offshore recedes into the future. In Europe, offshore wind has been seen as the savior of the local market, as most good on-shore opportunities have already been captured. However, I got the sense from most of the parties and observers that the limited offshore efforts pursued to date have been far more challenging than expected. Vestas and GE are said to be suffering acutely from their high-profile projects, with Vestas specifically stopping those efforts to focus on its on-shore issues. Enercon’s massive 4.5 megawatt machine has turned out to be too heavy for offshore application and they are now repositioning it as an on-shore product (but where?!). By one well-placed veteran’s perspective, only Siemens has a credible offshore offering, but even then the economics are strained. As a result, most of the turbine manufacturers are backtracking, and now see offshore as a post-2010 phenomenon even in Europe, so expect it later in the US (where there are many more remaining onshore opportunities).