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Windicator quarterly - industry share price performance and global capacity update

WORLDWIDE: The cascade of disappointing earnings announcements and resulting free-falling share prices that hit wind turbine manufacturers in the first half of 2010 finally abated in the third quarter.

Although most publicly listed companies posted lower sales and profits than in the same period in 2009, the declines were typically far smaller than those announced in Q1 and Q2. Stocks continued to lose value, but at a much slower rate than in the first half of the year, implying that while industry conditions remain challenging, the worst may well be over. But this did little to impress key analysts following the sector. They are actually slightly more bearish than they were three months ago.

In the broader global market, equities rallied strongly during Q3 as fears of a global double-dip recession waned on the back of better-than-expected macroeconomic data, leading to a revival of risk appetite. The MSCI FTSE All World index rose by 13.9%, with the bulk of gains coming in July and September, while most other major indices also registered double-digit returns. Western European and emerging markets were among the most impressive.

Indian wind turbine supplier Suzlon Energy perhaps best encapsulated the wider improvement across the whole industry. The firm's year-on-year quarterly revenues fell by 21.3% in Q3, exactly half the decline registered in the previous quarter. The truly impressive figures came further down the income statement, though, where Suzlon registered Q3 earnings before interest and taxes (Ebit) of INR 306.1 million ($6.7 million) - a massive improvement on its INR 465.5 million operating loss in the corresponding quarter last year and a complete turnaround from Q2, when its Ebit fell by 298.7% on Q2 2009. Suzlon's Q3 net loss of INR 3.7 billion was only marginally worse than its Q3 2009 loss - again a significant improvement on its Q2 performance, when the company's net loss was more than double that of Q2 in 2009.

Tulsi Tanti, Suzlon's chairman and managing director, said the quarter had been a "progressive" one for the company, adding: "While many mature markets face near-stagnant conditions - compounded by policy hurdles - new and emerging markets are increasingly driving growth for the sector."

Suzlon's German unit Repower, in which it holds a 90% stake, enjoyed a similar revival. Despite a year-on-year 7.5% fall in Q3 sales, Repower posted a healthy net profit of EUR20.1 million ($26.3 million), up 31.5% on the third quarter of 2009 and in sharp contrast to the 20.3% slump in net profits it posted for the second quarter.

After a dismal Q2 in which its share price fell by 25% in one day, following an earnings forecast downgrade, Vestas also registered a much more positive Q3. Quarterly sales were down 5% compared with a 16.8% slump in Q2, while the company's operating profit of EUR185 million and net profit of EUR126 million were down 24.1% and 23.6% respectively on Q3 last year. This represents a dramatic return to the black, following corresponding losses of EUR148 million and EUR119 million in Q2.

However, any euphoria over the higher-than-expected profits was quickly dampened by Vestas' sombre message for 2011. In a statement accompanying its earnings figures, the company warned that next year's European market growth will not live up to its previous expectations and said that this had forced it to cut capacity in Europe. It said it would close a number of factories and cut administrative functions, with the loss of 3,000 jobs, resulting in a one-off expense of EUR140-160 million on the Q4 income statement. Moreover, Vestas refused to provide any guidance on the bottom line for 2011, citing high market uncertainty and a potential change in accounting policies. The latter was duly announced on November 22: from now on, Vestas' supply-and-installation projects will be recognised in the income statement only after delivery has been completed and the risk has been transferred to the customer, which in the short term will lead to reduced revenues.

Gamesa's consolidated group results, incorporating both its wind turbine generator and wind farm divisions, showed a 71% decline in net income over the first nine months of 2010, broadly in line with expectations. A year-on-year quarterly comparison for the group as a whole is not possible as group-wide figures are not available for Q3 last year. However, results for the firm's dominant wind-turbine making division show an improved performance from Q2, when Gamesa posted declines in Ebit and net profits of 68.6% and 86.1% respectively on the second quarter of 2009.

Nordex reduced its 2010 revenue target from EUR1.2 billion ($1.6 billion) to around EUR1 billion as Q3 business fell short of the company's expectations, it said in its Q3 report. Sales in the third quarter were down 12.3% on the same period in 2009, while net profits were down 26.3%. However, Nordex insisted that, despite reduced capacity utilisation - the rate at which potential output levels are being met - it expects to operate more profitably this year than in 2009. "First of all, we were able to achieve a broader gross margin in the first quarter of the year thanks to favourable sourcing conditions," it said. "Moreover, in the current (fourth) quarter, we expect to be able to harness the initial positive effects of our earnings-enhancement programme."

Once more, China's Goldwind bucked the overall trend by having another stellar quarter, posting a 58.3% rise in sales and a 56.5% rise in net profits on the same period last year. At the end of September, Goldwind's order book totalled 5.33GW, almost double the amount it had at the end of 2009. The figures provided further evidence of the firm's apparently inexorable growth and reinforced the impression that the Chinese wind industry is operating in something of a bubble, insulated from the harsh economic conditions elsewhere.

Ma Jinru, vice-president of Goldwind, acknowledged the strength of the wider Chinese wind turbine sector helped performance, but also stressed the firm's efforts to cultivate its own brand. "We place a lot of emphasis on the quality of our wind turbines," she said. "Our permanent-magnet direct-drive turbines have been doing particularly well, and we are winning more and more clients."

Clipper did not release quarterly results for Q3. Its latest published figures, for the six months to June 30, showed a 56.9% slump in sales compared with the first half of 2009. However, by massively reducing its costs, Clipper was able to improve its bottom-line performance: the company posted a net loss of $26.7 million for the first half of 2010, an improvement on the $120.2 million loss over the same period last year.

Capacity Analysis By David Milborrow

Mixed messages on the pace of growth have emerged in the final quarter of 2010 as world wind power capacity approached 180GW. On the one hand, more than 33GW have been installed since the beginning of 2010 - more than in the corresponding period last year. On the other hand, the growth rate has slowed and, as Windpower Monthly went to press, it seemed unlikely that the 200GW milestone would be reached by the year-end.

In 2009, about 13GW was installed between mid-autumn and the end of that year. If this pattern is repeated, world wind capacity by the turn of 2010-11 will have reached 193GW. There have been end-of-year surprises before, however, and that total could be surpassed.

Strong performance in Europe has been one factor contributing to capacity increases. Progress has slowed in market leaders Germany and Spain, but France, Italy, the UK, Denmark, Portugal and Sweden have all been powering ahead. Europe's 2010 growth rate seems likely to be similar to last year - about 16%. Progress in the Middle East and Pacific regions continues to be sluggish, despite a number of large wind farms now being built there.

In the Asia-Pacific region, China and India continue to install capacity at a brisk rate. Combined capacity installed between April and late autumn was 10GW. South American growth continues to be slow but, again, some large projects are either in planning or under construction. Meanwhile, the US has installed less than 2GW so far in 2010 - a substantial retrenchment from last year's vigorous growth.

The outlook for 2011 is perhaps best summed up by turbine giant Vestas in its Q3 report. Although it considers that market uncertainty and competition are still high, Vestas says its order book is very robust. Gamesa's third-quarter report also recorded healthy orders. Gamesa is project leader of an 11-company consortium that will spend $34 million to develop and build a 15MW offshore turbine. This is more than twice the rating of the largest wind turbine currently operating and the project reflects industry confidence in the offshore market.

The UK alone has identified sites for around 47GW of offshore capacity, much of it off the North Sea coast, while Germany, France, China and the US all have projects in various stages of development, mostly at the proposal stage. Denmark has more than 600MW of offshore capacity online, Germany in excess of 70MW.

With more clarity emerging on the generating costs of nuclear power, it has become clear that wind is competitive with nuclear new-build (see page 47). Gas is wind's main competitor in electricity generation and seems likely to remain so in the foreseeable future, although much depends on the carbon costs levied by governments and the market.

The quarterly Windicator is an indicator of the state of play. Changes in the table can be corrections received rather than additions or subtractions. We welcome corrections. The US total is based on AWEA data and the German total based on Betreiber-Datenbasis data.

FEELGOOD FACTOR

There is cause for optimism - within limits. The expansion of wind capacity is still accelerating, buoyed by European and Asian activity. Yet the pace of growth has eased. Turbine supplier earnings were better in July-September than the two preceding quarters but still disappointing.

Suzlon
Revenues -21.3%
Ebit +165.7%
Q3 2010 compared with Q3 2009
Stock price +54.4%
Change Jan-Nov 2010
Q3 profit/loss -$80.7m

Repower
Revenues -7.5%
Ebit -59.4%
Q3 2010 compared with Q3 2009
Stock price +12.2%
Change Jan-Nov 2010
Q3 profit/loss +$26.3m

Vestas
Revenues -5.0%
Ebit -24.1%
Q3 2010 compared with Q3 2009
Stock price +53.4%
Change Jan-Nov 2010
Q3 profit/loss +$166.9m

Gamesa*
Revenues +12.9%
Ebit -20%
Q3 2010 compared with Q3 2009
Stock price +51.9%
Change Jan-Nov 2010
Q3 profit/loss +$17.2m
*Wind turbine division only

Nordex
Revenues -12.3%
Ebit -17.7%
Q3 2010 compared with Q3 2009
Stock price -39.5%
Change Jan-Nov 2010
Q3 profit/loss +$7.4m

Goldwind
Revenues +58.3%
Ebit +70.0%
Q3 2010 compared with Q3 2009
Stock price +36.4%
Change Jan-Nov 2010
Q3 profit/loss +113.8m

Clipper
Revenues n/a
Ebit n/a
Q3 2010 compared with Q3 2009
Stock price -62.6%
Change Jan-Nov 2010
Q3 profit/loss n/a

CYPRUS SHOOTS INTO TOP 20 FROM NOWHERE
Wind power capacity per person

Rank Country Watts/ Last last
person quarter rank
1 Denmark 703.8 687.0 1
2 Spain 525.4 504.5 2
3 Ireland 394.3 374.9 4
4 Portugal 388.7 388.7 3
5 Germany 321.8 321.8 5
6 Sweden 237.9 175.3 6
7 Netherlands 140.9 140.9 7
8 United States 129.5 128.3 8
9 Austria 125.1 125.1 9
10 New Zealand 124.3 124.3 10
11 Greece 118.4 112.9 12
12 Canada 114.5 112.9 11
13 Estonia 106.4 106.4 13
14 Norway 96.9 96.9 14
15 Italy 95.4 93.1 15
16 Cyprus 94.3 0.0 -
17 Australia 92.2 91.7 16
18 Luxembourg 87.5 87.5 17
19 United Kingdom 87.3 78.1 19
20 France 86.8 82.6 18
21 Falkland Islands 66.7 66.7 20
22 Belgium 55.2 55.2 21
23 Bulgaria 47.2 23.6 22
24 Finland 32.7 28.3 23
25 Costa Rica 31.3 31.3 24
26 Hungary 29.9 29.9 25
27 Poland 28.3 26.0 26
28 China 26.3 20.1 28
29 Lithuania 25.6 25.6 27
30 Czech Republic 20.6 18.9 30
31 Taiwan 19.6 19.6 29
32 Turkey 19.2 17.2 31
33 Japan 17.3 16.6 32
34 Romania 14.6 7.4 38
35 India 12.7 11.2 35
36 Latvia 12.1 12.1 33
37 Chile 10.6 10.6 35
38 Morocco 9.4 8.3 36
39 Uruguay 7.8 7.8 43
40 South Korea 7.7 7.7 37
41 Nicaragua 7.0 7.0 39
42 Egypt 6.2 6.2 40
43 Croatia 6.0 6.0 41
44 Switzerland 5.9 2.5 47
45 Tunisia 5.2 5.2 42
46 Cape Verde 5.0 5.0 44
47 Brazil 4.3 4.3 45
48 Mexico 4.0 4.0 46
49 Ukraine 1.9 1.9 48
50 Iran 1.3 0.9 51
51 Cuba 1.1 1.1 49
52 Israel 1.0 1.0 50
53 Argentina 0.8 0.8 52
54 Slovakia 0.6 0.6 53
55 Colombia 0.5 0.5 54
56 Philippines 0.4 0.4 55
57 Jordan 0.4 0.4 56
58 South Africa 0.2 0.2 57
59 Sri Lanka 0.2 0.2 58
60 Kenya 0.1 0.0 59
61 Vietnam 0.1 0.0 60
62 Peru 0.1 0.1 61
62 Russia 0.1 0.1 60

CHINA SURGES TO SECOND PLACE
Operating total wind power capacity (MW)

Oct 10 Jan 11 Extra MW Change %
EUROPE
Germany 26,386 26,386 0 0
Spain 19,876 20,700 824 4
Italy 5,361 5,493 132 2
France 5,032 5,290 258 5
UK 4,616 5,159 543 12
Portugal 3,887 3,887 0 0
Denmark 3,641 3,730 89 2
Netherlands 2,227 2,227 0 0
Sweden 1,560 2,117 557 36
Ireland 1,387 1,459 72 5
Greece 1,185 1,243 58 5
Turkey 1,106 1,235 129 12
Poland 1,005 1,095 90 9
Austria 1,001 1,001 0 0
Belgium 563 563 0 0
Norway 436 436 0 0
Bulgaria 354 354 0 0
Romania 166 329 163 98
Hungary 295 295 0 0
Czech Republic 193 210 17 9
Finland 170 170 0 0
Estonia 149 149 0 0
Ukraine 94 94 0 0
Lithuania 92 92 0 0
Cyprus 0 82 82 -
Switzerland 18 42 24 133
Luxembourg 35 35 0 0
Latvia 29 29 0 0
Croatia 27 27 0 0
Russia 11 11 0 0
Slovakia 3 3 0 0
TOTAL 80,895 83,933 3,038 4

MIDDLE EAST/AFRICA
Egypt 430 430 0 0
Morocco 287 287 0 0
Iran 67 91 24 36
Tunisia 54 54 0 0
South Africa 10 10 0 0
Israel 6 6 0 0
Kenya 5 5 0 0
Cape Verde 2 2 0 0
TOTAL 861 885 24 3

ASIA PACIFIC
China 25,805 33,800 7,995 31
India 11,500 13,057 1,557 14
Japan 2,110 2,200 90 4
Australia 1,769 1,780 11 1
New Zealand 497 497 0 0
Taiwan 436 436 0 0
South Korea 364 364 0 0
Philippines 33 33 0 0
Pacific Islands 33 33 0 0
Vietnam 8 8 0 0
Sri Lanka 3 3 0 0
TOTAL 46,764 47,100 336 1

LATIN AMERICA
Brazil 768 768 0 0
Mexico 426 426 0 0
Chile 164 164 0 0
Costa Rica 125 125 0 0
Caribbean 66 66 0 0
Nicaragua 40 40 0 0
Argentina 30 30 0 0
Uruguay 26 26 0 0
Colombia 20 20 0 0
Cuba 12 12 0 0
Ecuador 2 2 0 0
Falkland Islands 2 2 0 0
TOTAL 1,681 1,681 0 0

NORTH AMERICA
Texas 9,712 9,732 20 0
Iowa 3,669 3,669 0 0
California 2,814 2,813 -1 0
Oregon 2,095 2,269 174 8
Washington 2,036 2,036 0 0
Illinois 1,847 1,847 0 0
Minnesota 1,813 1,834 21 1
New York 1,274 1,274 0 0
Colorado 1,248 1,248 0 0
Indiana 1,130 1,241 111 10
North Dakota 1,222 1,222 0 0
Oklahoma 1,130 1,130 0 0
Wyoming 1,101 1,101 0 0
Kansas 1,026 1,026 0 0
Pennsylvania 748 748 0 0
New Mexico 597 597 0 0
Missouri 457 457 0 0
Wisconsin 449 449 0 0
West Virginia 414 431 17 4
South Dakota 412 412 0 0
Montana 386 386 0 0
Utah 223 223 0 0
Maine 200 200 0 0
Idaho 163 164 1 1
Nebraska 153 153 0 0
Michigan 143 143 0 0
Arizona 63 63 0 0
Hawaii 63 63 0 0
Tennessee 29 29 0 0
New Hampshire 25 25 0 0
Massachusetts 17 17 0 0
Ohio 9 9 0 0
Alaska 8 8 0 0
New Jersey 8 8 0 0
Vermont 6 6 0 0
Delaware 2 2 0 0
Rhode Island 1 1 0 0
United States 36,693 37,038 345 1
Canada 3,499 3,549 50 1
TOTAL 40,192 40,587 395 1
WORLD 166,197 179,307 13,110 8

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