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How Vestas won the Midwest

UNITED STATES: A well-proven, competitively priced turbine and a strategic service agreement gave Vestas the edge over its rivals to win a 2GW deal with MidAmerican.

MidAmerican has 3.5GW of wind capacity in the US, including the 175MW Adair wind farm in Iowa
MidAmerican has 3.5GW of wind capacity in the US, including the 175MW Adair wind farm in Iowa

When Vestas clinched a conditional agreement in June to supply an eye-popping 2GW of turbines to MidAmerican Energy, it created a new relationship in equipment supply. The Iowa-based utility, part of billionaire Warren Buffet's Berkshire Hathaway Energy, operates 3.5GW of installed wind capacity and had not previously bought Vestas turbines.

But Vestas had been tipped to secure the deal for some months, beating rival tier-one original equipment manufacturers (OEMs) GE and Siemens, which can be assumed to have bid. Denmark-based Vestas is known for its aggressive pricing and clinched a high-profile service agreement in May with Berkshire Hathaway to maintain 1.75GW of GE 1.5S and SLE turbines.

The price war must have been fierce. The tier-one manufacturers all have high-quality equipment, while MidAmerican, which owns more wind capacity than any other rate-regulated utility in the US, is a procurement-driven group with no loyalty to any particular OEM or service provider.

"The service contract may (also) have been pivotal because it initiated a relationship with MidAmerican," said Luke Lewandowski, a research manager at Make Consulting. Another analyst suggested, anonymously: "The belief was Vestas took an unattractive deal on those GE machines to get a track record, build scale and build goodwill for the big 2GW order."

Vestas and MidAmerican declined to comment on the grounds that the deal is still conditional.

MidAmerican may also have wanted to hedge its risk by teaming up with a new OEM. The company has more than 2GW of Siemens turbines installed, and about 1GW of GE machinery.

Under the conditional framework agreement, Vestas will supply up to 1,000 V110-2.0 MW turbines for MidAmerican's Wind XI cluster in Iowa, expected to consist of several projects at as-yet-undisclosed sites. The deal includes a five-year Active Output Management (AOM) 4000 service contract that can be extended to ten years. Turbine delivery and commissioning would be from 2016 to 2019, in time to qualify for the production tax credit (PTC).

The Iowa Utilities Board (IUB) must approve the deal. MidAmerican has asked the regulator to make its decision by mid-September. "The IUB has set a procedural schedule that is expected to satisfy project timing requirements," said a MidAmerican spokeswoman.

Added service offer

The AOM 4000 package is another factor in favour of Vestas, said Alex Morgan, an analyst at Bloomberg New Energy Finance (BNEF).

"The AOM is a time-based guarantee that serves as a full-wrap service agreement. It covers most everything and is just short of a yield-based availability guarantee," she said. "It's an all-singing all-dancing service agreement," added BNEF's David Hostert.

The sale is expected to be worth about $2.2 billion, said BNEF, based on 2016 turbine prices. Vestas' 1GW Fosen deal in Norway in February was estimated at EUR1.1 billion ($1.27 billion), with a per-turbine price probably at the lower end of what was typical at the time - EUR0.8-1 million/MW ($0.94-1.16 million/MW), said BNEF.

Another aspect that may have helped Vestas is that its Colorado manufacturing hub is closer to Iowa than GE's Florida plant.

Siemens has slipped well behind GE and Vestas in the US market recently. According to BNEF, GE took 3.6GW of wind-turbine contracts in 2015, compared with 2.8GW for Vestas, but just 0.9GW for Siemens

In addition, "lingering uncertainty"

about the Siemens and Gamesa merger announced in June may have been a factor that weighed against the selection of Siemens, said Make's Lewandowski. "It's a PTC year, so the time (for MidAmerican) to make a decision is now."

All three vendors in theory have the capacity to fulfil the order. GE has a nacelle assembly capacity of 4.8GW in the US, Vestas has 2.6GW and Siemens has 1.6GW.

UPDATE: On 26 July, MidAmerican reached an agreement with environmental groups and three large tech companies Facebook, Microsoft and Google, that the utility would receive an 11% return — instead of 11.5% — from its investment in Wind XI.

The agreement must be approved by the Iowa Utilities Board. According to the filing with the IUB, the project's cost cap is $1.792 million per MW. The tech companies have large data centres in Iowa.

THE TURBINE THAT WON THE DEAL

The Vestas V110-2.0MW turbine was announced in April 2013, with the first prototype installed in May 2014 and series production starting shortly after.

The design builds on the 2MW platform launched in 2002, of which more than 16,000 have been installed worldwide. The V110 model marked a return to a doubly fed induction generator in place of a permanent magnet generator for the high-speed geared platform.

It is a low-wind (IEC IIIA) turbine, aimed squarely at the US market with its preference for large numbers of smaller, cheaper turbines.

The V110-2.0MW has been doing good business in the US, with just over 1GW already installed.

Windpower Intelligence, the research and data division of Windpower Monthly, has identified nearly 1.6GW of confirmed orders in the pipeline, not including the 2GW MidAmerican deal.

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