Who makes your components? Vertical versus horizontal production integration

GLOBAL: When setting up their business, wind-turbine manufacturers usually choose between two distinct methods of production. Some companies tend towards using external co-suppliers and buy outsourced components to assemble - the horizontal integration strategy; while others go in the opposite direction and build many key components themselves - vertical integration.

Enercon has its own foundry to cast parts including the huge generator stator bell for E-101 turbines

Each method comes with its own advantages and challenges, yet it is not always business strategy alone that makes a manufacturer choose one particular route. The background of the company founders can be just as important (see below).

Vertical integration

Vertically integrated companies often argue that mastering core technologies and system improvements is simply impossible without a high-degree of in-house manufacture. These experts are also convinced that building and retaining integrated know-how at high level will ultimately benefit the overall quality, performance and operating efficiency of both turbines and long-term business fortunes.

The three core technologies most commonly retained are rotor blades; drive systems; and turbine control and grid integration technology. Companies might expand into other components, such as towers, generators, gearboxes, power electronics and parts manufacture.

Vertical integration can also be a good business model when moving manufacturing facilities into countries with compulsory local content obligations. However, companies could find themselves more vulnerable in case of temporary market dips when a drop in production volume in these new locations could have a negative effect on overall business performance.

Horizontal or hybrid model?

Horizontal integration proponents typically believe that in-house production cannot compete on price, quality and experience with highly specialised external serial manufacturers, especially in large volumes.

For small emerging suppliers, horizontal integration would seem the obvious choice, yet several new entrants seem have chosen to develop their own generators and interlinked system technologies, especially if their products are direct-drive.

Some companies adopt a mixed model where the business operates with a focus on assembly combined with partial or full in-house manufacture of at least one core component, such as the rotor blades. These suppliers might feel that their strategy combines the best of both worlds.

Benefits usually cited for the hybrid model include retaining sufficient in-house core technologies knowledge while keeping a critical eye on internal co mpetitiveness and external price development trends. Exter nal suppliers can absorb market demand fluctuations - if a turbine supplier that makes some of its blades in-house and sources some blades externally sees that the market demand faces a temporary drop, it can choose to retain its in-house production volume while reducing the outsourced supply, for example.

German turbine maker Nordex is one company using a mixed model. It manufactures part of its blade demand considered a core component but retains a multiple-supplier component sourcing strategy. Nordex focuses on product and technology development, including data monitoring and control systems. The firm has been developing and manufacturing rotor blades since 2000, but aims to retain about 40% outside supply. Felix Losada, Nordex' deputy head of corporate communications, explains the effect on the external supplier: "After we introduced our own first blade in the market, the price of externally sourced blades came down immediately. That was for us an unexpected but welcome side effect."

Expanding product range

Enercon, another German manufacturer, is probably the company with the highest level of vertical integration in the wind industry. In the last few years the firm has expanded into hydro-power plants and has even built a wind-powered vessel, the E-Ship I, to deliver turbine components. These products use a generator, power electronic converter and power-control technology originally developed for Enercon wind turbines.

Until 1992 the company used external sources for its kilowatt-class variable-speed geared wind turbines and key components, including rotor blades, gearboxes and generators. A major shift towards vertical integration came with the introduction of Enercon's 500kW E-40 direct-drive turbine, when ring generators were added to the existing converter, switchgear and turbine controls portfolio. Initially part of the E-40 blades were sourced externally but now all blades, as well as generators, converters and switchgear are made in-house.

Precision machining for fabricated steel and cast components came in house in 1998, when the firm bought SKET Machinen und Anlagenbau, and it began to build tubular steel towers. This was followed by a semi-automated prefab concrete tower facility at SKET's site in Magdeburg, in the east German state of Saxony-Anhalt, and a second concrete tower sister plant in the north-western port of Emden, close to its Aurich headquarters in Lower Saxony. Most recently sites in France and Canada were added, plus a mobile concrete tower facility in Brazil.

The level of vertical integration continues to deepen, says senior executive Ralf Kelling. In and near the company headquarters, Enercon now boasts a modern foundry, opened in 2010, and new facilities for semi-automated component machining and manufacture of three-dimensionally shaped aluminium nacelle covers. Further facilities include a chemical plant for Enercon-specific epoxy resin used for in-house blade manufacture, and a huge new two-storey blade manufacturing plant near Aurich.

Casting technology

Enercon's decision to build its own foundry was prompted by a shortage of third-party casting capacity in the boom year of 2007, explains Kelling. "Our wind turbines contain a variety of main cast components. We also wanted to know much more about casting technology itself and about series casting over a thousand similar cast pieces a year," he says. Because such a volume production approach proved uncommon in foundry industries, Kelling's team set about designing a foundry from a mechanical engineer's perspective, re-applying in-house know-how and technology used for nacelle line assembly.

The heaviest and bulkiest cast component is the generator stator bell for E-101 turbines. "We produced our first casting in 2009," says Kelling. "And the foundry now caters for half our annual demand with still ample room for further optimising and efficiency gains. The focus is on rotor hubs, main carriers, axle pins (stationary axle) and, increasingly, stator bells."

Enercon has also invested heavily in logistics. It has revitalised a disused railway network in the Aurich region and its railway company transports raw materials and finished goods between production facilities and to Emden harbour for export. Before the railway was reopened, the company was responsible for around 75,000 police-guided road transport movements every year. Rail transport has eased these logistical pressures, cut road traffic and fuel costs. Currently the bulk of rail transport involves sand and gravel for concrete towers, sand and raw materials for the foundry, raw castings for further machining, blades and generators. The company plans to expand its railway services into France, with co-suppliers reported to be showing an interest in using them for cost-saving and environmental reasons.

Whatever the preferred approach to integration, wind turbine manufacturers are unlikely to escape market realities and must be ready to respond to changing market conditions. Does in-house production restrict flexibility in such conditions? Enercon responds: "There might be little fluctuations in specific markets, but Enercon can react to these developments very quickly and flexibly because of its high degree of in house-production. It is much easier for us to adapt to any market developments than for other companies which are bound to many major external suppliers."


Geared turbines were often referred to in the past as easy-access technology well suited for new, "inexperienced" wind-industry firms adopting a horizontally integrated business model. Direct drive was considered best suited for vertical integration.

One reason given was that wind turbine gearboxes started-off as rather standard off-the-shelf products, whereas dedicated direct-drive generators were not easy to source externally. Many early Danish wind pioneers had a mechanical background in agricultural machinery, which is reflected in their sturdy fixed-speed first-generation turbines with simple electrical systems.

Enercon founder Aloys Wobben by contrast is an electrical engineer by training, and the company's original specialisation was to develop and manufacture advanced power electronics for third-party clients. Wobben's extensive know-how and experience in these fields no-doubt influenced his early choice for variable speed operation and subsequent switch to direct drive. His company is now one of the most vertically integrated wind turbine manufacturers.


Vertical in-house production of full or part share of key components

Enercon makes concrete and steel towers, cast components, blades, power electronic converters, turbine control systems, direct-drive generators, aluminium nacelle covers, epoxy resin for rotor blades

Gamesa makes gearboxes, generators, towers, blades

Goldwind makes ring generators and other components

Suzlon makes blades, steel towers, generators, controls, synthetic fibres*

Vestas makes blades, generators, power converters, castings

Horizontal/hybrid limited in-house activities

GE buys parts from third-party suppliers, some GE-owned companies. Owns design of converters; acquired electric machine specialist in 2011

Nordex about 60% in-house share of blades demand

Repower in-house share of blades demand through PowerBlades subsidiary

Siemens makes 100% of blades in-house; Winergy subsidiary supplies part of the gearboxes, induction generators, power converters, switchgear from other Siemens-owned companies.