Analysis: Vestas local sourcing glitch helps Gamesa

BRAZIL: Vestas' efforts to build a leading position in the Brazilian market suffered a blow last month when it lost a 220MW deal to Gamesa.

Gamesa won the deal with its G114 2MW turbine

Brazilian developer CPFL cancelled its turbine contract with Vestas, switching to a replacement contract with Gamesa for its 220MW Ventos complex in Rio Grande do Norte state.

Vestas announced the "amicable" cancellation was due to "changes in local Brazilian legislation which occurred after the contract was agreed". The statement left observers wondering why Spain's Gamesa was able to fill Vestas' shoes. According to insiders, Gamesa has managed to meet increased national local content demands in time.

And this was not the first reported switch from Vestas to Gamesa in Brazil. In December 2013, Windpower Intelligence reported developer Gestamp had awarded a 128MW Brazilian turbine contract to Gamesa, despite previously announcing Vestas as supplier — although no firm contract had been announced. Gestamp declined to comment on the decision.

The regulatory changes Vestas cited happened in January 2013, when Brazil's national development bank, BNDES enforced new rules for developers and turbine makers to enter the so-called Finame finance programme, which provides the soft loans and tax breaks driving the country's wind boom.

The new rules, called Finame II, demand 70% of wind plant investment be sourced locally, against 60% previously. Finame II steps up local component sourcing every six months to 2016. Initial accreditation requires local production of tower, blade, hub and nacelle.

Last year, turbine manufacturers Alstom, Impsa, WEG, GE, Wobben, Acciona and Gamesa made the grade. Vestas did not and so was delisted — as were other turbine majors in Brazil, including Siemens and Suzlon.

Notably, Gamesa entered the list three months after the new rules, on inaugurating its Camaçari turbine facilities in Bahia state. Fellow Spanish group Acciona, after being delisted, was relisted in September 2013 after increasing its local sourcing capability.

"Vestas was caught offside", confides one consultant working closely with the company. Vestas was meeting Finame I demands from its Fortaleza nacelle assembly facility in Ceara state, he revealed, but was distracted by its global restructuring focus when Finame II happened.

Since then, Vestas "has been unable to increase local components in time," the consultant said. And now very busy suppliers and contractors are likely favouring accredited turbine manufacturers, he added.

Currently, Vestas and former partner and licensee Gamesa are neck and neck, each with over 700MW or 14% of Brazil's online market.

While Vestas loses ground, it is "on track [...] to be certified for projects that require delivery post-2015," the company's general manager for Brazil, Miguel Picardo Troyano, told Windpower Monthly.

This follows Vestas' EUR 32 million commitment, announced June 2014, to sourcing towers and blades locally. The company aims to corner 25% of the Brazilian market in three years, largely thanks to its V110 2MW turbines.

No further contract cancellations are expected in Brazil, says Elbia Melo, chief of national wind association Abeeolica, putting the contract cancellation down merely to a transition problem between new and old rules.

Yet the market remains challenging for all. While expecting to continue fulfilling Finame II requirements, Gamesa's South American managing director, Edgard Corrochano, has detected three bottlenecks with Gamesa suppliers: "This was already reported to BNDES authorities and we are confident that satisfactory arrangements will be properly managed allowing complementary importing quantities to fill the gap."