Enercon cuts back, seeing 'no chance' of German recovery

Country's leading OEM cuts 3,000 jobs and will cease domestic blade manufacturing as it tries to reposition itself in tough global market.

End of an era… “This is not just a dip in the market. The decision cannot be reversed. How Germany expects to reach its 2030 climate targets is a mystery,” Enercon said
End of an era… “This is not just a dip in the market. The decision cannot be reversed. How Germany expects to reach its 2030 climate targets is a mystery,” Enercon said

With a €200 million loss in 2018, and "significant further deterioration" expected for 2019, Enercon has stopped placing orders with key production partners and launched a "transformation programme" to return the company to profitability as the German onshore wind market grinds to a halt.

The problems facing the German onshore wind sector are well documented.

Installations in the first half of 2019 were 87% lower than the average across the last three years, according to a report by agency Windenergie an Land.

Enercon’s own installation total in its home market has sunk to a 30-year low, adding just 65 turbines, totalling 210MW, compared with 711 in 2017.

As a result, the firm is acting on survival instincts, cutting jobs and shifting production to cheaper markets.

Enercon informed federal state and local governments in early November of its plan involving the loss of around 3,000 jobs, or 17% of its 18,000 direct and indirect employees.

The job cuts will be shared between the blade production works in Magdeburg and Aurich, as well as around 350 at the Aurich company headquarters.

"But there are no illusions — this is not just a dip in the market," a company spokesman said.

"The decision cannot be reversed, the talks can only be aimed at minimising further damage to Germany’s onshore wind sector.

"We see no chance of the market recovering in the foreseeable future and, under the circumstances, how Germany expects to reach its 2030 climate targets is a mystery."

Enercon will now produce blades at its works in Portugal and Turkey, and, for the new EP5 product range, in Asia. It plans to stop rotor-blade production in Germany by around mid-2020, after remaining orders have been completed.

Blade production costs in Germany, depending on blade type, are 30-50% higher than in the best-performing works elsewhere in the world, the spokesman said.

The higher costs have until now been compensated for by specialised transport companies, excellent logistics and the large German market demand.

Enercon has now ended cooperation with "several domestic production partners", including producers of rotor blades and "other components" in Aurich and Magdeburg, the firm confirmed.

The manufacturer is also "significantly reducing planning for 2020", shifting its focus on to international markets and "adapting company structures" as part of a company-wide cost-reduction programme.

"The cost pressure is immense," added Jost Backhaus, a member of Enercon’s management team. "We are up against tough competition from major global companies."

Enercon’s "Turnaround 2022" programme involves swift improvements in the turbine supply chain and costs to stabilise the company as quickly as possible and place it in a position to better compete with global turbine manufacturers that have already completed this process, said the spokesman.

Germany flatlining

Enercon’s move adds to the flow of bad news from the German onshore wind sector this year: Senvion’s insolvency, Vestas slashing 500 temporary workers at its Lauchhammer blade plant, further jobs reductions in Germany by Siemens Gamesa, and continuing losses at Nordex.

And the outlook is bleak as developers and manufacturers deal with the negative impact of the new auction system for selecting wind projects, launched in 2017.

The economy ministry’s two-page plan announced in October, supposedly with measures to improve acceptance of onshore wind and improve permitting procedures, has brought no respite.

In particular, the 1km minimum distance for wind turbines from residential development, which is to be tightened from ten dwellings to just five, requires regional wind-energy plans to be revised.

The process is taking several years and blocking new and repowering wind projects in that time.

A study commissioned from Navigant Energy and the Fraunhofer IEE institute by the German economy ministry on minimum distances to housing released in early October showed an inflexible 1km rule reduces potential onshore sites and new capacity by up to 40%.

"We have been here before. German wind energy development is a fatal reminder of the collapse of the German solar market in 2012-14, which also shrank by 90% due to political regulation, with the loss of tens of thousands of jobs," said Norbert Allnoch, head of IWR, an international renewable-energy economic forum.

"It looks as though the last domestic renewables sector developed over the past 20 years is about to be driven to the wall by government industrial policy," Allnoch said.

Hans Dieter Kettwig, Enercon’s managing director, had warned at the major German Husum conference in September, that without positive signals in the coming months for German onshore wind, "a bad crash landing" was awaiting the industry by mid-2020. Enercon now appears to be bracing for that.

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