Global offshore wind demand is set to quintuple in the next ten years, with more than 60% of it originating from the global markets excluding China.
The United States and the UK account for more than one-third of the global demand, excluding China. These offshore wind project developments will result in $1 trillion in investments globally, of which $700 billion is outside China.
The turbine OEMs will aggressively target these markets – the US and the UK – to garner sales.
They are focusing on developing next-generation turbine platforms, investing in new supply chain facilities, and partnering with leading developers and component suppliers.
When offshore wind is on the cusp of globalisation, the race gets uglier with intellectual property tussles, and it has ramifications for the whole sector when it involves two of the top three turbine OEMs.
In the past, GE leveraged the patent strategy to fend off competition on its home turf, the US, with the likes of Mitsubishi Heavy Industries, Nordex, Enercon and Vestas.
Along similar lines, GE countered Siemens Gamesa in the US onshore segment. This led to Siemens Gamesa sales declining by more than 85% in the past two years.
In an aggressive retaliation, Siemens Gamesa filed and won the offshore patent case against GE, and this patent strategy clearly backfired at GE with a much bigger blow.
GE faces a double whammy
The US offshore wind industry will witness $100 billion in project investments in the next ten years. These patent challenges in the US offshore wind sector will result in turbine supply constraints in the near term.
GE so far secured around 4.5GW of firm orders on Haliade-X in the UK (3.68GW) and the US (0.8GW) combined. GE is also a preferred supplier for the 1100MW Ocean Wind 1 project and the 120MW Skipjack Wind 1 project. In addition to these projects, GE was also selected for 1.8GW of projects in Japan to be commissioned between 2028 and 2030.
In the US, due to the Siemens Gamesa-GE patent dispute, the court has refrained GE from selling its Halide-X turbines for US offshore wind projects, exempting the 806MW Vineyard Wind 1 project that is under construction and Ocean Winds 1.
However, GE is liable to pay $30,000/MW for the turbines already sold [edtor's note: A judge ruled on February 2, 2023 that royalties for Ocean Winds 1 will in fact be $60,000/MW] , implying $60 million in royalties to Siemens Gamesa. GE is appealing the injunction.
Regarding the wind project commissioning timelines, the royalties will be distributed to SGRE per the graphic below.
(Note, the analysis is based on the commercial operations of the projects and the associated MW capacity).
Per our analysis, GE is set to lose share to Siemens Gamesa in the near term but should gear up in the mid-long term. Below are the offshore wind turbine OEMs' market share forecasts for the US market.
These issues come as a double whammy for GE, as the renewable energy divisions’ operating profits have dwindled over the years.
Its onshore order intake plummeted, and the offshore wind business unit is a saving grace to increase the profitability of the wind division, but the royalties will deteriorate the Ebitda (earnings before interest, tax, depreciation and amortisation) margins.
What are GE’s options?
Redesign of the main bearings and the associated component solutions on Haliade-X immediately. Besides Timken, GE must partner with other suppliers such as SKF, so that they can continue to commercially offer the turbines in the emerging US offshore market.
Mid- to long-term
However, in parallel, GE must accelerate the new product development (NPD) of the next-generation variant of Haliade-X with a longer rotor and larger generator ratings. GE must offer a new configuration with a minimum 250m rotor and 16-18MW rating to compete.
GE leveraged the first mover advantage with the Haliade-X, with a 220m rotor and 12MW rating when commercially announced to the market in March 2018.
When peers were offering 8.0-9.5MW solutions, GE won the 3.6GW Dogger Bank tender in the UK CfD (contracts for difference) round 3 auctions in 2019.
However, the competition also geared their solutions with Siemens Gamesa offering SG 14-236 DD and Vestas V236-15MW turbines.
These configurations dwarfed the GE Haliade-X. GE stands almost wafer-thin chances of winning any projects that were part of the UK CfD round 4 auctions. Below are the UK offshore wind market share forecasts in the third and fourth rounds.
GE must avoid losing market share
Siemens Gamesa has extended the lawsuit to the UK for now, but possibly will take to other markets in Europe and Asia. GE must race against time to commercialise the next-generation turbine variant within the next 12 to 18 months, else it risks losing further market share in the UK and other markets as well. Nonetheless, the growth in the offshore market warrants investments into the next-generation variant for GE.
Break-even on investments
Siemens Gamesa has launched seven generations of offshore technologies in the past decade, while Vestas could pull off only three generations. GE is far behind its peers, with only one generation reaching a series production stage, before the Haliade-X.
Due to the technology track record and economies of scale benefits, Siemens Gamesa can introduce the next-generation turbines at a faster pace compared to its peers.
To break even, the investments incurred into the technology development, supply chain establishment and series production of the next-generation turbines – as well as garner 8-10% Ebit margin – the turbine OEMs must sell 12-14GW globally on each product variant.
Due to the patent tussle, GE will be forced to introduce the next-generation turbine variant before reaching that optimum sales volume on Haliade-X.
Patent wars serve nobody
Intellectual properties should be strengthened, to innovate on the technology and benefit the broader industry, but not used as a tool to gain a commercial competitive advantage.
If the OEMs engage in such patent wars, the developers will have limited alternatives to choose the turbines. Prices will rise and investments will be delayed, and then the OEMs will suffer due to these adverse repercussions.
An amicable settlement will benefit both the parties and the broader global offshore wind industry.
Shashi Barla is head of renewables research at the Brinckmann Group