Industry pressured by bigger customers

Undeterred by a year of market stagnation, the march of utilities and large independent power producers into wind plant ownership continues, putting turbine manufacturers under ever increasing pressure, says Denmark's BTM Consult in its annual review of global wind energy development

Major new industrial players are increasingly being attracted to the wind business, even though 2004 was the first year of industry stagnation since 1996, according to the latest annual analysis of international wind energy development by Denmark's BTM Consult. In World Market Update 2004, BTM's tenth annual report, the company states that utility and independent power producer (IPP) ownership of wind plant is up from just over 9500 MW, or 23%, in 2003 to 30% of the world's cumulative capacity by the end of 2004, or 14,450 MW of the 48,000 MW now installed, according to BTM.

Notwithstanding the dwindling German market and the development hiatus in the United States in 2004, buoyant conditions elsewhere combined with long term confidence in the US proved attractive to new players. Utilities and IPPs "are all on the move to get a share of the wind energy market, either by acquiring already installed capacity or by investing in brand new projects," the BTM report says. Utilities, in particular, are wielding their significant buying power to acquire and own wind development and operating companies. "The trend is clear," BTM says. "Utilities are becoming bigger players in the market."

Recent consolidations include the purchase of Enxco by French utility EDF, American Energy Systems' acquisition of veteran California developer Seawest, and Swedish utility Sydkraft's purchase of local wind developer Airicole, BTM points out. "Much more activity of this type is to be expected," the report continues. "These companies are much better prepared to deal with the new larger manufacturers than the traditional developers have been or are likely to be."

The arrival of bigger companies is a reflection of changing markets, BTM says. "The earlier dispersed markets of Denmark, Germany and the Netherlands are to some extend on hold and the new business can be found in project markets such as Spain, the US, the UK, Portugal and France."

Three companies lead the sector in terms of wind plant ownership: Spanish utility Iberdrola, Electricité Hydroelectric Navarra -- recently bought by Spain's large Acciona Group -- and FPL Energy of the US. Each operated around 2400 MW by the end of 2004, according to the report. Acciona/EHN led the field in acquisitions, adding 1600 MW to its portfolio, followed by the UK's PPM Scottish Power (active in Europe and the US), which added 1200 MW. Shell Renewables added 800 MW, Japan's Eurus, active internationally, added 640 MW and Iberdrola 600 MW. The weak US market saw FPL's portfolio shrink by 100 MW, according to BTM.

Under pressure

The bigger demands of bigger companies are putting turbine manufacturers under pressure to consolidate and expand capabilities, states BTM. "The ability to place large orders gives utilities negotiating power," it says. "As projects get bigger, many developers are insisting that in order to win a contract manufacturers must invest in the project, co-manage and operate it, and provide output and equipment manufacture guarantees for a much longer period than would have been common in the past. Such a requirement is a must, even to be considered for a contract."

BTM also notes a trend by developers to diversify into turbine manufacturing. "Developers' experience in operating a wide array of machines under various conditions is an excellent background for designing their own turbines," states the report, without specifically mentioning EHN's turbine prototype or US developer Clipper's venture into turbine manufacture.

At present, suggests the report, GE and Siemens, which acquired Bonus Energy at the end of 2004, are the only manufacturers with the skills required for effective project management including experience in risk management and financial engineering. For companies with the resources to develop these core competencies, "This will perhaps be the most effective differentiation strategy available," the report says. Indeed, while the list of the top manufacturers remains stable, albeit with some changes in the lower ranks, the report notes that when it comes to the turbine supply market, "One thing that does seem to have changed over the year 2004 is that competition is becoming fiercer." All manufacturers, it says, "Need to expand internationally."

BTM puts the increased competition down to market shifts and slower growth during 2004. "The decrease in the US and German markets and increase in the Spanish market in 2004 changed the world picture," it says. "The new and rapidly growing customer segments, consisting of large utilities and energy companies, continue to expand. The market entry of GE Wind in 2003 and now also Siemens will substantially change the overall picture among the bigger players." Moreover, it adds: "The industry will see its customers asking for a power plant solution rather than just wind turbines."

A quieter year

With 8154 MW of new capacity added in 2004, cumulative installation increased 20% with 7400 new turbines installed in more than 60 countries by the end of the year. The 8154 MW for the year, however, represents a 2.3% decrease on the 8343 MW added in 2003. The company points out that its figures are for turbines supplied by the end of the year, rather than operating wind plant, and represent 359 MW more capacity than actually installed.

The slow down in the growth rate is largely due to a slump in the US market resulting from the absence last year of wind's production tax credit (PTC) and decreasing activity in the matured German market. Substantial growth in other markets, notably Spain, ensured the impact of a US and German decline was minimal, says BTM.

Spain became the leading market in 2004, ending a reign of nearly ten years at the top for Germany, now in second position. Together these two countries accounted for 50% of all new capacity installed in 2004: 2064 MW in Spain compared to 1377 MW in 2003 to give it 25.3% of the 2004 market, and 2054 MW in Germany, down 620 MW on 2003's installations.

India was the surprise of the year, logging in as the third largest market. With more than double the capacity installed in 2003, its 875 MW 2004 total gave it a 10.7% share of the world market. The absence of the PTC saw US installation drop from 1600 MW for 2003 to just 389 MW last year, placing the country fourth with just 4.8% of the world market. The rest of the top ten list also contains some surprises, with Italy jumping to fifth position, Portugal entering the table to take a surprising sixth position and China creeping into the list at number ten.

Growth forecast

Another year without growth seems unlikely in the next five years. BTM's forecast is for 69,230 MW of new wind power capacity between 2005-2009 to bring total world capacity to 117,142 MW. Fluctuations in growth rates from year to year are expected, particularly in the US. Unlike for most other countries, BTM sees no steady growth for the US market, forecasting installation of 2300 MW this year and 3000 MW in 2006, before it drops to 2000 MW, 2050 MW and 2750 MW in each of the following three years. Europe's growth and that of the OECD-Pacific countries rises steadily year-on-year, however, as does growth for "other areas."

Globally, annual new installations are forecast to increase to 17,605 MW a year by 2009, up from 8154 MW in 2004, with Europe still the hub of activity, accounting for 50% of cumulative installations world-wide up to 2009. "South and East Asia will show very high growth rates in the next five years," says BTM, particularly from India and China, with Japan mentioned too. Asia was the continent with the highest wind power growth rate in 2004. Likely candidates for new stable markets in Europe are France, Italy, Portugal and the UK, says BTM.

The top three wind turbine manufacturers, Vestas, Gamesa and Enercon, accounted for nearly 68% of the global market in 2004, supplying 5526 MW between them. Denmark's Vestas retained pole position. Its merger last year with NEG Micon put it streets ahead of its nearest rival, Spain's Gamesa, which split from Vestas back in 2002.

on the move

Vestas installed 2783 MW, 34.1% of the 2004 world market and 2.2% more than the combined share held with NEG Micon in 2003, the report notes. Gamesa Eólica jumped from third to second place, installing 1474 MW and taking 18.1% of the market in 2004 compared with 11.5% in 2003. "Gamesa is on the move," acknowledges the report. Germany's Enercon installed 1287 MW, or 15.8% of new capacity in 2004, a third of which was sold outside Germany. In fourth place was GE Energy, with sales of 918 MW securing it a market share of 11.3%, down from 18% in 2003. BTM blames the absence of the PTC in the US for GE's relatively poor performance.

Driven by a buoyant home market, India's Suzlon slides into sixth place behind Siemens having not appeared in BTM's top ten list of wind turbine manufacturers for the past two years. Suzlon installed 322 MW, all in India. Also Spain's Ecotècnia puts in a top ten appearance in ninth place, having quadrupled its annual installations to 214 MW. Struggling Nordex only managed to keep a top ten listing thanks to the merger of Vestas and NEG Micon. EHN/Ingetur of Spain, China's Goldwind and Germany's Fuhrländer are all waiting in the wings to usurp it next year.

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