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United States

Two huge orders in close succession -- Siemens takes market share in the United States

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Rising turbine costs, tight supplies and growing confidence in the US wind market have helped push the country's two largest wind power developers to commit to significant equipment purchases. FPL Energy is buying up to 600 MW of turbines from Siemens, while PPM Energy has contracted for 300 MW from GE Energy. The purchases are intended for projects expected to start construction in 2006.

"Turbines can be in short supply and prices have been increasing, so it's really important to plan ahead right now," says PPM's Jan Johnson. "In 2003 we were able to order a few months ahead and that's no longer always true. But we've used this type of framework agreement in the past and I would expect that we'll be announcing yet this year where these particular turbines will go."

PPM's order with GE is for the US manufacturer's workhorse 1.5 MW turbines. The agreement between FPL and Siemens is for 260, 2.3 MW turbines, which were first installed in Denmark in 2002. Siemens currently has 327 MW of that model operating worldwide, but FPL will be the first to use it the United States.

"These are a little bigger than the machines we've used in the past," says FPL's Steve Stengel. "The obvious advantage is that the customer will end up having to buy a smaller number to fill the order."

The $660 million deal takes on added significance for Siemens. "This agreement with FPL Energy is important because it is the first wind power contract for our growing wind power business in the Americas region since Siemens acquired Bonus Energy last December," says Randy Zwirn of Siemens. "The wind power business, especially in the US and Canada, is more favourable now than it was in the past."

Indeed, both announcements reflect growing confidence in the US wind industry, which includes factors such as an increasing interest in renewables at the consumer level, the rising cost of fossil fuels and the recent two-year extension of wind's federal production tax credit (PTC).

"The extension of the PTC is definitely pushing us all forward," says Johnson. "Each of the years when we've had a PTC, we've brought more than 500 MW online and part of bringing projects online is securing turbines. There's no question that the US wind power market is expanding. We expect more to come."

Although the FPL sale is significant, Siemens is not ready to consider establishing manufacturing facilities in the US. The director of the wind division of Siemens Power Generation, Palle Nørgaard, says the turbines will be made at the division's base in Denmark. Although manufacture on the other side of the Atlantic Ocean will add transport costs, Nørgaard points out that there would also be transport costs from an American factory -- and the additional cost of shipping from Denmark must be compared with those of establishing a factory in the US.

The FPL order was announced 24 hours after Vestas, which has been a major supplier to FPL, distributed dismissal notices to 625 workers, 500 of these in Denmark. Two hundred of the Danish jobs are now being recreated by Siemens in the two factories previously operated by Bonus, in Brande and Aalborg, before its purchase by Siemens last year. Each factory will employ a further 100 workers.

A declared goal in the new Vestas strategy is only to accept orders it can make a decent profit on -- a strategy Bonus was known for. Industry observers are keenly watching Siemens to see if it has adopted Bonus' old strategy, or has sacrificed higher profits for its first order on the US market since taking over Bonus.

The FPL and PPM deals, although considerable, are nowhere near the largest on record. An order by Spanish utility EHN for 1400 MW of rated capacity from Gamesa in 2002 dwarfs the Siemens order as does GE's sale of 1000 MW in Quebec.

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