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World Wind Markets

First published in Cleantech magazine, Volume 6, Issue 2. Copyright Cleantech Investor Ltd

Turbulence amidst growth

Turbine manufacturers are suffering a fiercely competitive environment – but the wind industry around the world continues to grow.

Recent financial results from European stock market-listed wind turbine manufacturers, Gamesa and Vestas, told a mixed tale. Denmark’s Vestas, which had issued two profit warnings during 2011, failed to match even its own reduced expectations for the year. The company reported revenues of €5.8 billion, well below original expectations of €7 billion, and a small loss at the EBIT level. It was a mixed message from Vestas, however, with the firm confirming strong order intake of €7.3 billion (for equipment with generating capacity of around 7GW). However, the shortfall resulted in a management purge, with senior management – excluding CEO Ditev Engels – departing the group.

Vestas has forecast revenues of €6.5 billion to €8 billion this year, but acknowledged that the EBIT level would remain “adversely affected” by “too high production costs for the V112-3.0MW turbine and the GridStreamer™ technology”. Vestas has reduced its budget for research and development, while committing to higher investment in the development of the V164-7.0MW offshore turbine.

Gamesa, in contrast, reported a 10% rise in sales in 2011 to €3 million and 10% growth in EBIT to €131 million. The company maintained profit margins – despite what it acknowledged is a “complex macroeconomic and industry situation as well as fierce competition”. Gamesa has focused on cost control in the face of this competition.

The company is benefiting from its growing international presence, with 92% of sales now coming from outside its domestic Spanish market. Of Gamesa’s revenues, 19% were generated from India and 15% from Latin America in 2011, with China contributing 23% and the US 14%. The company sold turbines with a total generating capacity of 3GW during the year. The story at the Spanish firm also involves a growing focus on the development and sale of wind farms to create value (a strategy which has proved successful for Indian turbine manufacturing giant, Suzlon). For 2011, Gamesa reported 417MW in sales agreements and this business line contributed €26 million in EBIT. In the fourth quarter of 2011 this division had EBIT of €17 million and there have been a stream of farms sold by Gamesa during the first few months of 2012.

Gamesa anticipates selling between 2.8GW and 3.2GW of wind turbines in 2012 and expects an EBIT margin for its wind turbine business of between 2% and 4%. A key aspect of the firm’s strategy is the localisation of its supply chain, notably in India and Brazil.

The share prices of ‘pure’ wind turbine equipment manufacturers such as Vestas and Gamesa, as well as India’s Suzlon, have suffered severely over recent years.  The chart below includes share price performances on a five year view, as well as the performances since the end of 2010. While stock market conditions have hardly been favourable over the period, the fact that all three stocks have lost over 75% in value over five years is a stark contrast to the performance of shares of integrated industrials, for which wind turbine manufacturing is just one of many activities. GE shares gained 16% over the five year period; Alstom lost 12%, while Siemens shares are 10% lower.

Wind Stocks: Share Price Comparisons



Share Price Price Perf (%)
Stock (currency)
Code End March 2007 End Dec 2010

16 Mar 2012

5 Years Since end 2010
Suzlon – India (INR)  SUEL:IN 196 54.6 28.3 -85.6 -48.2
Vestas Wind Systems - Denmark (DKK) VWS:DC 312.5 177.2 64 -79.5 -63.9
Gamesa – Spain (EUR) GAM:SM 26 5.8 2.8 -89.3 -52.3
GE – US (US$) GE:US 29.2 17.4 20.2 -30.9 16
Siemens – Germany (EUR) SIE:GR 69 88.1 79.5 15.3 -9.7
Alstom – France (EUR) ALO:FP 43.1 35.4 31 -28 -12.4
China Ming Yang Wind Power – China (US$) MY:US n.a. 11.5 2.4 n.a. -79.1
Goldwind – China (CNY) 002202:CH n.a. 20.8 8.5 n.a. -59.4
Sinovel – China (CNY)* 601558:CH n.a. 40 16.9 n.a. -57.
* listing price, 2011

A clutch of Chinese turbine manufacturers have listed on stock markets over the last couple of years. None has a track record of five years of stock price performance, and all have seen sharp falls since listing. China Ming Yang Wind shares (listed in the US) have lost almost 80% since the start of last year, while Goldwind and Sinovel shares (listed in China) are both almost 60% lower over the same period (in the case of Sinovel, performance is since the date of its listing in January 2011).

The Chinese have been blamed by the established players for the tough competition in the wind turbine manufacturing industry. According to BNEF statistics, the average price of turbine contracts for delivery in 2013 (signed in the second half of 2011) was €0.91 million (US$1.2 million)/MW – compared with €1.2 million in 2009. Another factor in the decline of prices has been the growing importance of markets such as Brazil, where the auction system has forced turbine manufacturers to cut prices. Miguel Ferreira of wind consultancy MegaJoule, speaking at our recent seminar in London on Brazilian Wind Energy, referred to hard bargaining with equipment producers by project developers in Brazil; he explained that bartering on prices for turbines takes place even as the auction is in process.

Lower prices for turbines may hurt turbine manufacturers in the short term – but the longer term implications can only be positive for the industry overall. Wind has already achieved ‘grid parity’ in markets such as Brazil (where wind projects were contracted to supply energy at levels below the equivalent prices for natural gas projects in last year’s landmark energy auctions). And ‘grid parity’, at least for onshore wind, is approaching in many markets, removing the need for subsidies – which is fortuitous at a time when governments around the world are backtracking on their commitments to feed-in tariffs or similar forms of subsidy for renewable energy!

Turbine manufacturers are certainly supplying more equipment than ever before – even if not at prices they would like. Statistics show that the wind sector continues to experience decent growth in terms of installed capacity. The installed base of wind power generation capacity rose by 21% in 2011, according to the Global Wind Energy Council (GWEC), in a report released in February 2012, to reach just over 238GW by the end of the year. GWEC statistics show that 41GW of new capacity was installed during the year – 6% more than was installed during 2010.

Key World Wind Markets

We have ranked the countries active in wind energy according to three objective criteria, all derived from the GWEC capacity statistics. The criteria are: total market size; capacity added in each market during 2011; and growth in installed capacity during 2011 year-on-year. Countries were scored from 1 to 37 (the number of countries for which GWEC provides statistics) on each criterion: they were subsequently ranked according to the sums of their three scores.
 
No surprise, based on these criteria, that China ranks number one – given that it is the biggest market and is still installing capacity faster than the world average. Also perhaps no surprise is that the world’s second wind power market, the USA, slips to third place on our ranking – overtaken by India, which is seeing much faster growth.  And in Europe, slow growing Spain slips out of the top ten, despite its large size, whilst the relatively fast growth (by European standards) UK ranks in fourth place. It is also interesting to see Brazil join the top ten, due to its fast growth rate in installed capacity.

An advantage of this methodology is that it helps identify potentially interesting markets for investors by pushing countries with fast growth up the rankings, while still taking into account overall market size. Ranked according to our three criteria, the top world wind markets are as follows:


Top Ten World Wind Markets

Wind Market

Ranking(1)

China 1
India 2
USA 3
UK 4
Canada 5
Sweden 6
Italy 7
Germany 8
France 9
Brazil 10
(1) Ranking by Cleantech Investor, based on GWEC statistics for:
1. total market size
2. capacity installed in 2011
3. growth in capacity during 2011

Returning to the GWEC statistics, the region experiencing the fastest growth, by a wide margin, was Latin America, which saw capacity increase by over 60% – albeit from a low base. New capacity installed in Latin America was 1.2GW during the year.


Asia also continued to experience strong growth of almost 35% – and accounted for over half of the new capacity installed (21GW of the 41GW total). European expansion was 11.5% and North America saw growth of just under 18%. New capacity installed in Europe amounted to 9.9GW, while the similar figure for North America was 7.9GW.


Wind Capacity By Region

Region Installed Wind Capacity End  2010 (MW) Installed Wind Capacity End 2011 (MW) % Growth in Capacity during 2011 New Capacity Added in 2011 (MW)
Latin America 1,997 3,203 60.4 1,206
Asia 61,106 82,398 34.8 21,292
North America 44,306 52,184 17.8 7,878
Pacific Region 2,516 2,858 13.6 342
Europe 86,647 96,616 11.5 9,969
Africa & Middle East 1,065 1,093 2.6 31
         
World 197637 238351 20.6 40714
Source: GWEC

Over 22 countries have now passed the 1GW mark in terms of installed capacity, according to GWEC statistics. China, of course, remains the dominant player in the market with installed capacity of 62.7GW – forming the largest part of installed capacity in Asia of 82.4GW.

Installed Wind Power Capacity (GW) end 2011 (GWEC stats)

Source: GWEC


 

India’s total capacity reached just over 16MW by the end of 2011, with the second Asian ‘bric’ adding over 3GW during the year. India ranked as the number three market globally, after the US, which added capacity of 6.8GW in 2011. Germany (which added 2.1GW) and the UK (which added 1.3GW) also featured amongst the top five nations, in terms of new installations during the year.

The US remains the second largest global market, after China, with installed capacity of 47GW. Canada also features amongst the top ten nations, in terms of installed capacity, with 5.2GW of wind power at the end of 2011.


New Installations of Wind Power Capacity, 2011 (GW) - Top Five Markets


The statistics for the fastest growth markets throw up a number of anomalies, with small, niche markets (notably island nations such as Honduras, Dominican Republic and Cape Verde) displaying very fast growth, simply because they are starting from a very low – or zero – installed base. Amongst the markets installing annual capacity of over 100MW last year, the fastest growth rates are being seen in Latin America, with Argentina growing at 160%, Mexico at 68% and Brazil at 62%. It is notable that, even with its already massive installed base, China still ranks as number eight in the world in terms of growth rate.

Top 20 Wind Markets Ranked by Total Size



Installed Capacity end 2011 (GW)
1 China 62733
2 USA 46919
3 Germany 29060
4 Spain 21674
5 India 16084
6 France 6800
7 Italy 6747
8 UK 6540
9 Canada 5265
10 Portugal 4083
11 Denmark 3871
12 Sweden 2970
13 Japan 2501
14 Netherlands 2328
15 Australia 2224
16 Turkey 1799
17 Ireland 1631
18 Greece 1629
19 Poland 1616
20 Brazil 1509
Source: GWEC

China is streets ahead in terms of volume of new capacity added during 2011. The US recovered in 2011 from a tough year in 2010 – and Canada is also making an increasingly important contribution to the global picture. Within Canada, which surpassed the 5GW capacity milestone in 2011, the state of Ontario is leading the way.

EWEA (European Wind Energy Association) statistics show that 9.6GW of wind energy was installed in the EU in 2011, taking its total capacity to 94GW – enough to supply 6.3% of the EU’s electricity. European markets such as the UK and Germany are set to contain a growing mix of offshore wind capacity, which will keep them amongst the leaders in terms of new capacity added in coming years.


Top 20 Global Wind Markets - Ranked by New Capacity Added in 2011 (MW)

Ranking Market New Capacity Added in 2011 (MW) Ranking Market New Capacity Added in 2011 (MW)
1 China 18000 11 Brazil 583
2 USA 6810 12 Turkey 470
3 India 3019 13 Poland 436
4 Germany 2086 14 Portugal 377
5 UK 1293 15 Mexico 354
6 Canada 1267 16 Greece 311
7 Spain 1050 17 Ireland 239
8 Italy 950 18 Australia 234
9 France 830 19 Belgium 192
10 Sweden 763 20 Denmark 178
Source: GWEC

In terms of onshore capacity, Brazil looks set to rise quickly up the rankings as new capacity granted in last year’s auctions comes on stream. According to ABEEOLICA, the Brazilian Wind Energy Association, Brazil has a pipeline of over 7GW of capacity to be completed before the end of 2016.


Top 20 Global Wind Markets - Ranked by Rate of Growth in 2011

Ranking Market Installed Wind Capacity end 2011 (MW) % Growth Ranking Market Installed Wind Capacity end 2011 (MW) % Growth
1 Honduras 102 n.a. (new market) 11 Turkey 1799 35.4
2 Dominican Republic 33 n.a. (new market) 12 Canada 5265 31.4
3 Cape Verde 24 1100.0 13 UK 6540 24.6
4 Vietnam 30 275.0 14 Greece 1629 23.1
5 Argentina 130 160.0 15 India 16084 23.1
6 Mexico 873 68.2 16 Belgium 1078 21.7
7 Brazil 1509 62.8 17 New Zealand 622 21.0
8 China 62733 40.2 18 Chile 205 19.2
9 Sweden 2970 37.3 19 Ireland 1631 17.2
10 Poland 1616 36.9 20 USA 46919 16.4
Source: GWEC

According to the International Energy Agency, wind is expected to generate 10% of total energy by 2030 – compared to just under 3% in 2010. Total energy consumption around the world is rising, especially in fast growth markets such as those of Asia and Latin America, so the wind industry looks set to experience healthy growth over coming years – and decades. Competition amongst the turbine manufacturers is inevitable – and, as the share prices of the quoted companies in the sector demonstrate, an investment in the upstream wind manufacturing industry comes with a high level of risk.

There are also many opportunities for investors in the downstream, project development, area – and increasingly we are seeing institutional investors such as pension funds getting involved in the space, which, depending on the market, can offer steady returns.

There may be further turbulence to come as the industry matures and faces the challenges which more established industries have to deal with. However, it is clear that wind is here to stay, and the longer term opportunities for investors in the wind sector, both upstream and downstream, are enormous.


 

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