Just back from a somber affair in Amsterdam known as the Wind Europe conference & exhibition, where I had meetings with executives from companies across the wind value chain. The good news is that this year will be a record year in terms of annual installations in Europe and we are continuing to see increasingly lower prices for wind generators and thus ultimately the consumer. The bad news is that the whole wind value chain is under price and margin pressure which makes it a perilous place for investors and people working in the industry. My big takeaways were:
- Wind is becoming very cost competitive across the world. The use of highly competitive auctions for the rollout of renewables in many countries has had the impact of pushing wind costs lower which is excellent news for the customer. Alone in 2017 we have seen record lows in terms of pricing for offshore wind in both the UK and Germany as well as a whole host of other countries for onshore wind. This is very positive for the long-term future of the wind industry.
- Global demand is subdued. Despite record low prices across the world for wind, much of which is now below coal or gas generation costs, annual installations are not growing compared to previous years. Global wind installations this year will be inline with last year (54.7GW) and still far off the record 2015 when over 63GW were installed. Part of the reason for this is that annual installations in the world’s biggest wind market China continue to fall from year to year having peaked some years back. Even worse though is that going forward the world’s second biggest Europe market is also likely to slow down in the coming years.
- Competitive dynamics are changing in global wind. It used to be that wind manufacturers and their suppliers had significant pricing power. However, slowing markets and production overcapacity in both Europe and China, as well as the increased competition caused by large scale auctions, not to mention solar, is putting the whole wind value chain under pressure. To further intensify that pressure some of the big developers such as Dong (or Orsted as it is now known) and Enel have huge buying power and are able to pressure pricing.
- The Chinese are coming. To date we have not seen the big Chinese manufacturers, such as Envision, Sany and Goldwind, gain much traction outside of their own home market. Part of the reason is the difficulty and cost of transporting turbines and blades from manufacturing plants in China to the rest of the world, not to mention concerns about quality and the technology of the turbines. But with a slowing domestic market and ample capital available from Chinese banks, do not be surprised if they begin to make substantial acquisitions to aid them gain access to foreign knowhow and growth markets.
- Only the big will survive. Wind is now a global business with a requirement for global manufacturing and servicing, not to mention scale, to be able to bring costs lower while continuing to invest in technology improvements. GE, Vestas and Siemens-Gamesa and Goldwind in China all seem to have that scale as well as the necessary balance sheets but there must be question marks around the future of all the smaller players, such as Nordex/Acciona, Senvion, Suzlon, Enercon as well as the Chinese players like Sinovel.
- Wind has not been a good place to invest this year. Unsurprisingly the weakening competitive situation of turbine manufacturers is already reflected in the share performance of the publicly listed wind companies. The worst performer is Nordex which is down 60% this year but all the others Vestas, Sinovel, Senvion and Suzlon have seen their share prices slashed this year. Only Goldwind has seen their share price go up.