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The global wind market continues to grow together. Energy producers must compete for market shares in a growing number of countries and on an ever larger scale. This trend starts to affect also German manufacturers. M&As and collaborative partnerships are the latest market trends and further consolidation measures are about to be launched. The wind is blowing from all directions, it will be exciting to see how German manufacturers deal with these market developments.
Wind power has long stopped to be the eco-niche. The global forecasts for the next decade promise solid growth, the construction of offshore wind turbines could increase even by 20 percent p.a. Onshore wind energy, when directly compared with offshore wind energy, is today much more affordable and more technologically advanced. German wind turbine makers play an important role on the global market, but have to further strengthen their global position given the prospect of a decline in the German wind market.
Fig.1: Global installed wind capacity (source: Global Wind Energy Council 2016)
(Click to enlarge)
With 168.7 GW worth of installed capacity (as of 2016), China is by far the leader in wind energy production. The USA took the second place with 82.2 GW, which is nearly half as much as China's installed wind capacity, followed by Germany with about 50 GW and by India and Spain with 28.7 GW and 23.1 GW, respectively. Countries such as the UK, Canada, France, Italy and Brazil content themselves with 10-15 GW.
The German market experienced strong growth also in 2016. In the previous year, 1,624 new wind turbines with a total capacity of 4,625 MW were built, which accounts for an about 10 percent increase in total capacity. The above figure includes 238 new turbines with a capacity of 697 MW which were repowered. This means a 40 percent increase in the capacity of the repowered turbines as compared to 2015. Nearly a half of the new wind turbines were installed in the northern German states (Lower Saxony, Schleswig-Holstein and Nord Rheine-Westphalia). In each of the southern German states (Bavaria and Baden-Württemberg), this share is about 7.5 percent, whereas the remaining 35 percent is distributed over the rest of Germany. It is rather expected that in the future this share will further decrease or almost come to a standstill, especially in Bavaria.
At the end of 2016, after adjustment for the number of decommissioned turbines, there were 27,270 installed wind turbines, which represented an installed wind capacity of 45,911 MW.
In the future, the state will control the expansion of wind energy by a changeover to the auction system. Consequently, it will be possible to increase the installed wind capacity by a little less than 3,000 MW a year only. Thus, according to the German Renewable Energy Law (EEG) 2017, the potential of the onshore wind energy to be newly installed until 2025 is capped at about 26 GW, whereas about 75 percent of this target could be reached through repowering measures alone. The above cap does not include an additional 2,053 wind turbines with a total capacity of 6,128 MW whose commissioning was approved until 31/12/2016 and therefore may be installed by the end of 2018 outside the auction system.
As a comparison: it is expected that the new installed capacity in the offshore wind energy segment will reach nearly 11 GW by 2025.
Fig.2: Newly installed onshore wind turbines worldwide 2016 (source: Bloomberg New Energy Finance 2016)
The increase in the newly installed wind turbines shows who has sensed ”the wind of change” early enough and has already braced up for the newly emerging market conditions. A wide range of turbine types alone is no longer sufficient for a manufacturer to successfully compete on the market. The active tapping into new global markets and the widening of the service portfolio have never been so crucial for generating a broad range of projects.
Vestas is one of the companies which noticed this trend early enough and has successfully responded to it. In further expanding its market presence to 35 countries in 2016, Vestas, after losing its position of the world's leader for a short period, was able to reclaim and secure its top spot boasting 8.7 GW worth of wind turbines installed in 2016. The same strategy and the acquisition of energy divisions of France's Alstom Group in 2015 enabled the U.S. turbine manufacturer GE with wind turbines installed in 21 countries worldwide to rank second with 6.5 GW worth of installed capacity, and third was Goldwind (6.4 GW).
A declining trend can be observed among Chinese manufacturers, who have so far primarily focused on the domestic market and thus have had few significant achievements on the global market. The reason for this is the reduction in the number of approvals granted by the Chinese government for the construction of new turbines by one-third due to network capacity shortages as no sufficient grid infrastructure was provided for the broad range of variable renewable energy sources. As a consequence, Goldwind, which boasted the strongest increase in the past years, fell two places down to the third place in the ranking. The same applies to its competitors, Guodian, Ming Yang and Envision, all of whom are now planning to intensify international expansion. In this process, German wind turbine manufacturers, such as Nordex and Senvion, are among the premium targets of Chinese company hunters. The Chinese turbine makers see the opportunity for expanding on the global market in taking the bull by the horns and more and more often initiate joint ventures. But the big market players follow this trend too, and after the takeover of Gamesa by Siemens another heavyweight manufacturer will contend with Vestas for the top position in the global wind turbine market in the future. A similar goal, though on a smaller scale, is pursued through the merger between Nordex and Acciona.
Given the exponential growth of the international market compared to the German market, the largest German wind turbine manufacturers from the Mittelstand segment, such as Enercon, Senvion and Nordex, must adapt to the new conditions by further developing wind turbines, breaking into new international sales markets, reducing the development and production costs and offering a broader portfolio of products and services.
Collaborative partnerships are gaining in importance too: Siemens and Nordex are already very active in this respect, with Nordex already generating 60 percent of its annual revenue outside Germany (2015). Other German manufacturers do not sit on their hands either: Enercon and EWE are banding together in their capacity of wind turbine manufacturers and energy suppliers to work out new business ideas in the area of renewable energies and smart grids. They share a vision of decentralised energy systems that would be largely based on renewable energies. Senvion's CEO Jürgen Geißinger (former Executive Chairman for the automotive supplier Schaeffler) bets, in turn, on well-known concepts from the automotive industry. One of them is to design wind turbine bodies in a way enabling their delivery in a disassembled form in containers. This allows avoiding extra charges for special shipment. Another method adopted from the automotive industry is ordering the core components such as gearbox from suppliers that offer turnkey solutions. A strategy for quickly bringing products to foreign market is to take over production facilities of smaller wind turbine manufacturers abroad and to manufacture rotor blades there. Senvion follows this strategy and has acquired a stake in the Kenersys production facilities in Baramati, India, to regain its position as an international market player.
In the future, German manufacturers will be under significantly stronger pressure coming from foreign players abroad. This also applies in Germany. But this change also offers German wind turbine makers a great opportunity for gaining a foothold abroad. The market will generally become more competitive and mergers and collaborative partnerships will result in the concentration of the market in the hands of a small number of remaining players. For wind farm operators and designers this will rather mean lower prices of wind turbines – at least in the short term – because of the strong competition for projects among manufacturers. In addition, manufacturers are put under ever stronger price pressure due to tariff reductions and higher design costs arising from environmental and other issues in many countries and at the same time they are expected to implement the more and more complex wind projects in a cost-effective manner. However, it is questionable whether a further tendency towards oligopoly will result in lower prices in the medium, and first of all, in the long term.
It will be exciting to see how German manufacturers will secure their positions on the global market and what mergers and acquisitions will come up next.
Renewable energy consulting
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