These are interesting days for the global wind market. Global installations have been falling since 2015, accelerating consolidation in the supply chain, including the high-profile bankruptcies of Suzlon and Senvion.
Although it is growing quickly, offshore wind has not yet achieved the scale to offset this onshore malaise, which is particularly acute in parts of Europe, home to many of the world's leading wind energy companies.
At the same time, solar PV has achieved a lower levelized cost of energy than wind in a number of markets, and its cost continues to drop more rapidly than wind's is declining.
This past week, GE Renewable Energy, one of the big three wind turbine suppliers outside of China, reported disappointing results from 2019, albeit tied in large part to its hydro and grid businesses.
In the week ahead, the globally ranked Nos. 1 and 2 firms, Vestas and Siemens Gamesa Renewable Energy, will report their own latest financial results. The power industry will be watching closely for signs of what to expect from the wind energy sector in 2020.
There are already signs of improvements on the installation front as 2019 data trickles in, with U.S. installations up 20 percent compared to 2018.
In Europe, Spain, France and Sweden look set to pick up some of the slack created by slowdowns in the German and U.K. onshore markets. Post-subsidy projects are beginning to emerge in Europe, but grid bottlenecks and planning disputes continue to put a brake on those.
Will the global wind market rebound in 2020? How will its biggest companies perform?
With the help of Shashi Barla, Wood Mackenzie's principal analyst for the global wind supply chain, GTM looks at a few key trends and potential milestones to keep an eye on.
1.) For Siemens Gamesa, one milestone in particular looms: entrance into the 100 Gigawatt Club (current membership: Vestas).
“My projection suggests that they will surpass 100 gigawatts of cumulative installed capacity,” says Barla. “That puts them just one notch behind Vestas in terms of cumulative installed capacity, and they would be the second OEM in the industry to reach that landmark.”
But hitting triple digits depends on the installations the company completed last quarter, and the signs there are mixed. Preliminary figures released by SGRE this past week flagged a €150 million ($166 million) charge on its accounts because of install delays in Norway, with a 1.1-gigawatt portfolio of projects impacted by harsh winter weather conditions.
Shares dropped by around 10 percent on the news. In any case, crossing the 100-gigawatt threshold is only a matter of time for SGRE.
2.) Already in 2020, SGRE has closed the deal for a chunk of the assets it acquired from insolvent German rival Senvion. In doing so, Siemens Gamesa added 9 gigawatts of European service contracts as well as Senvion's intellectual property.
It's worth watching whether Siemens Gamesa takes another look at Senvion’s remaining service fleet. There could be as much as another 5 gigawatts of service contracts up for grabs. Barla believes that with the IP in Siemens Gamesa’s hands, those contracts could be harder for other firms to fulfill.
Speaking as the deal closed earlier this month, Mark Albenze, CEO of Siemens Gamesa’s service business, said: “By acquiring all relevant know-how and IP to access the [supervisory control and data acquisition] and controller software, technical knowledge on spare parts supply, and Senvion’s remote control center, we are well positioned to offer competitive service solutions to all of Senvion’s customers worldwide.”
3.) Barla also expects the last three quarters of the company’s fiscal year to yield a lower share of offshore wind revenue, which could potentially clip profitability and produce a drag on that share price.
4.) Later this year, Siemens will list the new Siemens Energy spinoff. This will combine Siemens Gamesa and Siemens' Gas and Power business. While the latter had around double the revenue, €17.4 billion in 2018, Siemens Gamesa has all the growth potential. That said, the wind company will undoubtedly benefit from a cash injection just as wind’s mature markets step up low- to no-subsidy growth.
5.) The global market leader continued to book its own big numbers in 2019. Barla expects to see Vestas notch up a sixth successive year of record orders.
“They already have the record for annual orders, which is roughly 16.4 gigawatts. That's what they’ve already announced for 2019,” he said. “So when they disclose the unannounced orders from Q4, I would expect more than 17 to 18 gigawatts' [worth] of orders for Vestas.”
6.) In the face of a rather dismal outlook for onshore wind in many of Europe’s key markets, Vestas made some major order announcements in the final months of 2019, with the U.S. and China featuring heavily. Action in the U.S. market, in particular, will determine just how strong the Vestas' final 2019 order tally looks.
Speaking after the release of the Q3 results, new CEO Henrik Andersen said that momentum was likely to continue, despite the scheduled phase-down of the federal Production Tax Credit in the U.S.
The wind industry received a one-year PTC extension in late 2019, which is expected to boost installations in the 2023-2024 timeframe.
“What we see positively in [the] Americas, first of all, is a U.S. market that also has a life after 2021," Andersen said. "And generally, we see some of the forecasts there being upgraded.”
7.) One for the investor audience: Barla expects to see a lift in the company’s earnings before interest and taxes (EBIT) margin for the final quarter. Vestas' EBIT margin fell below its full-year guidance of 8 to 9 percent in the first three quarters of 2019, but the company stood by it anyway. In other words, Vestas needs a big fourth quarter.
8.) A year ago, Vestas launched its modular EnVentus platform. The industry will be watching closely for any updates or expansions of the product line as the company gears up for its full launch in 2021. The annual report could be released too early to provide a meaningful update on that front, Barla said.
Join Wood Mackenzie's upcoming wind webinar, Winds of change in onshore wind O&M - a look into 2020s, on February 20th, at 11:00am GMT.