A deal to buy insolvent German wind-power manufacturer Senvion’s service business would help Siemens Gamesa catch up to rival Vestas in this increasingly important part of the market, a Wood Mackenzie analyst says.
Senvion this week confirmed it's in exclusive talks with Siemens Gamesa to sell parts of its service business and other “selected onshore assets." Senvion entered voluntary insolvency proceedings in April as the global wind turbine industry continues to consolidate around a few major players outside of China, notably Vestas, Siemens Gamesa and GE.
“Siemens Gamesa has around 90 gigawatts of cumulative capacity [installed] as of 2018 but only 58 gigawatts of service contracts,” said Shashi Barla, WoodMac’s principal analyst for global wind supply chain and technology. A small fraction of its services contracts cover third-party turbines.
“That’s compared to [market leader] Vestas’ 105 gigawatts of accumulated capacity and 86 gigawatts of service contracts,” said Barla, noting that a deal with Senvion could add 14 to 15 gigawatts of service contracts for Siemens Gamesa.
Amid intense price pressure for turbines, manufacturers are putting more emphasis on such service deals, which can include maintenance, repair work, and broader fleet management — with the increasing use of artificial intelligence and the internet of things.
Vestas’ earnings before interest and taxes (EBIT) margin for its service business was around 25 percent last year, compared to just under 8 percent for its product business, Barla said. “When you factor that in, you can see why Siemens Gamesa would be keen to close that gap between the size of its services and product business.”
Senvion's services business is seen as its most valuable asset, with a large installed base of its well-regarded turbines across North America and Western Europe.
The manufacturing side of the business
What will happen to the rest of Senvion’s business remains to be seen, but Barla said there's cause for optimism for the other units, even if they aren’t a good fit for Siemens Gamesa.
Senvion employs 3,500 people, including manufacturing sites in Germany, Portugal, Poland and India. Recently it has been looking to shift some of its German operations to lower-cost sites in Portugal.
“I don’t see Siemens Gamesa being interested in Senvion’s remaining assets in high-cost Germany,” Barla said, noting that both companies have been consolidating their footprints in northern Europe. “The assets in Poland and Portugal will definitely prove attractive.”
Senvion's India assets will likely be ring-fenced and sold to a buyer in India, Barla said. And its offshore wind manufacturing business is also likely to find a new home.
“Senvion has been developing a 12-megawatt offshore turbine, but inadequate capital derailed progress. A few Asian buyers have flagged their interest in the offshore assets, and they could be a really good fit.”
Senvion expects its manufacturing work to continue for the next few months, with some of its production staff working into 2020.