| This report tells you everything you need to know to make informed investments in the wind industry. You’ll learn about where the industry stands worldwide, what’s pushing it forward and holding it back, who the major players are and when differentiates them from each other, and through our analyst discussion, you’ll learn which companies they consider the best investments and why. Buy the Report! |
In the three years since we produced our Special Report: Investing in the Booming Wind Industry, we’ve seen the complexion of the industry change from a blossoming, mostly regional industry based in Europe, to a worldwide industry that is becoming increasingly corporate, and experiencing growing pains in the process.
For over a decade, wind has been the world’s fastest growing energy source on a percentage basis. The industry has been growing at 28% a year for the past five years, and if growth trends continue at this pace as is expected, wind capacity will double about every three or four years.
Wind installations grew by 25% in 2005 and now stand 59,322 megawatts (MW) worldwide, according to the Global Wind Energy Council (GWEC). New wind installations hit a record 11,769 MW in 2005, up from 8,207 MW in 2004.
Over 50 countries now contribute to the global total, and as of 2004, the industry employed an estimated 100,000 people.
Germany is still the leader with 18,428 MW of capacity, followed by Spain (10,027 MW), the U.S. (9,149 MW), India (4,430 MW) and Denmark (3,122). India has overtaken Denmark as the fourth largest wind market in the world. A number of other countries, including Italy, the U.K., the Netherlands, China, Japan, and Portugal each have over 1,000 MW of installed wind power capacity.
Unlike fossil fuels, wind energy is a massive indigenous power source permanently available in virtually every nation in the world. Over the course of the past 25 years, the industry has transformed from a cottage industry to producing state-of-the-art modern technology – modular and rapid to install. Today, a standard turbine is 1.5 – 2.0 MW in size (up from 750 kW a decade ago); the 3.6 MW size is proven and 5-6 MW turbines are being rolled out. A single wind turbine can produce 200 times more power than its equivalent two decades ago at a much reduced price.
According to the global industry blueprint, Wind Force 12, wind can supply 12% of the world’s electricity needs by 2020 – 1,250 gigawatts (GW) – even with electricity demand projected to increase by two thirds by that time. At that point, the wind industry would be a ? 80 billion business.
Influx of Capital. The sea change in the industry today comes from the entry of mainstream corporations – Goldman Sachs, J. P. Morgan Chase, Swiss Re and many, many others are snapping up wind farms across the world. Utilities and large institutional investors are also providing huge amounts of capital.
Investments in wind farms accounted for 72% of all renewable energy asset investments in 2005 – the average deal was $75 million. The U.S. saw the most activity, where $4 billion changed hands to finance 65 wind parks. Acquisitions are also heating up; there were only seven in 2004 (valued at US$600 million), but jumped to 25 in 2005, valued at $3 billion. Almost all the deals took place in Spain or Portugal.
The influx of heavy hitter financiers has led to a wave of competition and consolidation as they scramble to buy the best sites. In an effort to avoid development risks, they look for projects that are either operational or ready to build, and end up bidding against each other to purchase projects.
Wind Turbine Shortage. The rapid, tremendous growth of the industry – exceeding even optimistic projections – has created a shortage of wind turbines as manufacturers rush to meet demand. Although the major turbine manufacturers produce some components, they rely on a network of sub-contractor component suppliers around the world. Turbine manufacturers are having a difficult time receiving components on time and are behind on deliveries.
The result is that turbine manufacturers have raised prices and are sold out through 2006. Higher prices change the financial structure for some planned wind parks, making them less cost-effective for investors. And, of course, you can’t complete a wind farm without turbines.
All of this activity has resulted in a level of competition among turbine manufacturers and developers previously unseen in the industry. Developers are trying to lock-in turbine supply early, finding they can use it as a way to build market share.
The world wind turbine market is dominated by 10 major companies which control almost 100% of the market. The 2005 figures aren’t out yet, but as of the end of 2004, company market share was as follows:
Wind Turbine Manufacturers’ Market Share | ||
Company | 2004 | 2001 |
| Vestas | 34% | 24.1% NEG Micon: 12.8% |
| Gamesa | 18% | 9.5% |
| Enercon | 15% | 15.2% |
| GE Wind | 11% | Enron 12.7% |
| Siemens | 6% | Bonus 8.7% |
| Suzlon | 4% | 1.8% |
| REpower | 3% | 1.9% |
| Mitsubishi | 2% | 2.6% |
| Ecotcnia | 2% | — |
| Nordex | 2% | 6.7% |
Source: BTM Consult
Together, the top three companies increased their market share by 14% from 2003. GE Wind had a great year in 2005 and is widely expected to move up the list when the 2005 figures are released. GE installed almost twice that of privately held Enercon in 2005 (2400 MW vs 1400 MW). Siemens acquired Bonus and doubled installations in 2005, mostly in the booming U.S. market.
In the past, Vestas stood out as the most international player but now all the leading companies span markets worldwide. Having a good track record and market reach are now routine expectations. Because of the turbine shortage in 2005, market share was determined more by the ability to supply turbines rather than cost or product differentiation.
We interviewed four financial analysts that cover the wind sector to learn the ins and outs of investing in the industry. The following is a brief excerpt from the interviews – we covered investment opinions for all the turbine makers and wind farm developers, and related companies.
PI: How do you view the state of the wind industry right now?
Paul Klegg, Equity Analyst, Natexis Bleichroeder
Wind is more mature than other renewable energy sectors – it has a longer history and track record. Publicly traded wind companies gained credibility years ago. They grew very quickly and are feeling the growing pains now.
It’s not that wind companies aren’t faring well – far from that. The two large public companies, Vestas (VWS.CO) and Gamesa (GAM.MC), scaled up very quickly, raising debt and operating costs to a level where investors expected huge growth and scale, and now they are disappointing them. They have problems getting components on time, more competition, more push back on environmental siting issues, and are running into increased costs because of higher steel costs and cost overruns setting up new production facilities.
Mark Cox, Managing Director, New Energy Fund LP:
Just like solar, all the sudden demand means wind turbine manufacturers can’t keep up. As in solar, where silicon is the bottleneck, getting all the wind components to show up on time is a real problem. Whereas solar companies have remained profitable because many companies have been able to find enough silicon supplies, since wind manufacturers rely on so many subcontractors, that hasn’t been the case and it’s been a stress on margins.
PI: What do you think of Vestas and Gamesa, the largest turbine manufacturers, as investments?
Paul Klegg:
It’s a tough period. Investors have to believe that Vestas management can fix the problems quickly and return to profitability and that Gamesa can continue to meet expectations. If they can, you’re probably looking at a buying opportunity.
Mark Cox:
If investors want exposure to wind, both companies are good to own. In a world of constrained supplies, it’s all about opportunity. Vestas is still the world leader, and you want to own the leader.
Now that Vestas is big and unwieldy and having a harder time managing its position of global domination, it’s attractive to invest in a smaller company that’s at an earlier stage, where the management process is much easier, and has room to grow. Clipper is working on fewer projects than Vestas but still brings in lots of revenue – and as a small investor you can make a bigger profit.
David Shoenwald, President, New Alternatives Fund:
We invest in both companies. Vestas’ and Gamesa’s problems have to do with achieving too much success – they are fully booked with a tremendous number of orders. They don’t have enough capital to be comfortable though and need to raise some. The wind companies seem to go through problem periods and then bounce back.
Gerard Reid, Portfolio Manager, Hornet RE Fund:
It depends if you’re talking about short or long term. Right now, most of the companies are fully valued. Clipper, REpower (RPW.BE) and Nordex (NDX.DE) are up 150% in the last 6 months – there’s more downside risk than there is upside. Suzlon also looks very expensive. The company hasn’t really proved itself and it wouldn’t surprise me if they encounter problems going forward. Although the Indian market is ripe for expansion, these are industrial companies – they manufacture and deliver products and a lot can go wrong.
GE and Siemens have the advantage of being able to pay for things up front. That’s a major problem for Vestas – I wouldn’t be surprised if Vestas does a small capital raise in the next 10 weeks to give them the power to say “here’s the money we need the blades.”
PI: What do you see down the road for wind energy?
Gerard Reid:
Offshore wind will be really big but there will also be a place for small turbines. In the UK, they’re talking about putting small turbines on the roofs of high rise buildings. The wind tunnel effect makes it a great place for wind.
What I see as much bigger is my vision for 10-15 years down the road. Wind is the cheapest form of energy except for the fact that you can’t store it. Without the ability to store it you always need a back-up – a huge problem. If we could store wind energy our energy problems would be over.
I think there will be major developments on the energy storage side in the next decade. That will be a breakthrough for renewable energy and take it to an entirely new level. My vision is that everyone will have a small turbine on the roof of their house the way we used to have TV antennas. You’ll be able to store the electricity produced from wind and simply use it as needed.
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