The consolidation of the offshore wind turbine manufacturers

Adwen, an offshore wind turbine manufacturer which is a subsidiary of Siemens Gamesa Renewable Energy (SGRE), just announced that it will be cutting its current workforce of 480 employees to just 220 employees by 2020. All development and sales of future Adwen turbines will be halted, and the remaining staff will be focused on servicing the existing turbines in the field. The engineering staff that currently develops Adwen turbines will be incorporated into Siemens Gamesa.

With this announcement, the Adwen brand of turbines has been effectively terminated. It is the sad end to a promising company that used to be the second largest manufacturer in the world of offshore wind turbines with 18.2% of Europe’s installed offshore capacity at the end of 2015. Adwen’s announcement sounds the death knell for the innovative AD 5-135 turbine, which used a hybrid drivetrain that combined the lower cost of a geared drive with the lower maintenance of a direct drive. There is also no hope of ever reviving development of the Adwen AD 8-180, whose 88.4 meter blades were the longest in the world and its 10 meganewton-meter gearbox was the most powerful in the world. Despite the fact that Adwen had 2 GW of future orders on the books and probably could have survived as an independent company, its geared offshore turbines competed too closely with the direct drive turbines (SG SG 8.0-167 DD, SWT-7.0-154 and SWT-6.0-154) that parent company Siemens Gamesa offers for the offshore market.

The cutting of the Adwen personnel is part of a larger effort at Siemens Gamesa to eliminate 6000 employees by 2020, which represent 23% of the company’s 26,000 employees. In addition, the company plans to cut the number of onshore turbine models it offers from 25 to 9, and eliminate all its geared offshore turbines, leaving it with just 3 direct drive models for the offshore market. In addition, it plans to cut its third party supply costs by more than 20% by getting rid of many suppliers and making larger orders of fewer products. All of these cuts are in the name of saving €2 billion over the next 3 years that will allow Siemens Gamesa to increase its profit margins.

Some of these cuts are not surprising considering that Siemens Wind Power and Gamesa recently completed their merger in April 2017 and need to eliminate  duplication. However, the cuts at newly-formed Siemens Gamesa go far beyond the standard cutting after a merger. What makes these cuts so astounding is that Siemens Gamesa installed 9.43 GW or 18.0% of global wind turbine capacity in 2017, which represents a 25% annual growth over the 7.5 GW that it installed in 2016. In any other other industry, companies do not perform massive cuts while growing 25%. Nonetheless, offshore wind is facing massive cuts in energy subsidies, so anything that is deemed extraneous like Adwen’s geared turbines are being eliminated at Siemens Gamesa.

This streamlining of its product lines means that the combined German-Spanish company will only produce gearless offshore turbines and geared onshore turbines in the future, rather than trying to offer both geared and gearless turbines for both the onshore and offshore markets. Giving up on gearless turbines makes sense for the onshore market, since they are simply becoming too expensive compared to geared turbines that keep dropping in price. It is best to leave onshore gearless turbines to companies like Enercon and Goldwind. Enercon can make make gearless turbines work on land because it focuses on specialty turbines that work at lower wind speeds and generate less noise. Enercon has figured out how make gearless drives without permanent magnets and is working on using cheaper aluminum coils in place of expensive copper coils. Goldwind can compete with gearless turbines on land because it operates in China where costs are lower, so it doesn’t have to charge as much.

Siemens Gamesa’s decision to eliminate its geared offshore turbines is more questionable. Gearless drive trains traditionally had less maintainance costs than geared drive trains since they contain fewer moving parts, which is part of the reason why Siemens was able to dominate the offshore market in the past because its turbines were more reliable. However, the reliability of geared turbines has increased quite a bit over the last decade, so there is less reason to pay for the extra costs of gearless turbines. There is the risk that the geared offshore turbines offered by Vestas MHI will be able to undercut the prices charged by Siemens Gamesa for its gearless offshore turbines. Most conventional wisdom still holds that gearless drives are the future for offshore wind, but eliminating the development of Adwen’s innovative hybrid drive is closing off a potential path for the company in the future.

It is worth contemplating how few offshore wind turbine manufacturers still remain in the market. Back in 2011, the Siemens SWT-3.6-120, Vestas V112-3.0MW, BARD NV (5MW), REpower 5M, Areva M5000 and Hitachi/Fuji Suburu 80/2.0 were all in production, and there were public announcements about the future development of the MHI Sea Angel 7MW, Samsung S7.0-171, Alstom Haliade 150-6MW, Vestas V164, Siemens SWT-6.0-154, Enercon E-126 (6MW), XEMC Darwind XD115-5MW, Sinovel SL6000, Ming Yang SCD 6.5MW, BARD 6.5, AMSC WT5500FC, CSIC H151 (5MW), Daewoo 7MW, Gamesa G132-5000, Nordex N150 (6MW), GE 4.1-113, Goldwind 6MW and Clipper 10 MW Britannia for offshore use.

The offshore wind industry has changed dramatically since the heady days of 2011 when the vast ocean seemed limitless for the offshore business. Vestas hit a financial crisis in 2012 and realized that it didn’t have the necessary resources in house to finish developing its V164, so it created a joint venture in 2013 with Mitsubishi Heavy Industries (MHI) to bring the V164 to market. MHI initially planned to continue developing its own 7MW Sea Angel turbine with an innovative Digital Displacement Technology (DDT) hydraulic drive train. MHI installed prototypes of its Sea Angel  turbine in Scotland in 2014 and in Japan in 2015, but MHI never got financing for the planned 1GW floating wind farm in Fukushima, Japan, so the Sea Angel’s only purpose is to sell the design of the DDT drive to MHI Vestas for its next generation turbine.

Areva also decided that developing offshore turbines was too expensive to go it alone, so it created a offshore wind joint venture with Gamesa named Adwen in 2014. This short-lived JV came to an end in 2017 when Gamesa merged with Siemens. In order for Gamesa to be able to complete the merger, Gamesa bought up Areva’s stake in Adwen. GE tried twice to develop its own offshore turbines that never made it to market, before it bought up Alstom in 2016. These mergers have reduced seven offshore turbine manufacturers down to just three. The only remaining offshore wind turbine manufacturer from 2011 that hasn’t yet been merged is REpower, which was renamed as Senvion in 2014, but it is widely rumored to be looking for a partner in the offshore wind industry.

Almost all the other offshore turbines planned in 2011 never got financed or never made it past the testing of prototypes. The American turbine maker, Clipper Windpower, was hit hard by the 2008 economic crisis and was bought up by United Technologies (UT) in 2010. UT proceeded to kill Clipper’s plans to design a gigantic 10MW offshore turbine in 2011 and then shut down all new turbine manufacturing in 2012, when UT decided to only focus on aerospace.

When South Korea announced a plan in early 2011 to install 2.9 GW of offshore wind, Samsung, Daewoo, Hyundai, Doosan and STX all started developing offshore turbines. Samsung even created the largest turbine rotor in the world with 83.5 meter long blades. Then in 2014, it decided wind turbine manufacturing was a money pit and abruptly quit the market. All of its South Korean rivals also quit the offshore wind business as well, although Doosan recently announced its intention to reenter the market with the development an new 8MW offshore turbine. Currently only 38MW of offshore turbines have been installed off South Korean shores.

Despite the fact that offshore wind did grow dramatically in Europe, few European turbine manufacturers were able to take advantage of that growth. BARD went bankrupt in 2013, killing its planned BARD 6.5 turbine. Enercon produced its E-126 which at 7.5MW was the most powerful turbine in the world before the introduction of the V164, but Enercon gave up on the offshore market as being too risky for the Germany company, despite employing a direct drive technology that should have been a good fit for the offshore market. Nordex couldn’t find partners to help finance its N150, and has retreated from the offshore market as well.

Back in 2011, there were 6 manufacturers of offshore turbines (Siemens, Vestas, BARD, Areva, REpower and Hitachi/Fuji), plus another 18 companies (GE, Clipper, Samsung, Daewoo, STX, Hyundai, Doosan, MHI, Alstom, Gamesa, Nordex, Enercon, Goldwind, Ming Yang, CSIC, XMEC Darwind, Sinovel and Dongfang) had announced plans to enter the market. Almost none of those plans that looked so rosy in 2011 came to fruition. Looking at the cumulative market share of offshore wind turbines at the end of 2017, it is striking how few of those companies with grand plans in 2011 hold any significant market share today.

Percent of cumulative global offshore wind turbine capacity at the end of 2017:
Siemens Gamesa: 54%
MHI Vestas: 15%
Sewind: 7%
Senvion: 7%
Adwen: 5%
Goldwind: 3%
Envision: 3%
CSIC: 1%
GE: 1%
Source: Calculated from data in the GWEC Global Wind 2017 Report

Siemens Gamesa has built or designed 66% of the world’s existing offshore wind turbine capacity if including its subdivision Adwen and its joint venture Sewind with Shanghai Electric. It may seem surprising that Siemens Gamesa has so dominated the offshore market, when it equally shares the onshore market with Vestas, GE and Goldwind.

Source: Windpower Monthly (2017-10-02) Top ten turbine makers of 2017.

Siemens first pioneered offshore wind turbines back in 1991, but Vestas was taking most of the offshore market in the mid 2000’s, when offshore wind was just starting to emerge. It is worth examining why Siemens ended up beating Vestas in the offshore market as shown in the graph below of MW of new offshore turbines per year between 2000 and 2016:

 

Vestas effectively killed itself in the offshore market by using a gearbox that couldn’t stand up to the rigors of coastal winds. Rather than developing a new turbine, Vestas tried to repurpose its existing V90-3.0 onshore turbine for offshore usage. After installing thirty V90-3.0 turbines in the Kentish Flats wind farm in 2005, it had to replace all the gearboxes over the next 2 years and was forced to take the V90 off the market in 2007. It then reintroduced the V90-3.0 turbine sporting a new gearbox that it developed with Hansen Transmissions. This new gearbox, however, proved little better. In May 2012, Vestas reported gearbox problems with 376 of the V90-3.0 turbines that it installed between 2009 and 2011. Questions were also raised about the quality of Vestas’ turbines, when the end of the blade broke off a prototype of the V112-3.0 in 2010, which was being developed as the successor to the V90-3.0.

In contrast, Siemens had developed a reputation for good turbines with reliable gearboxes that had low maintenance costs. 96% of the turbines that Siemens installed in the US between 1983 and 1989 were still in operation in 2009. This reputation served it well in the nascent offshore market, where the increased strength of the winds made damage more likely and the high cost of access via boats and helicopters made maintenance more costly. Historically, the gearbox was the part of the wind turbine which was mostly like to fail, so Siemens turbines with their reliable gearboxes were deemed the safest bet by risk-adverse electric utilities and energy project developers. Nonetheless, Siemens has also suffered design problems in its turbines. Two of its B53 blades (which share the same IntegralBlade manufacturing process as Siemen’s offshore turbines) broke of its onshore SWT-23-108 turbines in 2013 due to delamination and Siemens was forced to upgrade half of its B53 blades in the field.

The design of the high speed, 3 stage Winergy gearboxes and the squirrel-cage generators used in Siemens’ SWT-3.6-107 and SWT-3.6-120 was very conventional, so it is hard to say that Siemens’ geared offshore turbines were significantly better than Vestas’ V117 or REpower’s 5M, which were also high-speed, 3 stage geared turbines, but almost 10 GW of those two Siemens turbine models were selected for use offshore wind farms. Siemens advertised its SWT-3.6-120 as “thoroughly tested, utterly reliable,” and the large number of its deployments created a snowball effect that made it hard for other turbine companies to compete with its reputation. That reputation has extended to China where Siemens’ SWT-3.6-120 manufactured by Sewind has been overwhelmingly chosen for  China’s offshore wind farms. Siemens had so many orders for its offshore turbines that it was able to design its own specialized ships for installing turbines in coastal waters, which can deploy a new turbine in less than 24 hours.

While Siemens had a reliable design with a good reputation and economies of scale in its favor, it mostly took the lion’s share of the offshore market because its competitors were suffering financial woes that restricted the needed R&D and marketing of their offshore turbines. Vestas was suffered through financial turmoil, which hindered its ability to deploy the V112 and delayed the development of the V164, so Vestas was stuck trying to sell the unreliable and outdated V90 for many years to the offshore market. REpower was also experiencing financial woes, which is why it was sold off to the Indian company Suzlon in 2007. Suzlon, however, had so highly indebted itself buying REpower and trying to increase its production capacity, that it was forced to sell off the company in 2015 in order to avoid bankruptcy. Areva was losing millions of euros every year on its nuclear business and Gamesa was hit by the loss of renewable energy subsidies in Spain, so neither company had sufficient funds to properly invest in Adwen.

Siemens Gamesa probably won’t command such an overwhelming lead in the current generation of 5-9 MW turbines, as it did in the last generation of 2-4 MW turbines, but it is undoubtedly going to continue grabbing the lion’s share of the market in Europe and Sewind has used Siemens’ turbine design to grab 50% of the Chinese offshore market as well.

Shanghai Electric, Goldwind, Envision and CSIC have been relegated almost exclusively  to the Chinese market, although Envision and Goldwind have ambitions to become global players. With Adwen in the process of being phased out, there are currently only three competitive offshore turbine manufacturers outside of China. Senvion has limited reach, since it only has operations in 11 countries. Its 6.2M126 offshore turbine uses a high-speed 3 stage geared design from mid-2000’s which is considered outdated and less reliable than Siemens’ direct drive and MHI Vestas’ medium-speed 2 stage geared drive. For most of the world outside China, the only real competitors in the offshore market are Siemens Gamesa and MHI Vestas.

It seems strange that so many companies have been driven out of the offshore market, considering the fact that the market size has quadrupled in size over the last six years, from under 1000 MW in 2011 to 4331 MW in 2017. With an exploding market, why were so many turbine manufacturers driven out of the offshore wind business and most of them forced to combine into larger companies in order to survive?  What makes it odder still is that so many of these companies like Nordex and Enercon were highly experienced in building onshore wind turbines or industrial giants like Samsung, Hyundai, Fuji and Areva with decades of experience in electrical generation and deep enough pockets to survive the initial R&D, yet they still found the offshore market too tough to survive.

First of all, it is important to recognize that many of these companies were relying on a home market advantage which hasn’t yet materialized in places like the US, Japan, South Korea, India, France and Spain. Although the market has grown rapidly, it is striking where it didn’t grow.

In anticipation of offshore wind eventually taking off on the American Atlantic seaboard, GE started experimenting by installing its 3.6 SL turbines in 2003 off the coast of Ireland. The American market, however, still hasn’t materialized a decade and a half later and GE’s turbines have only been deployed in a single 30 MW wind farm off the coast of Rhode Island in 2016. After the 454 MW Cape Wind offshore project was first proposed in 2001 off the coast Massachusetts, it faced a decade and a half of of lawsuits and public protests from local residents before it finally died in 2017.

Similar protests from the residents of South Korea helped kill 2.9 GW of planned wind farms on the Korean coastline. The public opposition and the lack of firm commitment from the South Korean government led to Samsung, STX, Hyundai and Daewoo all fleeing the market. Samsung tried in vain to sell its turbines in Europe as well, without any success.

Fuji Heavy Industries developed a 2MW turbine with Hitachi for typhoon-prone Japanese waters back in 2009 and has been testing it as a floating turbine since 2013, but it never saw much usage. After spending three years trying in vain to sell the Suburu 80/2.0 turbine to Japanese utilities, Fuji Heavy Industries sold out its stake in the wind business to Hitachi in 2012. Hitachi proceeded to lose millions of yen developing a 5.2 MW floating turbine that could be used in the deep waters off the Japanese coast and survive typhoon winds. Hitachi’s failure was partly due to Japan’s geography, but it was also due to Hitachi’s lack of focus. Rather than invest in renewable energy, it was been distracted by the joint ventures it created with GE in nuclear power and Mitsubishi Heavy Industries in thermal generation, which are both dying industries that will continue losing money.

After the Fukushima Daiichi nuclear disaster in 2011, the Japanese government also prioritized saving Toshiba and Hitachi’s nuclear business and importing more liquefied natural gas, rather than pivoting to renewables as fast as possible. Most of Japan’s offshore wind potential is located in the less-populated, northern regions, but the country lacks an adequate grid to transfer electricity from Hokkaido and Tohoku down to Toyko and convert it from 50Hz to 60Hz to sell to western Japan. The Japan Wind Power Association estimates that only 96 GW out of a potential 378 GW of offshore wind capacity can be developed due to limitations in the grid. Although a feed-in tariff for wind and solar energy was introduced in 2012, Japan currently only gets 15% of its electricity from renewable sources and its current energy plan only targets increasing that percentage to 22%-24% by 2030. There is no clear plan for developing its offshore wind industry or upgrading its electrical grid for renewable energy.

After the Indian company Suzlon outbid France’s Areva to buy REpower in 2007, it proceeded to accrue $2.5 billion in debt as it geared up to sell its turbines in India where the government was offering big subsidies for renewable energy. Suzlon planned to build a  300MW wind farm off the coast of Gujarat before the Indian government slashed the renewable energy subsidies. Suzlon was forced to abandon the idea of marketing offshore wind to the developing world and in 2015 it sold off its Senvion division in a fire sale to avoid bankruptcy.

In the past, the economics of offshore wind made it largely impossible to compete with other sources of energy, without the firm backing of governments and heavy subsidies. According to REN21’s 2017 report on renewables, the capital cost of installing a kW of onshore wind capacity in 2016 was on average $1263 in Asia, $1866 in Europe, and $1805 in North America. In comparison, installing a kW of offshore wind cost $3286 in Asia and $4207 in Europe. Block Island off the coast of Rhode Island, which was the first offshore wind farm in North America, had a capital cost of $5500 per kW. Even when factoring the higher capacity factors for offshore wind due to the fact that that the wind speed is higher and more constant, the offshore wind energy is still costs roughly 20% more than solar and 40% more than onshore wind. There is more wear and tear on offshore turbines subjected to coastal storms and accessing the turbines by boat or helicopter makes the maintenance costs much higher. What ultimately killed the Cape Wind project was not the 23 lawsuits and the public protests, but the fact that the power utilities didn’t want to pay the contract price of $220 per MWh when they could get cheaper electricity from other sources.

Only in Europe where the governments had strong mandates and were willing to massively subsidize offshore wind, was it able to take off. China had a similar experience as Japan, South Korea and the US with offshore wind, until the government stepped in a couple years ago and started mandating its installation. China’s offshore wind installations didn’t take off nearly as fast as called for by the government’s five year plans, but it is now expected to grown 40% per year until 2020 due to the Chinese government’s goal of transitioning away from coal as fast as possible. South Korea and India are just as dependent upon coal as China, yet they don’t have the same level of governmental support to drive their offshore wind industries.

Even in places where the subsidies were strong and there was governmental support to grant regulatory approval, most wind turbine manufacturers lost their shirts in the offshore business. It takes years of prototyping and testing to develop a good offshore turbine that power project developers are confident enough to buy, since the maintenance costs and potential financial risks in coastal waters will be much higher than on land. The technical problems BARD experienced before it went bankrupt, convinced project developers like Orsted (formerly DONG), E.ON, Innogy, Vattenfall and Northland Power that it was very risky to go with untested offshore turbines and newly designed electrical conversion and transmission systems. One of the reasons why Vestas and Gamesa paired up with Mitsubishi Heavy Industries and Areva, respectively, was because their experience in electrical generation and transmission reassured wind project developers. On top of that, new types of ships, cranes, foundations and towers/floating platforms needed to be designed to install offshore turbines and developing the best techniques and figuring out the logistics took years of costly experimentation.

After Siemens established an early lead in the offshore market and had a battle tested turbine model like the SWT-3.6-120 with thousands of deployments, it was hard for any other company to compete in the offshore market. Companies like Samsung invested millions only to discover that it would take millions more in costly testing and small-scale deployments to convince the big wind project developers to risk their capital on their untried turbines. Even worse was the fact that there were very few offshore wind projects to go around and they often took far longer in the planning, financing and regulatory approval than initially expected.

The steep cost of entering the offshore market was coupled with the double whammy of reductions in renewable energy subsidies in Europe, India and the US. Between 2013 and 2016, direct subsidies for wind energy in the US fell 80%, from 6187 to 1266 million dollars. After Spain eliminated most of its renewable energy subsidies, its two wind turbine manufacturers, Gamesa and Acciona, could no longer survive as independent companies. Gamesa sought the safety of a merger with Siemens and Acciona sold itself off to Nordex. The margins for turbine manufacturers have grown smaller as the subsidies have dried up and energy companies have fewer profits so they are willing to pay less for turbines. According to the World Energy Council, the average selling price of onshore wind turbines in the US has dropped from roughly $1500 per kW in 2008 to between $950 and $1240 per kW in 2016. China has experienced similar trends with the price of wind turbines falling 37% between 2007 and 2016.

The price of offshore turbines is dropping at a faster rate than onshore turbines, judging from plummeting prices being paid for offshore wind electricity in public bidding. In the UK’s latest round energy auction for offshore wind, the winning bid of £57.50 per megawatt hour was over 50% lower than the average £117.14/MWh awarded in the last comparable bidding round just two years ago. Maryland will pay $132/MWh for its offshore wind electricity that is scheduled to come online in 2020, compared to $250/MWh for Rhode Island’s Block Island offshore wind farm, which came online in 2016. The price of European offshore wind electricity has dropped from roughly $0.17 per kWh in 2010 to $0.13 in 2017, and recent auctions for offshore wind farms in the Netherlands in 2022 and Germany in 2024-5 will sell electricity at the unsubsidized price of $0.06 per kWh. It is highly likely that other countries will follow the example of the Netherlands and Germany and start auctioning off future wind farm concessions at unsubsidized energy prices.

There is the potential for tremendous growth in offshore wind. Many governments around the world have formulated energy plans to install offshore wind on a massive level, such as Belgium (4GW by 2028), Netherlands (11.5GW by 2030), Germany (15GW by 2030), Taiwan (5.5GW by 2025), France (3.3GW by 2023), UK (18GW by 2020), South Korea (13GW by 2030), China (30 GW by 2020), New York (2.4GW by 2030), New Jersey (3.5GW by 2030) and Massachusetts (2GW by 2027).

These energy plans, however, depend on offshore turbines getting larger and wind farms getting bigger to drive down the costs to be able to compete with conventional energy. WindEurope reports that the size of the average offshore turbine installed in 2017 in Europe was 5.9MW, which represents a 23% increase over 2016. Likewise, the average size of new offshore wind farms in 2017 was 493MW, a 34% increase over 2016. Offshore wind farm developers expect the turbine manufacturers to continue this trend of building ever larger turbines which last longer, require less maintenance and lower the cost per kWh. The world’s three leading offshore wind operators, Orsted, EnBW and Vattenfall, all told Reuters they were bidding on future wind projects with the expectation that the next generation of 10 – 15 MW megaturbines would help them overcome the dwindling government subsidies for renewable energy. In order for wind turbine manufacturers to compete at the ever increasing scales, they will have gamble massive amounts of investment to keep up with the global leaders, Siemens Gamesa and MHI Vestas.

There are a number of companies that are planning to carve out a share of the duopoly currently occupied by Siemens Gamesa and MHI Vestas in offshore wind. GE is promising to finally bring Alstom’s Haliade 150-6MW to market in 2019. GE also plans to be the first company to introduce the next generation of offshore turbines in 2021 with its gigantic Haliade-X, which will have a capacity of 12 MW and 107 meter long blades. GE has both the resources and the technical know-how to design such a monstrosity. It bought the Danish company LM Wind Power in 2016 for $1.5 billion, which has manufactured a 1/5 of the world’s turbine blades, including the world’s current largest blade for the AD 8-180.

Hitachi is also gearing up to finally enter the offshore market after years of testing and prototyping. Hitachi recently announced that it will install 21 of its 5.2MW turbines in Taiwanese waters. Its recent losses in nuclear and thermal generation appear to have convinced it that offshore wind is a much safer bet. Doosan recently announced that it would reenter the offshore market, by building an 8MW turbine with a 190 meter rotor designed for 70 m/s typhoon winds and generation at the low wind speeds of South Korean shores. Goldwind might also become a serious global competitor in the future. The Chinese company is now testing its permanent magnet direct drive GW154/6.7MW, and it promises future GW164/6.45MW and GW171/6.45MW models. China’s Envision, also has global plans, as shown by its announcement of 3 new onshore turbines aimed at developing markets in Mexico, Argentina and India. Its current offshore turbine, the 4.2-130, doesn’t compete internationally with the current generation of 5-9MW turbines. It could, however, compete in the international market by scaling up its prototype E128-3.6 PP 2B, which is a two bladed, direct drive turbine which would potentially be lighter, easier to install, cheaper in price, and better designed for typhoon winds than 3 bladed turbines.

GE, Hitachi, Doosan, Goldwind and Envision could all become global competitors, by first using their home market advantage in France/US, Japan, South Korea, and China, respectively, to establish a foothold and gain enough experience and scale to expand internationally. Of these companies, GE is the best positioned to challenge the global duopoly of Siemens Gamesa and MHI Vestas. Not only does GE already operate around the world, but it has deep enough pockets to weather the vicissitudes and long development cycle of offshore turbines.

Despite the exploding size of the offshore market that could easily quintuple in the next decade, recent history, however, warrants skepticism about the prospects of any of these companies in the offshore industry. GE has installed 5 of its Haliade 150-6MW in Rhode Island’s Block Island and another 3 in the Fujian Xinghua Gulf as pilot projects, but its only large-scale deployment this year will be 66 Haliades in Germany’s Merkur Offshore Windfarm. In March 2012, Alstom was selected as the exclusive turbine supplier by EDF when it won the right to develop 1428 MW of offshore wind farms in France at Saint-Nazaire, Courseulles-sur-Mer and Fécamp, but it is unclear when or if those 238 Haliade turbines will ever be installed. EDF might decide to abandon the Haliade 150-6MW in favor of the larger V164 or SG 8.0-167 DD, which probably can offer a lower cost per kWh and have a longer track record. Although GE will probably win some of the future offshore contracts in the US and possibly in France, where it has a home field advantage, it will probably have to cut its prices to compete with the better turbines offered by Siemens Gamesa and MHI Vestas, so its profits are likely to be slim.

Where GE could gain a real competitive advantage and win major contracts is by being the first company to launch a next generation offshore turbine. GE is clearly aiming for its Haliade-X to be the first to market in 2021, whereas Siemens Gamesa and MHI Vestas have been very tight lipped about their future megaturbines. The CEO of Siemens Gamesa promised that its next turbine will be ready by 2024 when a couple of  wind farms are expected to start generating electricity at unsubsidized prices, but has otherwise refused to comment.

There are reasons, however, to doubt that everything will go according to plan for GE. The company is likely to lose money for the next couple years in offshore wind, as it tries to push into the competitive European market and waits for all the planned wind farms to begin on the American Atlantic coast. At the same time, GE is hurtling toward a financial crisis, with a pension shortfall of $31 billion and $9.8 billion in losses during the last quarter of 2017. It is clear that the next CEO will have to sell off large chunks of the company, and its new acquisition Alstom might be first on the chopping block, since GE Power’s profits fell 45% in 2017 and it competes poorly in the market for advanced gas turbines. At this point, GE is unlikely to sell off its GE Renewable Energy division, since it is betting on its future, but the financial chaos at GE might starve the Haliade-X of its R&D funds, which could delay it for years. 3 or 4 years of heavy losses in a row trying to sell the Haliade 150-6MW in vain, might convince GE to again cut its losses in the offshore market, just like it did twice before, or sell the Haliade off to an ambitious Chinese company. One ray of hope for GE is the fact that its competitors, Siemens and Mitsubishi Heavy Industries, will also be facing the implosion of their traditional power businesses, so they might be similarly starved for funds to develop the next generation of megaturbines.

GE is gearing up to be the first company to bring a 12MW offshore turbine to market, while its competitors will be stuck with 6.2 – 9.5 MW turbines, so it might win a lot of bids, especially on North American and French coastlines where the company has a home field advantage. The probably is that France and the Altantic seaboard states in the US have a history of making grand plans, but not implementing offshore wind, so more delays are likely. GE will probably have to offer its offshore turbines at lower price than Siemens Gamesa and Vestas MHI in order to convince energy project developers to go with a company that has less offshore experience, so GE Renewable Energy is less likely to be profitable. GE is the type of company where a future CEO might decide that it isn’t getting enough orders for its offshore turbines to justify the high costs, and decide to quit the market. Any company hoping to breaking into the offshore market is likely to lose money year after year, and it is unclear at this point whether GE will weather that storm at the same time that its gas turbine and nuclear energy business is shrinking and it is carrying a huge debt load from buying Alstom.

The problem is that developing the next generation of 12+ MW turbines is going to be so expensive that only a few giants can compete. Offshore turbine manufacturing is becoming like jumbojet manufacturing. It takes tens of billions of dollars to do the necessary R&D and many years of large orders are needed to pay back those costs. In an industry where the technology is changing so fast, there is little guarantee that a turbine model will be used long enough to ever repay the development costs.

Developing the current generation of 5-9 MW turbines took longer and cost more than than anyone in the industry anticipated. Vestas, the largest turbine manufacturer in the world, started developing its V164 in 2009 and it took nearly 8 years to take it to serial production. Siemens also started developing the SWT-6.0-154 in 2009, which is a huge investment for a turbine which ended up seeing almost no commercial deployment before being replaced by a better model. Alstom started testing prototypes of the Haliade 150-6MW back in 2012, yet GE won’t bring it to market until 2019.

By the time the industry starts developing the 20+ MW offshore turbines, the R&D for these turbines will probably cost as much as developing the Boeing 787 and Airbus A380. A small company like Senvion simply can’t compete at that scale and it will be a struggle for larger companies like GE, Hitachi, Doosan and Goldwind. All these companies, that have plans to bring offshore turbines to market, might lose so much in the attempt, that they will be forced to throw in the towel. The only real hope for Senvion is to be bought up by a larger competitor.

Hitachi will be limited to test deployments and Doosan will keep developing its offshore prototypes until the Asian governments start subsidizing offshore wind in a serious way, which seems likely in Taiwan, but less likely in their home markets of Japan and S. Korea. By the time that the Asian countries outside China start implementing serious plans for offshore wind, Goldwind and maybe Envision will have reached such a large scale in China, that they will be able to install their typhoon-resistant turbines for much cheaper than Hitachi and Doosan in Asian waters. Some Asian countries like Taiwan, Japan and S. Korea will refuse to allow a Chinese company into their markets for political reasons, but both Siemens Gamesa and Vestas MHI are now working to get their offshore turbines certified to withstand typhoon winds, so it is hard to see how either Hitachi or Doosan will be able to compete in the Asian offshore market. It is likely that the other Asian countries which aren’t firmly anti-Chinese will simply turn to the cheapest bidder, which will likely be a Chinese company, but they might go with Siemens Gamesa or Vestas MHI since they have a longer track record and are considered more reliable.

China’s belt-and-road initiative and its foreign policy in developing African, Asian and Latin American countries make it more likely that Goldwind and Envision will reach some foreign markets, but most developing countries are likely to focus on cheaper terrestrial wind in the near future. Only a couple established incumbents will have the scale and experience to compete in the future when offshore wind turbines will be so big at over 20 megawatts that they can generate for a lower cost per kWh than terrestrial turbines. Maybe a few companies like Goldwind and GE will be able to muscle their way into the global offshore market, but it is hard to see much room for many companies to compete at the kind of scale that will be required for unsubsidized offshore wind in the future.

1 thought on “The consolidation of the offshore wind turbine manufacturers

  1. Chanhee Son

    I stumbled upon your site searching for information regarding offshore wind. It is insightful and very much in line with my views having been in the industry for 8 years. But after checking your introduction i wonder what led you to follow the offshore wind industry from south america?

    Like

    Reply

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