Global German Wind Turbine OEMs Face Harsh Market Headwinds

German turbine OEM Senvion recently finished the installation of the final 6.2 MW offshore wind turbine at the 200 MW Trianel Windpark Borkum II offshore wind farm in the North Sea. It is likely the OEM’s last offshore wind turbine installation, as Senvion filed for insolvency in April. Confidence is everything in the wind power industry—especially in the offshore sector. Once confidence is eroded, developers and investors will seek turbines elsewhere.

What Happened with Senvion?

Senvion’s plight is largely due to the collapse of its domestic German onshore wind power market after a countrywide shift to competitive power contract auctions in 2018. The wind industry considers this shift a botched effort with policy flaws. Senvion aims to restructure and is undergoing a self-administered turnaround program, exiting 30 country markets globally and streamlining its turbine offerings. Shares have plummeted and the company has begun to sell off significant assets, making it difficult to return to the market in a competitive position.

In October, Senvion agreed to sell the majority of its European onshore wind services and operations and maintenance (O&M) fleet for €200 million ($222 million) to larger turbine OEM Siemens Gamesa Renewable Energy (SGRE). This sale represents around 9 GW of operating capacity. The deal also offloads Senvion’s blade manufacturing facility in Portugal to SGRE.

O&M business is highly sought after in the wind sector; O&M service agreements are profitable and high margin at a time when new wind turbine sales face intense cost pressures from policy shifts to competitive power contract auctions. The long-term, steady income from O&M helps smooth out revenue from fluctuating turbine sales.

Other German Turbine OEMs Face Similar Pressure

Germany’s two other large turbine OEMs, Enercon and Nordex, face similar cost pressures. This is not isolated to the Germany market. These are global companies active in dozens of countries but with a business foundation in Germany. A destabilized foundation sends reverberations throughout all global business channels and shakes confidence.

Enercon is privately owned, so its woes are not shared in investor statements and quarterly reports. Yet deployments of its wind turbines and market shares by country and region have been steadily decreasing. Guidehouse Research, a Guidehouse company, tracks these deployments in its report, Market Data: Global Wind Turbine OEM Market Share.

Enercon’s senior leadership has been vocal, stating that the company has been forced to slash production, jobs, and contracts with key suppliers. It says the job losses may add up to around 3,000 at its headquarters and outsourced production plants in Aurich and Madgeburg, Germany. Further job losses are feared at suppliers, logistics firms, and service providers. Enercon leadership also stated that it blames the introduction of poorly structured tenders and failed political reforms for the collapse of Germany’s onshore wind market, noting that orders had stopped, installing only 210 MW in Germany in the first 10 months of 2019. For comparison, Guidehouse Insights’ tracking shows that Enercon installed 1,841 MW in Germany alone in 2016 before the market downturn.

Nordex is also facing cost pressures. It reported a net loss of €21 million ($23.3 million) in 3Q 2019, but the company also highlights positive underlying dynamics including its sales increase of 16% and increased production output by 78%, from 1.7 GW in 2018 to nearly 3.1 GW in 2019. To strengthen its position, Spanish infrastructure group and majority shareholder Acciona increased its position in the Nordex Group to 36%, up from 30%. Under German law, this will automatically trigger a formal takeover and is yet another example of continued consolidation in the wind power sector. The narrowing market will continue to put pressure on major players.