Wind Turbine Manufacturing : A case for consolidation
Dr. Wilfried Aulbur
Mr. Pratik Kadakia
A global study by Roland Berger Strategy consultants on the game changing trends that impact the wind energy industry today reveals that further cost-out and reshaping of the industry can be anticipated say Dr. Wilfried Aulbur ([email protected]), the Managing Partner at Roland Berger Strategy Consultants India and Pratik Kadakia ([email protected]), Principal – Energy, Utilities & Chemicals.
A study of the key trends impacting the wind energy industry today augurs for an increased focus on systematic cost-out programs and a next wave of consolidation especially in Europe as it responds to challengers from the emerging markets. Let us examine these game changing trends in more detail to appreciate this better.
1. Uncertain growth perspective:
Regulatory uncertainties in key markets such as the extension of the PTC scheme in the US, the critical state of public finances in Europe, etc. and the emergence of cheap alternative sources of energy, e.g., shale gas, have dampened the growth perspective for these markets. Focus has shifted to emerging markets, in particular, China. While China is likely to see dynamic growth turning the country into the largest market globally, India, the UK and France may continue to have untapped potential.
2. Emergence of Chinese competitors:
An overview of the share of Chinese players over the past five years shows the emergence of competitive local players such as Dongfang, Sinovel, Goldwin, etc., who have pushed out the Western players from the Chinese market and now control over a third of the global share from a negligible presence five years ago. Exceptionally low turbine prices in China are the drivers for this market share expansion and have driven overall global price down as shown in Figure 1.
Facing immense competition and pressure in their home markets, the Chinese players were lured by the stable conditions in Europe where they could even afford to undercut prices by 20%. A break down of the landed price in Europe of ex-China turbine is depicted in Figure 2.
Figure 1
Figure 3
Figure 4
Figure 5
3. Race for grid parity:
While grid parity for wind energy is aspired and is within reach, the targeted cost of energy at EUR cents 4-5/kWh will require a further cost reduction of 25-40%. The case of Germany is highlighted in Figure 3.
Targeted cost-out measures still hold a significant potential and are being systematically implemented by all major OEMs. In the past, a cost-out of one third could be achieved by wind OEMs every 10 years. A further cost reduction potential of the same order of magnitude is needed in the next 3-5 years. This cost-out has driven innovations, new technical solutions like Direct Drive, and enhanced reliability.
Supply chain levers such bundling of contracts, make-or-buy, best practice costing and collaborative approaches are likely to yield the largest cost-outs to the extent of 10-15%. Another 3-6% improvement can be realized from cost-out from product optimization thru benchmarking the design standards versus requirements. A further 2-4% is possible thru value stream mapping and process improvements in R&D and production. An overview of the Design-to-Cost potential for wind turbines and the activities undertaken by major OEMs is represented in Figure 4.
4. Changing global supply chain patterns:
As the number of countries with annual installations in excess of 500 MW increases from 13 in 2010 to a likely 19 in 2015 and expected to reach 24 in 2020. In particular, emerging markets will drive changes in the global supply chains. Business models of OEMs will adapt to remain competitive both globally and locally with the requisite degree of localization in their global operations. In the case of blades, structurally they should be procured regionally.
In the future, technological advances towards “connectible blade” will be offset by concurrent build-up of local industries thus keeping the business regional instead of a global play, as shown in Figure 5.
However in the case of castings, eight of the top ten global castings suppliers today are from Asia, including the likes of Seforge and Patel Alloy from India, which points towards the inevitable geographic shift and realignment of supply chains in castings to secure capacities from Asia.
Companies such as Siemens balance their global and local supply in a “Hub & Spoke” configuration to achieve cost efficiency, quality and secured supply thru an optimal mix of clusters of excellence for global/regional supply and local sourcing. The global clusters – besides serving as centers of excellence for competence, technology and quality – also add economies of scale from pooling volumes while local sourcing provides flexibility, advantage for certain sizes/weight, local content and serves as a natural hedge in many instances.
5. Offshore wind taking off :
While growth of offshore wind is expected to accelerate with Europe being the key driver, doubling the installations, from the current 1 GW/year, every 4-6 years, it will become critical for players to prove their “offshore wind capabilities” by delivering projects along agreed timeframes, cost targets with promised quality and performance. Creating a track record will be essential to emerge as winners in this market. Chinese players are quickly moving up the technology curve and can be expected to gain a significant share too with disruptive innovations thru partnerships across the value chain.
These trends highlight increased focus on cost-outs, realigning of supply chains, alliances and consolidation across the value chain in coming times. Those who can execute with a well thought out strategy will emerge successful. Tomorrow’s winners may well be different from the leaders today and an opportunity exists for companies to maximize on the opportunity that wind energy offers globally.
