prices, coupled with the cyclical nature of the market, means that today there are several sources of cost pressures that the supply chain is facing.
Local content uncertainty adds complexity Offshore wind local content policies are a key tool being used by governments to help increase domestic employment, stimulate the economy, and create a national supply chain that can provide goods and services to wind farms that are being constructed in their respective nations. The UK government has launched a consultation that aims to make changes to the Contracts for Difference (CfD) subsidy scheme to boost local supply chains. Taiwan’s Ministry of Economic Affairs has also set several local content rules for the third round of Taiwan’s offshore wind auction. Turbine OEMs are noticeably looking to set up shop locally in select countries to access local and regional opportunities. Siemens Gamesa and GE have both announced plans to construct offshore wind blade manufacturing facilities, with the former committing to constructing their facility at the Portsmouth Marine Terminal in Virginia, US, and the latter investing in a facility in Teesside in the Northeast of England. Aside from equipment-based local content policies, vessel-specific policies can have a direct impact on turbine transport and installation (T&I) companies. In Taiwan, the local content rules for the third round of auctions state that locally flagged vessels should be used, if not, the vessels should be owned by locally registered companies with local content of more than 50%. The Jones Act in the US has also created its own uncertainties and complications for the turbine T&I sector. An example of this reaction to the Jones Act is Eneti’s recent cancellation of its plans to construct a Jones Act compliant wind turbine installation vessel (WTIV) in the US, instead focusing on its current fleet and project commitments. Collectively, these policies create a further layer of complexity and will likely add financial pressure on developers and the supply chain. Companies will be forced to take decisive steps to optimise their asset base to access local/regional opportunities.
Turbine OEMs: future challenges ahead The combination of developers taking bigger risks, the cyclical nature of the industry, and a greater demand for localisation is a challenge that all stakeholders need to manage to successfully deliver. The performance of turbine OEMs is closely watched as an indicator of the health of the industry. The three major wind turbine OEMs (Siemens Gamesa, GE, and Vestas) have faced financial difficulties, with Siemens Gamesa and GE’s Renewable Energy segment announcing losses in the 3Q21 and 4Q21. Vestas has done comparatively better than the other two OEMs, but nevertheless their profits declined even though y/y revenues increased. However, it is primarily the (much larger) onshore wind business of these companies that have created the
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difficulties. Siemens Gamesa’s onshore business has, for example, been affected by ramp-up challenges with regards to its 5.X onshore turbine platform. This has resulted in some necessary design changes, impacting production and the schedule for executing projects. Meanwhile, GE’s onshore wind business in the US was impacted by the expiry of US production tax credits (PTC) in 2021, creating uncertainty resulting in project delays and deferral of customer investments. Siemens Gamesa has been keen to stress that its offshore business is “profitable and growing”. While it is important to acknowledge that the current financial predicament of turbine OEMs may not be attributed to their offshore wind turbine segments, these OEMs would likely exercise company-wide cost discipline, potentially looking at ways to increase profitability via their offshore segments. More broadly, the difficulties in the onshore business are a case study in how things can go wrong. A focused and disciplined growth strategy will be key. A potential future difficulty that the three major turbine OEMs could face is the influx of Chinese players entering the offshore wind market. MingYang has begun making moves outside of Mainland China, with its first turbine already installed at the 30 MW Taranto wind farm offshore Italy. Adding to its international orderbook are contracts to supply a total of three MySE 3.0 MW typhoon-proof turbines in Japan, and a 11 MW hybrid turbine for an unnamed floating wind project in Europe. Aside from supplying directly to European wind farms, the Chinese Turbine OEM has shown intent to set up a factory in Europe to strengthen its presence in the region, with the signing of a Memorandum of Understanding (MoU) with the UK’s Department for International Trade (DIT) to explore investing in a blade manufacturing factory, a service centre, and possibly a turbine assembly factory. Should MingYang successfully entrench themselves in the international market, the three major turbine OEMs will need to contend with a new normal of diluted market share and even more competitive pricing.
Going strong, but for how long? One segment of the supply chain that Westwood sees as doing comparatively well are dedicated turbine T&I companies, with notable examples being Cadeler and Fred Olsen Windcarrier. Certainly, financial performance has been good, as Cadeler reported a net profit margin of over 15% in 1H21. Bonheur, the parent company of Fred Olsen Windcarrier, announced in their 3Q21 results that its Wind Service segment, which includes Fred Olsen Windcarrier, registered an EBITDA margin of 25% in comparison to 18% in 3Q20. The core solution on offer by these companies is WTIVs. The versatilities of WTIVs, primarily used in installing turbines and occasionally installing foundations, has spurred more new-build WTIV orders compared to only five heavy lift crane vessel orders. Demand for WTIVs has resulted in an acceleration in investment in WTIV assets, both in terms of new orders as well as vessel upgrades.
