Wind Turbine Makers Poised for Return to Profitability

August 22, 2013 by  
Filed under Green Energy News

Wind-turbine makers are poised to
making their first profit in years after shutting underused
factories and abandoning a drive for growth at all costs.

Vestas Wind Systems A/S (VWS) of Denmark, the world’s biggest
manufacturer, along with competitor Nordex SE (NDX1) are forecast to
have their first pretax profits this year since 2010, according
to analyst forecasts compiled by Bloomberg. Gamesa Corp.
Tecnologica SA (GAM)
is predicted to make a net profit after a loss
last year. Investors haven’t waited, driving up shares of the
three companies an average 220 percent in 2013.

After manufacturers cut at least 9,000 jobs and closed the
least efficient plants, turbine prices may rise for the first
time since 2009. That’s helping them cope with European subsidy
cuts and bruising competition that lowered prices by a quarter
in an industry that drew $75 billion of investment last year.

“Overcapacity and the price war was a big part of the
crisis,” Juergen Zeschky, chief executive officer of Hamburg-based Nordex, said by phone. “Now companies are doing their
homework and becoming more efficient, optimizing their processes
and achieving further cost reductions.”

Shares Surge

The result is the three turbine makers lead the 33-percent
recovery in clean energy shares this year along with billionaire
Elon Musk’s electric-car maker Tesla Motors Inc. (TSLA), the top
performer that has quadrupled, and California solar-panel maker
Sunpower Corp. (SPWR), which has tripled.

Vestas in Aarhus, Denmark, has surged to 109 Danish kroner
from 32 kroner at the end of December. The stock peaked at an
intraday 700 kroner in June 2008 and hit a 14-year low last
year. Spain’s Gamesa has more than tripled this year after
reaching an all-time low last year. Nordex of Germany recovered
180 percent in 2013 after hitting a seven-year low last year.

“We’re definitely past the worst,” said Jacob Pedersen,
an analyst at Sydbank A/S (SYDB) in Aabenraa, Denmark. “We’re seeing
order intakes improve and positive earnings revisions.”

The outlook is not uniformly optimistic. Turbine demand is
forecast to fall about a quarter to 36 gigawatts this year,
according to Bloomberg New Energy Finance. It expects a 5
percent drop in China, which may hurt domestic manufacturers
Xinjiang Goldwind Science Technology Co. and Sinovel Wind
Group (601558)

Cost Cutting

Even so, most of the manufacturers are in the middle of
cost-cutting programs that are beginning to show results. Suzlon
Energy Ltd. (SUEL)
, which had the biggest Indian convertible bond
default in history, is forecast to return to an operating profit
this year, though interest payments will wipe that out.

Vestas is less than five months away from completing a two-year program to reduce expenses by 400 million euros and its
workforce by about 30 percent. On Aug. 21, it replaced Chief
Executive Officer Ditlev Engel with Ericsson AB executive Anders Runevad as second-quarter losses widened.

Vestas Prediction

“If we execute our plans, then we will be profitable when
we present our full-year results,” Chief Marketing Officer
Morten Albaek said by phone.

The “pure-play” manufacturers have suffered more than
competitors such as General Electric Co. (GE) and Siemens AG (SIE), which
are bigger industrial conglomerates.

GE Wind’s orders fell by a third last year while the
company supplanted Vestas as the biggest turbine supplier,
according to Navigant Consulting Inc. (NCI)’s BTM Consult.

Profit at Siemens’ wind unit declined 15 percent in the
accounting year ended September 2012. Orders fell 24 percent.
It’s working to cut 615 jobs, anticipating a smaller U.S.

At Nordex, Zeschky announced factory closures in the U.S.
and China after taking over in March 2012. Those will slash a
quarter of its manufacturing capacity.

‘Growing Up’

“There’s still a lot of growing up to do,” said Zeschky
of Nordex, which returned to profit in the first half of 2013.
“It’s still a challenging market.”

Gamesa, which is based in Zamudio, Spain, reported a profit
of 22 million euros for the first six months of the year after a
loss last year. It’s announced 2,600 job cuts and will shut 24
offices to save 100 million euros a year.

“This industry was causing its own demise by building more
factories everywhere and continuously competing on price,” said
Daniel Patterson, an analyst at SEB AB in Copenhagen. “They’ve
all woken up to reality.”

Cuts by the biggest manufacturers have reduced potential
turbine supply 11 percent to about 72 gigawatts this year,
according to Daniel Shurey, an analyst at New Energy Finance in
London. A further reduction to about 67 gigawatts is predicted
by 2016. Global installations were 44.8 gigawatts last year. A
gigawatt is enough to supply 300,000 homes in the U.S.

Capacity Reduced

“The huge cost reduction efforts of all the main
manufacturers are starting to kick in,” Shurey said. “Capacity
is starting to move down, in line with the lower demand.”

Tighter supply is helping boost prices. Machines for
delivery in the first half of 2014 are selling for 1.01 euros a
megawatt compared with 880,000 euros for those to be shipped in
the second half of 2013, New Energy Finance estimates.

Gamesa Chief Executive Officer Ignacio Martin said on July
23 that there’s been “a stabilization of volumes and prices
that is expected to continue.” GE Vice Chairman Keith Sherin
said July 19 that pricing for renewables orders is up 11
percent, with new wind products “the biggest piece” of that.

“That’s a very interesting potential inflection point,”
Patterson said. “If prices start to go up, then this entire
industry and the stocks have more runway left.”

To contact the reporter on this story:
Alex Morales in London at

To contact the editor responsible for this story:
Reed Landberg at

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