Wind turbine manufacturers have to use the current calm to become fit for the future

• Times for wind turbine manufacturers are tough due to crisis
• Wind energy costs need to come down to truly compete with traditional power sources
• Top players are facing fiercer competition
• The core markets require different strategies
• Key challenge: how to further industrialize the wind turbine manufacturing business

The times for wind turbine manufacturers are tough. But the crisis is expected to be only a brief calm for the wind market. The long-term growth trend is still intact with 17% growth per year predicted until 2012. But there are many challenges ahead. Manufacturers have to use this lull to address these challenges and become fit for the future.

"The crisis has brought a calm to the wind industry," says Manfred Hader, Partner at Roland Berger Strategy Consultants. "But the long-term growth trend is still intact with forecasts of 17% growth per year until 2012." The reason for this is that there are ambitious government goals to increase the renewable energy share in the core markets, such as the US, Europe, China and India. Europe is aiming to generate 20% of its energy from renewable sources by 2020. Its governments are planning total investments of EUR 120 billion between 2011 and 2020. At the same time, there are penalties for fossil fuels in Europe. Looking outside of Europe, the US has proposed a target share of 20% for wind power by 2030. China is aiming to reach 100 GW of wind power capacity by 2020, and India 40 GW. According to the study, key factors such as oil and gas risks, green image concerns and the EU targets for 2020 are driving utilities to increase the share of wind in their portfolio.

Wind energy costs still need to go down

Wind energy costs still need to decrease to become competitive without government incentives and to truly compete with traditional power sources. The main cost driver of wind energy is the price for the turbine itself, which still accounts for more than 50% of the total lifecycle costs. Therefore to reduce wind energy costs, the wind turbine needs to become cheaper. Experts expect hefty price reductions in the future, because wind turbine manufacturers are losing their bargaining leverage due to intense competition for growth markets, increased capacities and increasing delivery capabilities. Bigger wind farm projects and framework agreements are intensifying the competition among wind turbine manufacturers for fewer but larger orders. The average wind farm size increased by 20% in the last four years – larger projects over 50 MW are expected in the next few years, especially offshore.

Dominance of top players is decreasing

The dominance of the top players is dropping off sharply. Observers expect an intense battle for market share in the next two years. The market share of the top four manufacturers has already decreased from 73% to 55% since 2005. More than ten other turbine vendors are fighting for market share in regional markets at the moment. To protect their market position, wind turbine manufacturers need to address four challenges:

1. Capturing the market
2. Leveraging technology
3. Enhancing supply chain
4. Restructuring operations

Each core market requires a different strategy

Manufacturers have to use the current slowdown to push ahead with forward-looking initiatives. Their main challenge is to secure top line growth in the next few years. Therefore they have to establish a presence in the core markets of China, the US and Europe and adopt individual local strategies. Furthermore they will need to strike global framework agreements with utilities in order to participate in market growth. In the light of the current economic crisis, the key is to manage the risks along the supply chain to ensure delivery capability and build up global operational excellence. "Robust industrialization of operations is critical for combating pressure on profit margins," says Hader. It's also very important to focus product development on lifecycle costs and optimize overall equipment efficiency and output. Hader continues: "The development of a global operations footprint is a must to access key markets and keep costs low."