UPDATE 2-Vestas, Mitsubishi Heavy team up in offshore wind drive

Fri Sep 27, 2013 8:25am EDT

* Mitsubishi Heavy to inject up to 300 mln euros into JV

* Vestas will provide technology and 300 employees

* Sees North Europe offshore market growing 20 pct a year

* Vestas shares jump over 7 percent (Adds analysts, details, background, shares)

By Teis Jensen

COPENHAGEN, Sept 27 (Reuters) - Denmark's Vestas Wind Systems has agreed a joint venture with Japan's Mitsubishi Heavy Industries for offshore wind turbines, adding financial muscle to its attempts to catch up with rivals in a sector viewed as the future of wind power.

The deal is the first by Vestas' new chief executive Anders Runevad, who joined in August from Swedish telecoms equipment group Ericsson with a brief to turn round the loss-making firm, although it was under discussion for over a year.

Vestas has been hit hard by cuts in subsidies for renewable energy by cash-strapped governments, and has fallen behind deeper-pocketed rivals such as Germany's Siemens in the small, but fast-growing offshore wind power market.

The Danish group will transfer the development of its V164 8-megawatt offshore turbine to the venture, giving Mitsubishi Heavy Industries (MHI) access to cutting-edge technology at a time when Japan is increasingly interested in renewable energy following the 2011 Fukushima nuclear disaster.

In return, MHI will provide 100 million euros ($135 million) in cash, and a further 200 million euros if certain milestones are met, which may offer more security to Vestas customers investing in long term and expensive projects.

"So now Vestas will have to share the income from the V164," said Sydbank analyst Jacob Pedersen.

"But I think the income will be bigger with Mitsubishi as partner than it would have been without them. There are mega projects where Vestas could look a little fragile in comparison with competitors such as Alstom and Siemens."

At 1205 GMT, Vestas shares were up 7.5 percent at 143.2 Danish crowns. The stock touched as high as 700 crowns in 2008, before plummeting to as low as 23.25 crowns last year. MHI shares closed in Tokyo down 0.7 percent at 578 yen.

GOING GLOBAL

While Vestas is the world's biggest maker of onshore wind turbines, it is keen to catch up with rivals in the offshore market, where turbines have to be more robust and are more costly to install, but which is attracting growing interest because the noise and visual pollution face less opposition.

The main markets for offshore wind turbines are currently the North Sea coastal countries, particularly Britain and Germany. Out of 44,799 MW of new wind power capacity installed globally in 2012, only 1,295 MW was offshore, mainly in the UK, according to the Global Wind Energy Council.

Jens Tommerup, chief executive of the new joint venture, said he expected annual growth in the offshore market of around 20 percent in Northern Europe in the coming years and forecast it would develop into a more global business after 2020.

"Then we expect to see strong growth in Japan, China and other areas," Tommerup said.

The V164 turbine, Vestas' biggest, will have power output of 8 megawatts (MW), dwarfing Siemens' 6 MW offshore turbine which has been a popular choice in recent offshore tenders.

Vestas will transfer its offshore order book and service contracts and about 300 employees to the joint venture. Out of Vestas' total order backlog of 7,216 MW, the backlog for offshore amounted to just 483 MW as of June 30.

MHI will have the option to increase its stake in the joint venture to 51 per cent in April 2016, potentially weakening Vestas' position.

But Alm. Brand analyst Michael Jorgensen said it was essential the firm had brought in a strong partner. "The most important factor for Vestas and its position in the market is the signal that they now have a 'big brother'," he said.

While Vestas has made a net loss in the last two years, there are signs it may be turning a corner after over 5,000 job losses, plant closures and an exit from unprofitable operations.

The order intake has started to pick up and on Thursday it announced a major 400 MW order from the United States.

The joint venture will not have any impact on Vestas' annual accounts for 2013 and is expected to have only a marginal impact on its 2014 earnings, the company said.

Goldman Sachs International, Nordea Investment Banking and SEB Corporate Finance acted as joint financial advisers to Vestas.

($1 = 0.7418 euros). (Additional reporting by Shida Chayesteh; Editing by David Goodman and Mark Potter)