By Gerard Wynn
LONDON Jan 12 Turbulence at Danish wind
turbine maker Vestas reflects a flagging sector and
demand pressures through 2014, but that only just merits chief
executive Ditlev Engel holding his job.
Engel in three months has presided over two profit warnings,
and on Thursday over an axe to a tenth of the workforce, job
cuts mostly in Denmark. Shares have fallen two-thirds in a year.
Luckily for him, the world's biggest wind turbine
manufacturer also hit guidance for orders in 2011, equivalent to
more than a fifth of globally installed capacity last year.
The company's re-drafting of profit expectations and
long-term targets are a window on wider sector problems of
over-capacity and sliding turbine prices.
World demand rose moderately last year, by 10 percent or
more, according to an early estimate by the head of the Global
Wind Energy Council (GWEC), Steve Sawyer, reversing a drop in
The sector now faces a renewed economic downturn in Europe,
an election year in the United States stuffed with Republican
climate sceptics, and more scrutiny in China of booming projects
which have out-grown the grid: blades were turning but no power
These problems will be over-turned: Chinese demand will rise
again after a flattish 2011; developments are ramping up in
other emerging economies including Brazil, South Africa and
Mexico, and in smaller countries from Honduras to Mongolia.
The trouble for the wind market mirrors that of solar:
demand has slowed after boom years when manufacturing capacity
exploded, leaving a nasty hangover.
Yet wind turbines have important advantages over solar: the
technology is more mature and increasingly competitive with
And, fortunately for Western makers, huge turbines which
need complex servicing are less easily traded worldwide, leaving
much of China's over-capacity at home rather than crashing
global prices: China's capacity is as much as twice utilisation,
according to HSBC analysts.
At present the sector is suffering from roughly 10-15
percent global over-capacity and a 10 percent fall last year in
New challenges in Europe, the United States and China
differ, and may deepen problems.
In Europe, a renewed economic downturn is curbing power
demand and has raised the cost of credit, critically for an
energy source which depends on up-front capital.
The cost of financing wind projects in Europe is now around
300 basis points over inter-bank lending rates, from a low of
225 points since the financial crisis, according to one
In the United States the risk is to government support:
demand was up in 2011, but in part due to a rush to avoid a
cliff edge in government support if tax credits are not extended
beyond December 31 this year.
An election-year mood for extending wind power support is
framed by states which have wind power potential versus recent
fallout after government support for solar manufacturer
Solyndra, just before it filed for bankruptcy, and doubts among
Republican candidates about climate change.
To qualify for the credit, wind farms must be operating by
December 31, which in turn means construction should have
started by around April - now the cut-off date for new turbine
orders into the United States.
Vestas said on Thursday an additional 1,600 U.S. jobs could
go if the credits were not extended.
The U.S. wind market has also faced competition with the
rapid development of shale gas - still an all but exclusively
U.S. energy phenomenon - which has cut gas and power prices.
Meanwhile the Chinese market in installed turbines, which in
2010 grew more than 40 percent and accounted for half the world
total, was roughly flat last year according to industry
The fall in demand growth is accounted for by more
regulatory scrutiny of turbine quality and of smaller
developments, to ensure project growth matches grid
But the market will still grow over the medium-term: China
last year raised its target for grid-connected wind
installations by 2020 to 200 GW from 150 GW, compared with 47 GW
And the longer term outlook in developed countries will be
buoyed by offshore developments - for example Britain could
install an additional 15 GW or more by 2020, in addition to
growth in Brazil and other emerging markets.
"Emerging nations will remain the main drivers of growth,
with India and Latin America posting the fastest rates of
expansion," said Vestas rival, Spanish turbine maker Gamesa
, in an emailed statement.