Gamesa battens the hatches against turbulence ahead
New installations will fall before rising again
Forecast: Asia will rescue falling market
A Spanish energy business prepares for the chill winds of global downturn.
The global drive for wind energy is reaching a crossroads. Projects on land face ever-longer planning and environmental consent processes while complicated financial incentives dampen the flow of funds. Growth in offshore wind is still limited by cost and technological hurdles. It is against this background that Spanish turbine manufacture Gamesa presented its first-quarter results.Gamesa was number four in 2011 with 8 per cent of the market - behind Vestas, Sinovel and Goldwings - which affected its profitability and debt. Despite this it increased sales with a record 2.4-fold growth in turbine order intake and accelerated the strategy to monetise wind-farm development and sales.
Gamesa chairman Ignacio Martin said the company had proved astute in making the most of benign conditions during the boom years, but now it must adapt to a different situation. “The main challenge is to come out a stronger enterprise,” he said. “We need to focus on the prevailing circumstances and enhance our ability to compete in all our markets by resizing our resources. This is how to win the price per kWh battle while preserving sustainable jobs.”
Gamesa’s consolidated sales were up a third to €777m in the first quarter of 2012, driven mainly by wind-farm development and sales, offsetting the performance of the wind turbine division, which was hit by the decline in activity in China and India.
Wind-turbine order intake accelerated, expanding by 136 per cent to 687MW in the first quarter of 2012, compared with 291MW signed in the first quarter of 2011. Gamesa’s pipeline stood up 4 per cent at 1,776MW at the end of March 2012.
The macroeconomic and industry situation, growing price competition, and the costs of implementing new platforms worldwide had a temporary effect on profitability. As a result, the margin on EBIT (earnings before interest and tax) was -0.6 per cent.
Looking ahead, Martin painted a gloomy picture. “Short term, global economic weakness and questions about the sustainability of public debt levels in the US and Europe are undermining demand in the wind energy industry,” he said. “Reduced demand for energy is lowering electricity prices and mitigating the immediate need to add to already-surplus generation capacity in some western markets. Meanwhile, budget deficits in southern Europe and the US are diminishing the government’s ability to finance programmes that support various renewable energy technologies, lowering returns on investment.
“Coupled with limited access to more expensive borrowings, our customers - developers and the major European and US power utilities - are paring back their near-term investment plans,” he added.
It is fair to say that, faced with a challenging and uncertain near-term environment, Gamesa needs to adapt if it is to become a stronger enterprise. The company’s flexible approach to manufacturing, combining in-house production with outsourcing, together with its ability to swiftly adjust capacity to match demand, constitute the essential tools for competing in the current environment.
Forecast
Asia will rescue falling market
The global wind industry will install more than 46GW of new capacity in 2012, according to a five-year industry forecast published by the Global Wind Energy Council (GWEC). By the end of 2016, total global wind power capacity will be just under 500GW, with an annual market in that year of about 60GW.
GWEC predicts average annual market growth rates of 8 per cent for the next five years, with a strong 2012 and a substantial dip in 2013. Total installations for the 2012-16 period are expected to reach 255GW, with cumulative market growth averaging just under 16 per cent.
“For the next five years, annual market growth will be driven primarily by India and Brazil, with significant contributions from new markets in Latin America, Africa and Asia,” said Steve Sawyer, GWEC secretary general. “While the market continues to diversify, it is at the same time plagued by continued slow economic growth and budget crises in the OECD, as well as the continuing credit crunch.”
For the second year, the majority of new installations were outside the OECD and this trend will no doubt continue. Asia will continue to be the world’s largest market with far more new installations than any other region, installing 118GW by 2016, and surpassing Europe as the world leader in cumulative installed capacity during 2013, ending the period with about 200GW in total.
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