Whenever markets are gripped by crisis, a wave of consolidation is sure to follow. “Consolidare”, the Latin root of the word, essentially means “to become firm”. In other words, when a given market is under pressure to simultaneously boost efficiency and cut costs, the whole sector is sometimes forced to toughen up in order to survive. But consolidation comes at a cost: mergers, staff reductions, even the demise of companies.
Anyone attending this year’s edition of Husum Wind is likely to have heard a great deal about consolidation. Even in the opening ceremony, Mayor Uwe Schmitz declared: “Husum is synonymous with wind, and sadly I feel bound to mention those who, for some weeks now, have been missing from among us.” Schmitz was referring to the restructuring under way at turbine manufacturer Senvion. In August the company announced that 90 employees would be losing their jobs due to the closure of Senvion’s Husum factory. In all, the company is cutting 730 jobs throughout Germany.
Like the recent loss of 500 jobs at Nordex, events at Senvion are not merely the result of the alterations to Germany’s Renewable Energy Sources Act (EEG): competitive pressure has been mounting at an international level for some time now. The recent introduction of an auction-based remuneration system is just one more challenge. The renewables sector as a whole is currently buzzing – after all, it represents the future of the energy economy. Nevertheless, individual segments are under a great deal of pressure.
Constant demand for new super-turbines
In the space of a few months, the Federal Government has succeeded in slashing remuneration for onshore wind by around half. No one can seriously continue to object to the energy transition on the basis of market economics. However, whether the contracts awarded will in fact all be built by the handful of successful bidders, or how investment security can be ensured for future projects, are questions that are causing major headaches for market experts.
“Among our clients we are seeing the full range of emotions from panic to serenity. Cost pressures are affecting the entire value chain,” says Andreas von Bobart, managing director of GE Wind Energy, describing the mood in the industry. “We too are in talks with the works council about cost-cutting. Like other manufacturers, we have to bring down costs in order to remain competitive.” The issue of job cuts is not a new one for the subsidiary of the American company. When it acquired Alstom, GE announced the elimination of 1,700 jobs in Germany.
Meanwhile, GE – just like Vestas, Enercon or Nordex – is reliant on technological progress. The sector is constantly demanding new super-turbines. At the Husum fair, GE unveiled its 4.8-158 machine. “We have significantly increased yield compared to the previous platform. It would have been impossible to achieve this effect by reducing the price of older turbines,” says von Bobart. “At the same time, we’re working on cost reductions for our customers – e.g. with digital solutions to optimise turbine operation, or flexible service options,” he continues, pointing out that this opens up “promising opportunities for participation in German auctions.
"The cake is growing smaller"
Consolidation is also a key theme in the predictions made by Matthias Brandt, managing director of Deutsche Windtechnik. “There is no question that the number of industry players will fall – the cake is growing smaller. And it’s all about who gets which piece,” he sums up. However, he believes it is crucial for the threefold structure comprising manufacturers, operators and service providers to remain in place, as “this is important for the optimisation of auction bids. Thanks to independent providers, service costs have fallen, it has become cheaper to exchange components, and operators can decide which maintenance operations to carry out themselves.”
Over the last five years, the service component of operating costs has become around 30 percent cheaper, Brandt argues, adding that now it is time to consider the entire value chain, and make processes smarter by recourse to digitalisation and data management. Another important point raised by Brandt is the issue of duplication. Many surveyors, operating managers and service providers use their own control centres to remotely monitor turbines, creating unnecessary work.
What is more, operating managers use inspection reports to check whether service providers have done their job properly. “These can be very time-consuming activities which could be optimised, or in some cases left out altogether. On the other hand, certain maintenance operations can be performed remotely or preventively, with automated documentation,” says Brandt, pointing out that in all these areas, it is necessary to distinguish between possible and expected quality.
Sector soupling is one of the hottest topics
He predicts a decline in the latter: in Germany, companies like to offer the highest quality possible, whereas in countries like the US or Spain, where remuneration has been low for some time, it is more common to do only what is strictly necessary. “We can learn a great deal from this approach. For example, what is the best course of action when a turbine is idle? Can smart combinations and automation be used for all activities? These are some of the questions smart service providers need to be asking in times of downward pressure on prices,” says Brandt.
But what about the large group made up of project developers and operators? Ove Petersen, managing director of GP Joule, says he is currently focusing on securing potential sites for new wind farms. Furthermore, GP Joule is concerning itself with the energy system of the future. In Husum, the company presented strategies for using surplus electricity. The underlying concept behind these approaches is sector coupling, one of the fair’s hottest topics. Many medium-sized companies are turning to new business models in order to remain viable. When it comes to participating in auctions, experienced industry players are becoming increasingly cautious.
It remains to be seen which technical and economical solutions the industry comes up with – not least in response to political signals from the incoming Federal Government. Will the future bring further market consolidation, or rapid growth in conjunction with a genuine commitment to climate action? The future of an industry is at stake.
This is an abridged version. The full article is available in issue 5/2017.