The price of wind power is dropping fast, and it\u2019s closing in on the price of fossil fuels around the globe. [1] While this is good news for households, wind turbine suppliers, like Denmark-based Vestas Wind Systems, are facing falling revenues and sinking share prices. [2] The lower price in wind energy has predictably increased the demand for wind turbines, consequently spurring intense competition between supplier rivals and driving down margins in sales.<\/p>\n
In the last year, Vestas triumphantly surpassed General Electric (GE) in market share and became the number one manufacturer of wind turbines, but there was little occasion to celebrate as Vestas also reported a 6% drop in revenue and 20% plummet in share prices in its third quarter. [3] Despite a nearly 50% increase in orders from 2016, production disruptions and delivery delays have created a backlog, further exacerbating losses. [4] <\/p>\n
While Vestas foresees mounting challenges, the company is taking measures to address these challenges. In the short term, Vestas is increasing contracts for high-margin maintenance services with current customers. [5] The company has been manufacturing turbines for 40 years and continues to develop relations with a much broader range of customers than competitors GE and newly merged Siemens Gamesa, who both depend on orders from a small number of big customers. Additionally, Vestas CEO Anders Runevad continues to aggressively expand into the United States: \u201cWe have widened the customer base quite substantially\u2026we have managed to penetrate further into the big U.S.-based utilities.\u201d [6] Vestas has recently announced a plan to innovate in energy storage, seeking projects that can increase the supply of consistent power in an industry where wind can fluctuate by season and geography. [7] In this partnership, Tesla Inc. will provide the battery storage, and Vestas will provide wind turbines to supplement solar panels for Kennedy Energy Park in Queensland, Australia. This project, set to be complete by the end of 2018, would be the \u201cfirst wind, solar and storage hybrid generator connected to the Australian national electricity network via a single connection point.\u201d If successful, the potential for a stable energy source with potential for high penetration could be a game changer in reliable, low-cost renewable energy. [8] <\/p>\n
Vestas continues to search for new markets, with China and India crucial to its medium term strategy. China continues to increase capacity for wind turbine installations with new goals in place for 2020, and India has started a program to build capacity for wind generation by 2022. Vestas is capitalizing on these opportunities by opening its first blade factor in India and expanding its business presence in China. [9]<\/p>\n
Vestas should continue to innovate and seek cost-saving strategies, but it\u2019s important to keep an eye on competition. GE is making major investments in R&D, while Vestas is reducing spend in this category and instead focusing on product development. [10] [11] As a company with an extremely low debt to equity ratio, Vestas should also invest more money in R&D and focus on improving technology to drive down costs. [5] Furthermore, large turbine vendors have been purchasing rivals as a tactic to increase its strategic position and market share, such as Siemens\u2019 recent merger with Spanish company Gamesa, the Spanish wind and renewable energy group. Other players have acquired companies \u201cupstream in the value chain,\u201d which is exemplified by GE\u2019s April 2017 acquisition of LM Wind Power, the world\u2019s largest turbine blade manufacturer. Vestas would be well served to consider forming partnerships with other industry players in not only wind, but also other renewable energy assets around the world. Government-controlled Chinese companies, like its largest hydropower plant, China Three Gorges, has become an international player by acquiring German offshore wind park Meerwind. [12] [13]<\/p>\n
In this vein, it is also important for the firm to carefully track competing forms of renewable energy, like solar and nuclear power, and anticipate additional energy cost reductions as more countries gravitate to auction-based contract awards. The auction victors are the suppliers of the cheapest electricity, and Vestas can win if it keeps its costs low. [5] Unlike GE and Siemens Gamesa, since Vestas currently focuses solely on production of wind turbines, it should continue to capitalize on economies of scale as an advantage towards cost reduction.<\/p>\n
As the future of renewables continues to evolve, some questions are worthy of consideration:
\n(1) How important is speed to market in emerging markets, like India, that don’t yet have a well developed power grid in place?
\n(2) What will be the role that solar power plays in the innovation of wind power, as technology continues to improve? (764 words)<\/p>\n
[1] https:\/\/energy.gov\/eere\/wind\/downloads\/2016-wind-technologies-market-report
\n[2] https:\/\/www.nytimes.com\/2017\/11\/09\/business\/energy-environment\/wind-turbine-vestas.html
\n[3] https:\/\/www.ft.com\/content\/fc1467b8-c601-11e7-b2bb-322b2cb39656
\n[4] https:\/\/www.ft.com\/content\/18f312d2-832f-11e7-a4ce-15b2513cb3ff
\n[5] https:\/\/www.bloomberg.com\/gadfly\/articles\/2017-08-17\/vestas-still-has-a-fair-wind-behind-it
\n[6] https:\/\/www.reuters.com\/article\/us-usa-wind-vestas-wind\/vestas-leaps-to-top-spot-in-u-s-wind-market-idUSKBN15P12U
\n[7] https:\/\/www.bloomberg.com\/news\/articles\/2017-09-01\/vestas-joins-with-tesla-to-combine-wind-turbines-with-batteries
\n[8] https:\/\/www.bloomberg.com\/news\/articles\/2017-10-19\/tesla-and-vestas-partner-in-160-million-australian-project
\n[9] https:\/\/seekingalpha.com\/article\/4080612-strong-tailwinds-keep-blowing-vestas-wind-systems
\n[10] http:\/\/www.gesustainability.com\/performance-data\/building-things-that-matter-goals-metrics\/
\n[11] https:\/\/www.vestas.com\/~\/media\/vestas\/investor\/investor%20pdf\/calendars\/05121003_av.pdf
\n[12] http:\/\/www.fticonsulting.com\/about\/newsroom\/press-releases\/vestas-returns-to-no-1-spot-in-global-wind-turbine-supplier-ranking-in-2016
\n[13] https:\/\/www.reuters.com\/article\/us-blackstone-group-wind-farm-china-thre-idUSKCN0YZ1DC<\/p>\n","protected":false},"excerpt":{"rendered":"
Cost reductions in wind power are shrinking profits for wind turbine manufacturers.<\/p>\n","protected":false},"author":9896,"featured_media":26933,"comment_status":"open","ping_status":"closed","template":"","categories":[185,1239,1847],"class_list":["post-26932","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-renewable-energy","category-renewable-storage","category-wind-power","hck-taxonomy-organization-vestas-wind-systems","hck-taxonomy-industry-energy","hck-taxonomy-country-denmark"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n