Vestas faces Death Knell/ Consolidation aka First Solar from Price War by Chinese Wind Turbine Producers

Chinese Wind Turbine Companies have unleashed a global price war in which  Western producers are unable to compete. While Solar Panel producers in the West are dying like flies, Western WTG Makers too face survival questions. Vestas which is the world’s biggest turbine company in terms of installations announced another revenue shortfall for the nth time in the last couple of years. The company has already restructured ,reduce workforce etc etc. However the price competition from the Asian companies is too severe and too sustained for Vestas to survive too long. Like First Solar, Vestas seems a likely candidate for takeover by one of the big industrial conglomerates. It has become too tough for a renewable energy company in the West to survive on their own.

Note the Chinese Wind Turbine Manufacturers too have been battered by the severe oversupply and competition with 80% of the companies on the verge of shutdown as well

The Chinese government is set to remove the subsidies to small wind turbine companies in China under a new rule which will be implemented from June 1 . Note the authorities have been concerned about the over investment in the green energy industry boosted by the strong domestic market. The government has already cracked down on small polysilicon producers which  were producing polysilicon at uneconomic costs and causing environmental hazards as well. The Chinese government controls most of the funding through its massive state owned banks and gives a number of incentives to industry as well. With the removal of tax breaks,cheap land and easy loans, it will be difficult for even the bigger wind turbine companies to survive leave alone the small ones.

Earlier Articles on Vestas 

Vestas employs over 8000 people in Denmark which is its home base out of the 22000 employees worldwide. The company now plans to fire 3000 workers mostly from Denmark even as it hires workers in places like India and UK.Vestas has to cut a lot of flab as Chinese companies destroy higher priced competition in the Wind Energy Industry. Like the Solar Industry, where European companies like Q-Cells and Solarworld are facing an existential crisis from low cost Chinese competition , Wind Energy now faces similar dynamics.Like Q-Cells and REC which relocated their manufacturing to Asia, Vestas has to do a similar act.Despite a record  order book of 6.5 GW in Q310,Vestas has to fire Danish workers who are more than 10x more expensive than similar Asian workers.I n  a globalized world,companies don’t have the luxury of employing expensive workers in developed countries if similar workers can be employed elsewhere.Note competition is increasing in Wind Energy with big players like Hyundai,Samsung,Northrop and smaller players entering the industry.

Zero Ebit

Vestas now expects sales of about 6 billion euros for 2011, down from the 6.4 billion euros it forecast on Oct. 30, which itself was a reduction from 7 billion euros.

About 130 million euros of the shortfall in Ebit is due to last year’s delays and revenue deferral while the development costs of the V112-3.0 model and GridStreamer would absorb 100 million euros, according to Vestas.

As a result, the company’s Ebit margin will be “approximately zero percent” down from about 4 percent with cash flow remaining positive in 2011.

Delays relating to weather, connecting wind plants to the grid “and other disruptions” meant some projects would not be counted as revenue until the first quarter of this year.

Orders Increase

Vestas also said it had orders for turbines with 7.4 gigawatts of capacity last year worth 7.3 billion euros, in step with its forecast of between 7 gigawatts and 8 gigawatts. Some customers postponed signing contracts for a “number of major orders from 2011 to 2012,” according to the statement.

Read about the Pros and Cons of Wind Power