Offshore, Project Development, Wind Power

REpower: Suzlon wins takeover battle

Issue 4 and Volume 10.

In June 2007, German wind turbine manufacturer REpower was acquired by Suzlon, giving the Indian-owned company an increasingly firm foothold in Europe – and new expertise in offshore wind technology.

On 21 June 2007, Tulsi R. Tanti, Managing Director of Indian wind energy company Suzlon Energy, was elected Chairman of the board at REpower Systems AG. Earlier, on 24 May, after a five-month takeover battle with the huge French state-owned nuclear company Areva, Suzlon took a controlling stake in REpower with 87% of the German wind company’s voting rights. Areva decided to pull out of the race during the last days of the Chirac presidency, handing victory to its much smaller Indian rival, but at a high cost.

The second half of 2005 saw Arriva acquire 21% of REpower’s share capital; this had risen to 30% before the start of the takeover battle in January 2007. This stock may be sold to Suzlon at a later date. The takeover process was triggered by Areva CEO Anne Lauvergeon with an opening offer of €105 per share. It was followed, on 28 February, by Suzlon’s €126 counter bid. As part of its takeover strategy, Suzlon had partnered with the Portuguese Martifer group, which owns 23.2% of REpower. Areva made a final offer of €140 per share on 15 March, but this was topped by a further Suzlon bid of €150. At the time of the takeover in May REpower’s share price stood at €166, 10% above Suzlon’s last offer and over four times more than REpower’s stock rating of €40 last summer.


REpower’s 5M offshore turbine, now part of the Suzlon stable repower

Suzlon’s victory is considered a severe blow to Areva’s long-term renewable energy ambitions. The French company had aimed to become a major wind industry player by repeating the recent successes of power engineering giants General Electric (GE) in the US and Siemens in Germany. GE acquired a major wind turbine manufacturer in 2002 while Siemens did so in 2004. With the acquisition of REpower’s highly respected multi-megawatt class wind technology (1.5-5 MW) Areva would have entered the wind energy market at just the right moment, taking over a successful renewable energy business with huge growth potential to complement its existing nuclear energy activities. But things don’t always turn out as planned. Both parties are now said to have struck a deal whereby Areva’s transmission and distribution division will become a significant supplier of Suzlon’s wind energy projects.

This would not have been Areva’s first involvement with wind. About five years ago, Jeumont Industrie – a wholly owned subsidiary of nuclear equipment supplier Framatome ANP and a subsidiary of the Areva group – had unsuccessfully tried to enter the wind turbine manufacturing industry. With outside help, Jeumont had developed a novel direct drive 750 kW J48 stall type turbine type featuring a permanent magnet type generator, with ambitions to quickly expand into the lucrative 1.5-2 MW volume class. However, after numerous technical problems, J48 turbine production ceased after just a few years, having supplied around 50 installations.

Humble beginnings

From humble beginnings in 1995, Suzlon CEO Tanti worked steadily on a long-term strategy of expanding the family-owned wind business by acquiring the best technologies available and establishing a business model based on fully integrated in-house production. Prior to the €1.22 billion cash offer for REpower, Suzlon’s most important acquisition had been the takeover of Belgian gearbox manufacturer Hansen Transmissions International in 2006. That strategic deal cost the Indian company about €424 million (US$ 565 million), but brought in valuable state-of-the-art know-how and vital, albeit partial, control over the global drive train component supply chain (Hansen, together with Vestas, had jointly developed the new gearbox for the V90-3 MW series – now the key volume product for the Danish world market leader).

Suzlon has established product development centres in India, Germany and the Netherlands, as well as production facilities in India, the US and China. Suzlon’s volume models include the 1.25 MW S.64 series and the much larger 2.1 MW S.88 series (rotor diameter 88 metres). The first is a pitch-controlled two-speed turbine, while the larger model features a so-called flex-slip mechanism that allows a 16.6% slippage (rotor speed variation).

History of a licensed product

The six-year history of REpower Systems AG commenced in 2001 with the merger of two German wind companies Jacobs Energie and BWU (Brandenburgische Wind- und Umwelttechnologien GmbH) and the German engineering consultancy pro + pro Energiesysteme. A major shareholder in all three former companies – and in the newly formed REpower Systems – was the German investment firm Denker & Wulf AG. Jacobs Energie and BWU were both small suppliers of wind turbines in the 600-750 kW class, which BWU built under a licence agreement with Jacobs.

A real breakthrough for both came when pro + pro developed a modern 1.5 MW gear-driven pitch-controlled variable-speed turbine known as the MD70/77 series. Uniquely, pro + pro chose to market the new technology as a licensed product to multiple parties. Jacobs acquired a licence and built the first MD70 prototype. Additional licences were issued to three German companies, Fuhrländer and the former Husumer Schiffswerft and Nordex. When Husumer Schiffswerft went bankrupt in 1999 Jacobs moved from Heide to the shipyard at Husum – which is now REpower’s wind turbine manufacturing base in Germany.

When REpower entered business as a wind turbine supplier the MD70/77 series was its key volume product, but it had to compete with other suppliers marketing highly similar turbines under licence. In order to boost its competitiveness, REpower developed the 2 MW MM successor series to the MD70/77, now available with rotor diameters of between 70 and 92.5 metres. In the autumn of 2004 the company erected a prototype of its 5 MW 5M offshore wind turbine masterpiece.

Complementary

Apart from the giant 5M, the REpower and Suzlon product lines are complementary only to a certain extent. One of the technology differences is variable-speed operation (REpower) versus limited variable-speed (Suzlon). The latter is also the only partner that sells a commercial turbine in the 1.25 MW class. In the 2 MW class the turbine models of both former competitors operate in the same market segment. Among the differences is that REpower’s 2 MW series offers a choice of rotor diameters of between 70 and 92.5 metres. Apart from that both former competitors currently serve largely different wind markets, which offers considerable room for synergy benefits and increased economies of scale. For instance Suzlon does not have a strong presence in Europe, while REpower’s main markets outside Germany include France, the UK, Japan and Portugal.

Perhaps the real key asset for Suzlon from a technical point of view is immediate access to REpower’s proven 5 MW class offshore wind technology. This innovation features the world’s largest 126 metre rotor and, perhaps most importantly, appears to be the turbine of choice for many developers of (future) offshore wind projects in Europe. In a recent speech at the company’s Hamburg HQ, REpower’s CEO Professor Fritz Vahrenholt has emphasized the importance of rapidly developing the offshore industry for Germany: ‘We have prepared for this development with our REpower 5M offshore turbine. By the end of 2011, we aim to have produced between 200 and 250 turbines of this type. We laid the foundation for achieving this goal with the decision to construct production facilities in Bremerhaven.’

No consensus on benefits of deal

Not all experts share the same views over the medium and long-term benefits of the widely publicized wind industry deal, in particular whether REpower has ended up in the best hands. Some claim that the price paid by Suzlon for a relatively small player such as REpower was far too high, fuelled by speculation and unrealistic future growth prospects. Pessimists fear an erosion in the strong German wind industry base, a leaking away of strategic know-how and the loss of skilled jobs to India. Others point to the fact that Suzlon is not a large player either and that it can only show a limited track record for its products outside India. Optimists argue that REpower needed more capital to expand its promising offshore wind activities and, last but not least, the partners can exploit combined manufacturing strength and financial reach to fully benefit from the current excellent climate for wind power applications.

Eize de Vries is Wind Technology Correspondent for Renewable Energy World
e-mail: [email protected]