Vestas Wind Systems A/S is targeting a high-end niche in the Chinese wind industry with a new strategy to take on the world’s largest renewable energy market that is also infamously difficult for foreign companies.
“We decided to take our latest and biggest turbine to China,’’ said Chairman Bert Nordberg in an interview in Aarhus, Denmark. “They are interested because of the efficiency’’ even though the Danish company faces price pressure from Chinese developers.
While China is the world’s biggest renewable energy market, Western companies have found it difficult to gain market share because its energy industry is made up of large state-owned enterprises that have historically favored domestic manufacturers. The country installed nearly 79 GW of clean energy in 2015, five times more than Denmark’s entire electricity system, according to Bloomberg New Energy Finance.
Nordberg’s remarks set out the strategy for Vestas, which also plans to expand its operations and maintenance services business to as much as 50 percent of its activities and perhaps to make acquisitions.
“There’s going to be a trend for outsourcing the management of wind parks from energy companies if they are pressed with the low energy prices,” he said. “We want to be able to do that. That might require more acquisitions of service companies. If the right one came along, yes absolutely.’’
When it comes to China, Nordberg said Western companies have difficulty making inroads. Local manufacturers such as Xinjiang Goldwind Science & Technology Co. receive the vast majority of orders. Goldwind became the world’s top installer last year, according to BNEF’s global onshore-wind rankings.
“Vestas wins on quality,” Nordberg said. “We claim to be the cheapest turbine in China because our turbines last twice the time of a Chinese one. I think I’ve convinced them that cost of ownership is a better way of calculating than purchase price of a turbine.’’
The Danish manufacturer has no plans to make a cheaper turbine to be more competitive, he said.
It bought service providers UpWind Solutions Inc. in the U.S. and Availon in Germany for a total of $156 million in 2015.
Vestas has posted profits in the past nine quarters and has more than 2 billion euros ($2.3 billion) in cash. Other than potential acquisitions, Chief Executive Officer Anders Runevad didn’t rule out a second share buyback when he spoke to shareholders at an annual meeting on Wednesday in Aarhus. The company plans to keep its dividend steady, Nordberg said.
Vestas favors the service business because profit margins are wider than for manufacturing, according to Bloomberg Intelligence analyst James Evans. Vestas could get even higher margins if it expands the maintenance of turbines made by other companies, he said.
“I have a vision that services profit should pay for the whole company — that we don’t have to sell any turbines to survive,’’ Nordberg said. “It goes up and down, the business cycles, but services are a seven-, 10-, 20-year contract so it’s more stable.’’
Vestas could reach this stage in three to four years, he said.
© 2016 Bloomberg
Lead image credit: Vestas