Senvion streamlines to ride out German troubles

This month, Germany concluded its first joint tender for wind and solar power. The result wasn’t pretty for wind. Solar developers won all the 200MW capacity on offer, and even the head of the German solar association said that wasn’t a healthy situation.

The paucity of orders from this auction will further ratchet up pressure on Germany’s wind turbine manufacturers, who are already struggling to cope with low margins as a result of the tumbling cost of wind energy in recent auctions.

A government move to reduce annual installations to 2.8GW and the dominance of citizens’ groups, who may not need turbines for many years, in the first tenders last year don’t help either.

This would be well down from the 6.6GW installed in Germany last year – 12% of the global market – and is forcing manufacturers to make tough decisions on jobs. Siemens Gamesa announced 6,000 potential redundancies last November, while Enercon, Nordex and Senvion have set out their own restructuring plans. This might be necessary for the wind industry to adjust to lower prices, but let’s not forget the human cost.

These pressures are also pushing manufacturers to overhaul their operations. For example, Senvion has merged its operational hubs in the central European Union and northern European Union into a new ‘EU North hub’, so it can consolidate its operations in the two markets and concentrate more of its efforts on emerging markets.

The combined hub is headed by Jochen Magerfleisch, Senvion’s EVP for sales in Europe; and is part of the firm's ‘Move Forward’ programme launched two years ago.

He told A Word About Wind there would still be activity in core European markets – notably Germany, Ireland, Norway, Sweden and the UK – but that Senvion planned to focus on opening new European markets too, including Lithuania, Estonia and Latvia. They're not big but they could help it cope with less in Germany.

“The dependence on the European core market is a danger for companies, as all German manufacturers are. We’ve been able to reduce our dependence on these markets,” he said.

Outside Europe, Senvion is also focused on growth in the South American market including Argentina and Chile; in Asian countries including India, Japan and South Korea; and Australia, where the market picked up again last year.

Magerfleisch said that while competitive tenders are driving down the cost of wind energy in established markets, there is a limit to how low they can go: the average price on the spot market. This means that, if wind farms can deliver wind energy at a cost of €35/MWh-€37/MWh, the pressure on turbine makers would fall.

Pressure in Europe has also forced German manufacturers to look at mergers and acquisitions with emerging markets specialists: the tie-up of Siemens and Gamesa is the biggest recent example, and follows the €785m buyout by Nordex of Acciona’s wind operations. In these cases, the argument was that bigger was better.

Magerfleisch disagrees with that logic. He said there's a benefit to some firms being smaller, as it means they can make quicker decisions to move into new markets and change their strategy: “It’s not a question of size. It’s a question of speed,” he said. “It’s not a given that some smaller players are not able to survive.”

He said Senvion has a 5GW-6GW addressable market – the market it can serve with its current machines – and it should be able to maintain a 10% market share in the coming years. In total, the company sold 1.48GW of turbines in 2017, which is below the 1.76GW in 2016 and 1.75GW in 2015, but back to a 2014 level.

The company is still focused on further developing its platforms to work in cold climates and is looking to develop its offshore turbines for use from around 2022. In addition, Senvion continues to grow its service offer to support existing customers.

There will continue to be pressure for German manufacturers in 2019 and 2020, and this will lead to more tough decisions for the companies and their employees. But for some, ‘agility’ rather than ‘acquisitions’ look like being the ‘A’ in their business alphabet.

Now I’ve written that, they’ll probably buy someone next week!