Wind catches the solar sickness

The wind sector, led by Vestas, is facing the same problems as the solar PV industry – a chronic oversupply crippling margins and placing manufacturers under severe strain. But there is a silver lining.

Solar is not the only sector where companies with quality products – such as Suntech and Q-Cells – are being hurt by a systemic oversupply. Leading wind turbine maker Vestas is also suffering severe difficulties, as explained in these charts of the week taken from research by Daniel Patterson of Nordic investment bank SEB Enskilda.

The chart below illustrates Vestas’ share price plummeting over the past 12 months, both in absolute terms and also relative to the broader Danish stock market.

Vestas Share Price Performance – 12 months to August 2012

Source: Daniel Patterson of SEB Enskilda (2012)

Vestas is not alone, with the share prices of other major independent wind energy players Gamesa and Suzlon-RE Power also suffering large declines.

All of these companies have geared-up on the expectation of ongoing rapid growth in the wind power sector, but as the chart below shows, this growth has tailed off in the last few years. Indeed the market is facing the prospect of not just low growth, but an actual decline next year due to delays in extending the wind energy production tax credit in the United States. Vestas has also been hurt by the shift of a large proportion of the market to China, which is skewed in favour of Chinese companies.

Wind turbine demand (megawatts)

Source: Daniel Patterson of SEB Enskilda (2012)

The end result is that just like the solar PV sector, there is significant over-supply across each component within the global wind turbine supply chain.

Global wind turbine component supply capacity relative to 2011 demand

Source: MAKE (2011) cited by Daniel Patterson of SEB Enskilda (2012)

The good news is that this overcapacity has well and truly broken the back of wind turbine price inflation. The recently released US Department of Energy Wind Energy Market Report illustrates that turbine prices per kilowatt had been rising since 2002, but peaked in 2009-10, and have now noticeably declined. According to DOE recent turbine price quotes are reportedly in the range of US $900-$1,270 per kW.

Reported US Wind Turbine Transaction Prices over Time ($US)

Source: United States Department of Energy (2012)

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