The European Wind Energy

Production Sector
- Global competitive strategies -

Author:
Elias Völker
Student Nr: 042600

Prepared for:
Global Business Strategies in European Context
Prof. A. Sulejewicz
Spring 2008
 Introduction
Wind energy has been used for thousands of years for a wide variety of
purposes. When static windmills were first used on land is uncertain, but it
has been suggested that the Babylonian Emperor Hammurabi used them for
an irrigation scheme in 700 BC. Even before that, wind was used to propel
the sails of ships.
By the 18th century, windmills were becoming a common sight across
Europe, used not only for milling, but also for lifting water for irrigation.
The other prominent development was the wind pump as a means of
pumping water from deep boreholes for cattle grazing and farm irrigation. It
is estimated that there were 5 mln such machines in the USA around 1900.
Between 1900 and the oil crisis of 1973 there was no sustained
development of wind energy, although the odd electricity generating wind
turbine did appear from time to time. However, the basis for the modern
wind turbine for electricity generation was set during that period by
European inventors such as Paul la Cour and Johannes Juul in Denmark and
Ulrich Hütter in Germany.
The USA was the first nation to invest heavily in wind energy, and in the
early 1980s Californian wind farms served as a beacon to researchers and
enthusiasts around the world. Activities increased in many western
European countries but the falling back of oil prices tended to reduce the
political and economic pressure for rapid progress.
Various European countries continued to invest individually in the
harnessing of wind energy for electricity production and rapid progress was
made during the last quarter of the 20th century.1

Worldwide Production
World wind energy The total wind energy production capacity installed worldwide reached
capacity: 94.1 GW 94,123 MW in 2007, up almost 20,000 MW from 2006. This
Year-on-year increase of 31% represents about € 25 billion2 of investment.
As can be seen from Figure 1 below, the market has been growing rapidly
over the last decade, more than increasing 15-fold since 1996.
The largest markets are in terms of installed capacity are Germany (22.3
GW), US (16.8 GW), Spain (15.1 GW), India (8 GW) and China (6.1 GW).

Source: GWEC (2008)

1
Historical overview based on: European Commission (2006)
2
GWEC (200)

1
 As can be seen from the left hand figure, the
capacity installed in concentrated in few
countries. More than 50% of the total
production capacity is based in the top 3
countries (Germany, US and Spain). The top
10 countries make up more than 86% of total
capacity.
This fact implies that the development of the
wind energy sector is highly dispersed
throughout the world. While some countries
like Denmark (No. 6 worldwide) already
source large shares of their power supply from
wind, some very large economies like Japan
do not even appear on the top ten list. (In fact,
Japan only makes up 1.6% of the global
capacity, despite favourable geographic
features, especially for off-shore projects.)

Source: GWEC (2008)

Growth perspectives
Expected growth: The Global Wind Energy Council (GWEC) is predicting the global wind
155% by 2012 market to grow by over 155% from its current size to reach 240 GW of total
installed capacity by the year 2012.3
This would represent an addition of 146 GW in five years, equaling an
investment of over €180bn. According to the GWEC, the electricity
produced by wind energy will reach over 500 TWh in 2012 (up from 200
TWh in 2007), accounting for around 3% of global electricity production
(up from just over 1% in 2007).
The main areas of growth during this period will be North America and
Main growth in Asia Asia, and more specifically the US and China. The average growth rates
and North America during this five year period in terms of total installed capacity are expected
to be 20.6%, compared with 23.4% during 2003-2007. In 2012, Europe will
continue to host the largest wind energy capacity, with the total reaching
102 GW, followed by Asia with 66 GW and North America with 61.3
GW.4

3
GWEC (2008)
4
GWEC (2008)

2
 Source: GWEC (2008)

The European Industry

Europe historically The EU has historically been the world’s strongest market for wind energy
the largest market development, with over 8.5 GW of new installed capacity in 2007. Industry
statistics provided by the European Wind Energy Association (EWEA)
show that wind capacity increased by 18% to reach a level of 56.5 GW, up
from 48.1 GW at the end of 2006. The annual production is equal to 3.7%
of EU power demand. (In 2000, less than 0.9% of EU electricity demand
was met by wind power.)
The 8.5 GW of new capacity also represents a wind turbine manufacturing
turnover of some €11 billion.
In the EU, wind power continues to be one of the most popular electricity
generating technologies. Over the last ten years, cumulative wind power
capacity in the EU increased by an average of 28 % per year. In terms of
annual installations, the European market grew by an average 21 % per year
over the same period.
Wind one of the most To put these number into perspective: The total new power generating
popular sources of capacity (from any fuel) installed in the EU in this period was 158 GW, out
energy
of which 88 GW were new gas and 47 GW were new wind installations.
Wind thus represents 30% of the new generation installations.
According to figures from Platts PowerVision and EWEA, in 2007, wind
power installations made up 40% of total new power installations,
representing the fastest growing power-generating technology in Europe.

Source: GWEC (2008)

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 The economics of wind energy
Wind was not Two main problems have until the last quarter of the 20th century been
competitive until limiting the growth of wind energy around the world. First, wind is not a
recently steady source of energy – sometimes there is strong wind, sometimes there
is light wing, and sometimes there is no wind at all. The second problem is
related to the economics of wind energy: Up to recent years, the price per
kWh was just not competitive with alternative, mainly fossil, sources of
energy. With the introduction of wind generators of Megawatt (MW)
capacity, this is changing and wind energy is slowly becoming competitive
to other fuels.
In 1997, the average nominal power of the wind turbines erected in
Average power of Germany and Denmark was about 600 kW. By 2003, this average nominal
turbines is increasing
power had grown to more than 1600 kW. The corresponding rotor diameter
has increased from about 44 m to 70 m. Currently the first prototypes of 5
MW turbines are being erected with rotor diameters of more than 120 m.5
These large wind turbines are generally more economical, especially for
offshore applications. However, although the generated power increases
with the square of the rotor diameter, the mass of the blades increases to the
third power of the rotor diameter if the dimensions are simply scaled up. In
a continuous effort to fight this square-cube law, rotor blade design is
becoming critical as the size of the turbines increases.
Wind turbines are typically erected in clusters, called wind farms, due to
the economy of scale in purchasing larger numbers of turbines, the cost of

5
European Commission (2006)

4
Wind farms exploit electrical cables to take power to the grid, efficiency of maintenance and
economies of scale installation, and the best use of available sites. Large wind farms typically
produce power at a lower cost and make optimal use of the sites with good
wind conditions.
These advantages are compelling but there is one disadvantage of having
turbines closely spaced (within 200–1000 m) which is that the reduction in
wind speed and the increase in turbulence directly downwind of a turbine
(called the wake) leads to a reduction in produced power and an increase in
loads on any downwind turbines and their blades.

Source: European Commission

Industry Drivers
Industry is driven by Currently, renewable energies in general are becoming more and more
rising cost of energy competitive sources of energy due to the rising prices of both crude oil and
and environmental gas. While exact projections are hard to make, many analyses point to the
concerns fact that the world’s reserves in fossil fuels, most notably oil, will not last
much longer than a few more decades.
The second factor is the increasing awareness throughout the world that
man is causing a change in the world’s climate through the massive
emissions of CO2 which is the inevitable by-product of the consumption of
fossil – carbon based – fuels.
These factors have resulted in legislative pressure from some national
Legislative incentives governments to place an obligation on energy producers to source an
support market increasing percentage of their electricity from renewables. This is the case
development for instance in the United Kingdom, with its Renewables Obligation, and in
the United States, with its state by state Renewable Portfolio Standards. At
an international level, the European Union has led the way by introducing a
legally binding target for 20% of the region’s total energy to come from
renewable sources by 2020.
This strong policy support both at EU and at national level has been an
important factor behind the growth of the European wind market. The EU’s
Renewables Directive (77/2001/EC) has been in place since 2001. The EU
aimed to increase the share of electricity produced from renewable energy
sources (RES) in the EU to 21% by 2010 (up from 15.2% in 2001), thus
helping the Union reach the RES target of overall energy consumption of
12% by 2010 and 20% by 2020. The Directive, which set out differentiated
national indicative targets, has been an historical step in the delivery of

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 renewable electricity and constitutes the main driving force behind recent
policies being implemented.
Wide range of support In the pursuit of the overall target of 21% from renewable electricity by
mechanisms 2010, the Renewables Directive gives EU Member States freedom of
choice regarding support mechanisms. Thus, various schemes are operating
in Europe, mainly feed-in tariffs, fixed premiums, green certificate systems
and tendering procedures. These schemes are generally complemented by
tax incentives, environmental taxes, contribution programmes or voluntary
agreements.

European competitive strategies in the globalization

of the wind industry
Scale of wind industry The last few years have witnessed a significant change in both the scale and
is increasing extent of the international wind industry’s operations. Individual wind
farms have grown in size from a few dozen megawatts capacity up to
several hundred. Offshore wind parks of 1,000 MW capacity or more are
being constructed.
Successful wind turbine models are have become standardized industrial
products. The continued growth in demand for clean, emissions-free wind
power has outpaced the available supply, creating a demand for very large
investments in manufacturing capacity, long term equipment purchase
arrangements and project development.
Europe remains While Europe remains the leading market for wind energy, new
leading market, but installations represented just 43% of the global total, down from nearly
loses ground 75% in 2004. For the first time in decades, more than 50% of the annual
wind market was outside Europe, and this trend is likely to continue into
the future. This, together with the changes mentioned previously has caused
a change in the competitive strategies of European companies in the wind
sector. Europe is no longer a sufficient market for these companies, and
attractive opportunities are found in other countries, specifically in Asia and
North America. Furthermore the high maturity of the European industry has
intensified competition to high levels. A move towards new markets is seen
by companies as a move to ease the competitive pressures.
The structural changes have concentrated around three key trends: One has
Three key trends in been the involvement in the business of companies from outside the
structural changes traditional wind turbine manufacturing industry. The second has been the
spread of the wind power market well beyond its core geographical centres
of Europe and the United States and third, wind developers and
manufacturers have been expanding their international horizons through a
series of mergers and acquisitions. (see following section).
The result has been a shift in the type of companies developing and owning
wind farms - from relatively small independent project developers towards
general utilities companies and large power producers.
Conglomerates, utility At the same time there has been an important commitment to wind energy
and oil companies from a number of large multinational oil companies, most notably Shell and
enter the market BP. Shell, for example, is a partner in the proposed 1,000 MW offshore
wind farm in the UK as well as an even larger project in Texas.6
According to market analysts Emerging Energy Research, seven of the top
ten global owners of operating wind power capacity are now either
European utilities or power producers.
The most prominent European example of the involvement of utilities
companies is the Spanish electricity company Iberdrola, which had
previously concentrated on gas, nuclear and hydro generation.

6
GWEC (2008)

6
 Last year Iberdrola merged with the Scottish utility company Scottish
Power, which owned a number of wind farms in the UK as well as the US
wind developer PPM Energy. It has since made further US acquisitions. By
the end of 2007 the company had reached a total of 7,704 MW of
renewable capacity, 7,362 MW of which was wind power. This made it the
world leader in wind capacity. Its current target is to increase this at a rate
of 2,000 MW a year, reaching 13,600 MW of renewables by the end of the
decade.7
Other large utilities which have moved into wind, by investing in large
project development, are the former state power company Energias de
Portugal (EdP), Endesa from Spain, DONG from Denmark, Vattenfall from
Sweden, Enel from Italy, EdF from France and E.ON and RWE from
Germany.
The involvement of these larger players has in turn encouraged a greater
Large international
globalisation of the industry, since these companies can exploit their global
players globalize the
industry reach to leverage their capabilities.
Other factors have encouraged this development. In the US, for example,
the growth of the wind power market has been driven by a mixture of
attractive state and federal incentives, encouraging the supply of “green”
energy, and the competitiveness of wind compared with increasingly
expensive gas.
In Asia, on the other hand, the market has been spurred both by the growth
in demand for more electricity as by wind’s environmental benefits. Indian
businesses are also investing in their own wind generators as a more
reliable source of power “than the overstretched and temperamental grid”
(GWEC, 2008, p.4).

Mergers & Acquisitions

A wave of M&A Mergers and acquisitions (M&A) in the wind industry can be split into two
transactions groups. One group consists of broader industrial conglomerates wanting to
consolidates the gain a foothold in the growing wind market, now that the market has
industry reached a size making it attractive for large-scale operations. Examples for
these transactions are the French energy/nuclear company Areva that
acquired a majority shareholding in Multibrid, a German-based
manufacturer developing a 5 MW turbine specifically designed for
operating off-shore. The French engineering company Alstom has
meanwhile taken over Ecotecnia, a traditional Spanish turbine
manufacturer.
The second group of M&As can be seen under the motto of geographic
M&A for geographical expansion. In this respect both Asia and the United States have witnessed
expansion increasing activity by European companies to gain a share of their dynamic
wind markets.
In the US Energias de Portugal has acquired the developer Horizon Wind
Power and German E.ON buy developer Airtricity’s North American
assets. In Asia the activity has mainly been in the form of joint ventures
established by European and US turbine manufacturers with Chinese
companies to establish local production facilities.8
On the manufacturing side, the increase in the size of the market and the
requirement for a substantial investment in production facilities has also
brought new players to the market. The first major example was General
Electric, which purchased the Enron Wind business, with assembly plants
in both Germany and the US. GE Energy is now the third largest supplier of

7
Iberdola company report
8
Under its bidding rules for development sites the Chinese government has decreed that 70% of the hardware
used in any commercial wind farm built in the country must be sourced from a domestic manufacturer.

7
 wind turbines. Three years ago, the German engineering company Siemens
acquired Bonus, one of the original Danish turbine makers. Siemens is
currently the most successful supplier of turbines for the offshore market.
Spanish group Acciona and Italian utility Enel, for example, jointly bought
Spanish utility Endesa during 2007, dividing up its wind power assets.
Players from new The most dramatic example in M&A in the wind market however has been
markets emerging as that of Suzlon, the Indian wind turbine manufacturer created in 1994. After
well achieving a strong position in the Indian wind market using imported
German technology, Suzlon moved abroad, opening new headquarters in
Denmark and manufacturing capacity in the US. In 2005 Suzlon acquired
the Belgian gearbox company Hansen Transmissions, which has about 30%
of the wind power market, and last year took over German turbine
manufacturer REpower. It is now quickly closing the gap world’s top five
turbine suppliers (Vestas (DK), Enercon (D), GE (US), Siemens (D),
Gamesa (E)).

Summary & Outlook

As seen on the previous pages, the world market for wind energy
production has been growing strongly in the last years and is expected to
continue to do so. The driving forces behind this development are rising
prices of “traditional” fuels, the concern about the adverse environmental
impact of these fuels and the subsequent legislative incentives to increase
the energy production from renewable power sources.
The rapid growth of the industry has brought new players to the market. In
particular, European companies are leaving their “home turf” in a push for
international expansion. More and more large industrial conglomerates are
getting involved in the manufacturing of wind turbines as well. Both of
these factors have been driving forces behind a wave of M&A transactions
throughout the world.

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References
European Commission - Directorate-General for Research (2006): - “EUR 21351 - European Wind
Energy at the dawn of the 21st century”, Luxembourg.
European Wind Energy Association (2007): “Capacity Map 2006”, Brussels, Belgium.
European Wind Energy Association (2008): “Pure Power – Wind Energy Scenarios up tp 2030”,
Brussels, Belgium.
Global Wind Energy Council (2008): “Global Wind Report 2007”, Brussels, Belgium.

Web Recources
http://en.wikipedia.org/wiki/List_of_wind_turbine_manufacturers