How can wind turbine makers use their product portfolios to boost profit margins?
By Philip Totaro, Founder & CEO, Totaro & Associates
With more than 7GW added in 2017, the United States wind energy market is seeing robust growth. Vestas has maintained its leadership position in annual capacity additions with 2.5GW, while General Electric stays a close second at 2GW. Siemens Gamesa Renewable Energy had a noteworthy uptick in capacity additions to 1.6GW and Nordex / Acciona comes in fourth at 0.8GW.
But digging deeper for the reasons why Vestas, GE and SGRE have largely dominated the US wind energy market unveils some clear patterns and surprising trends. A key factor that has enabled the success of these three OEMs is the diversity of their product portfolio to serve almost any power density. Nevertheless, GE and SGRE have struggled with profitability, so why isn’t the increased sales volume translating?
The answer is return on capital. With so many in the industry focused on reducing the levelized cost of energy across their product portfolio, they have failed to implement their product strategy in a way that maximizes global product sales for a specific turbine model to offset the capital expenditure investment required in the development of that model.
A contributing factor to this poor return on capital, as well as the significant amount of under-exploitation of some wind regimes in the US market, stems from historical patterns in product development and capacity build-out by developers.
When evaluating the market based on power density of the turbines (i.e. power rating of turbine / swept area of rotor), we see an interesting trend emerge, where capacity additions are largely concentrated around turbines with standard IEC [International Electrotechnical Commission] wind class distribution (see graph 1).
But when the market resource potential is overlaid on this installed base distribution, another interesting trend emerges (see graph 2).