Vestas faces fierce competition in slowing China

China has just experienced its slowest economic growth for 25 years. The prospect of an imminent crash may have receded
but there is still a real threat of global recession.

The slowdown in China is also hitting growth in local energy demand, which is likely to dampen demand for new wind farms. The Chinese wind market is still huge, of course: over 30GW of wind turbines were built last year. But Chinese manufacturers like Goldwind are looking to grow overseas so they have more options if the economic slump gets more severe.

This is why Goldwind raised $1bn from the China Development Bank last week. It plans to use the money to develop schemes itself overseas, or support other firms to build projects using its turbines. Foreign work may not end up being a huge source of business for a firm that sold 7.8GW of onshore turbines last year, the vast majority of which were in its home market, but it does give the turbine-making giant some protection from a Chinese slump.

So the world’s largest turbine manufacturer by sales in 2015 plans to reduce its exposure to China — and the world’s second-largest, Vestas, is looking to go the other way.

Last week, Vestas chairman Bert Nordberg said the Danish company planned to take its “latest and biggest turbine” to China. Vestas is not looking to battle established Chinese firms on price.

Rather, it plans to appeal to appeal to developers that want the high levels of efficiency that its turbines offer compared to most models on the market; and it expects developers to be attracted by lifespan of its machine. It is a high-end niche strategy.

But will it work? Our first reaction is that it looks like a strange time to make this move. We are seeing some Chinese manufacturers, like Goldwind, looking to grow overseas to give them a measure of protection from a slowdown in the country. These firms will also fight hard on cost at home and make their turbines even cheaper.

Western companies have historically found it tough to enter China because of cheaper rivals and the vested interests of state-run companies. This is not getting any better. In fact, if there is a deep slump, then it is likely to make things a hell of a lot tougher.

Then there are the problems with the grid. China’s National Energy Administration has said it is now looking to tackle grid problems that left 15% of China’s wind farms standing idle in 2015, or around 22GW of the total installed capacity of 145GW. It will be difficult for Vestas to get developers to pay more if there is no guarantee of a grid link on completion.

Of course, if Vestas can make this move at a low cost then it is still worth a shot. If it got only 0.1% of the annual installed capacity in China then that would still represent sales of 300MW in 2015.

Even if it succeeds, though, we do not see a wider trend here. We see little indication that most wind developers in China are willing to pay higher prices for goods or services from western firms if they can get a similar service from a local company.

And, if there is a deeper crisis, looking after high-end overseas firms will not be a priority.

China has just experienced its slowest economic growth for 25 years. The prospect of an imminent crash may have receded
but there is still a real threat of global recession.

The slowdown in China is also hitting growth in local energy demand, which is likely to dampen demand for new wind farms. The Chinese wind market is still huge, of course: over 30GW of wind turbines were built last year. But Chinese manufacturers like Goldwind are looking to grow overseas so they have more options if the economic slump gets more severe.

This is why Goldwind raised $1bn from the China Development Bank last week. It plans to use the money to develop schemes itself overseas, or support other firms to build projects using its turbines. Foreign work may not end up being a huge source of business for a firm that sold 7.8GW of onshore turbines last year, the vast majority of which were in its home market, but it does give the turbine-making giant some protection from a Chinese slump.

So the world’s largest turbine manufacturer by sales in 2015 plans to reduce its exposure to China — and the world’s second-largest, Vestas, is looking to go the other way.

Last week, Vestas chairman Bert Nordberg said the Danish company planned to take its “latest and biggest turbine” to China. Vestas is not looking to battle established Chinese firms on price.

Rather, it plans to appeal to appeal to developers that want the high levels of efficiency that its turbines offer compared to most models on the market; and it expects developers to be attracted by lifespan of its machine. It is a high-end niche strategy.

But will it work? Our first reaction is that it looks like a strange time to make this move. We are seeing some Chinese manufacturers, like Goldwind, looking to grow overseas to give them a measure of protection from a slowdown in the country. These firms will also fight hard on cost at home and make their turbines even cheaper.

Western companies have historically found it tough to enter China because of cheaper rivals and the vested interests of state-run companies. This is not getting any better. In fact, if there is a deep slump, then it is likely to make things a hell of a lot tougher.

Then there are the problems with the grid. China’s National Energy Administration has said it is now looking to tackle grid problems that left 15% of China’s wind farms standing idle in 2015, or around 22GW of the total installed capacity of 145GW. It will be difficult for Vestas to get developers to pay more if there is no guarantee of a grid link on completion.

Of course, if Vestas can make this move at a low cost then it is still worth a shot. If it got only 0.1% of the annual installed capacity in China then that would still represent sales of 300MW in 2015.

Even if it succeeds, though, we do not see a wider trend here. We see little indication that most wind developers in China are willing to pay higher prices for goods or services from western firms if they can get a similar service from a local company.

And, if there is a deeper crisis, looking after high-end overseas firms will not be a priority.

China has just experienced its slowest economic growth for 25 years. The prospect of an imminent crash may have receded
but there is still a real threat of global recession.

The slowdown in China is also hitting growth in local energy demand, which is likely to dampen demand for new wind farms. The Chinese wind market is still huge, of course: over 30GW of wind turbines were built last year. But Chinese manufacturers like Goldwind are looking to grow overseas so they have more options if the economic slump gets more severe.

This is why Goldwind raised $1bn from the China Development Bank last week. It plans to use the money to develop schemes itself overseas, or support other firms to build projects using its turbines. Foreign work may not end up being a huge source of business for a firm that sold 7.8GW of onshore turbines last year, the vast majority of which were in its home market, but it does give the turbine-making giant some protection from a Chinese slump.

So the world’s largest turbine manufacturer by sales in 2015 plans to reduce its exposure to China — and the world’s second-largest, Vestas, is looking to go the other way.

Last week, Vestas chairman Bert Nordberg said the Danish company planned to take its “latest and biggest turbine” to China. Vestas is not looking to battle established Chinese firms on price.

Rather, it plans to appeal to appeal to developers that want the high levels of efficiency that its turbines offer compared to most models on the market; and it expects developers to be attracted by lifespan of its machine. It is a high-end niche strategy.

But will it work? Our first reaction is that it looks like a strange time to make this move. We are seeing some Chinese manufacturers, like Goldwind, looking to grow overseas to give them a measure of protection from a slowdown in the country. These firms will also fight hard on cost at home and make their turbines even cheaper.

Western companies have historically found it tough to enter China because of cheaper rivals and the vested interests of state-run companies. This is not getting any better. In fact, if there is a deep slump, then it is likely to make things a hell of a lot tougher.

Then there are the problems with the grid. China’s National Energy Administration has said it is now looking to tackle grid problems that left 15% of China’s wind farms standing idle in 2015, or around 22GW of the total installed capacity of 145GW. It will be difficult for Vestas to get developers to pay more if there is no guarantee of a grid link on completion.

Of course, if Vestas can make this move at a low cost then it is still worth a shot. If it got only 0.1% of the annual installed capacity in China then that would still represent sales of 300MW in 2015.

Even if it succeeds, though, we do not see a wider trend here. We see little indication that most wind developers in China are willing to pay higher prices for goods or services from western firms if they can get a similar service from a local company.

And, if there is a deeper crisis, looking after high-end overseas firms will not be a priority.