Woodlawn Associates

Management Consulting

Energy

Chinese Solar Powers Up: Lessons for the Wind Energy Industry

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We recently looked at the overseas penetration of Chinese solar photovoltaic module makers to see if there might be lessons for the wind turbine industry.  Chinese solar PV module manufacturers have rapidly increased their overseas market share.  For example, they have increased from 0% to over 30% of the California solar market in three years, and have seen similar market share gains in Germany.  Moreover, Suntech, a Chinese PV manufacturer, rated #1 in consideration rate in our recent U.S./Europe survey of solar buyers.

In contrast, the overseas penetration of emerging wind turbine manufacturers has been much more muted.

Six main factors account for the growth of the PV module makers:

  1. Cost leadership
  2. They entered market when supply was tight
  3. Solar modules are (relatively) simple, modular, and scalable, which makes entry easier for new entrants
  4. PV modules viewed as commodity-like
  5. The executive teams of the leading Chinese solar manufacturers have extensive experience outside China
  6. As businesses, the leading Chinese PV makers are relatively transparent to those outside China

The implications for wind turbine manufacturers heading into new regions are:

  1. Expect new market penetration will take a long time due to need for an operating track record.  It may be a long time before local manufacturing capacity is required
  2. Purchasing projects or doing project development can get beyond bankability issues
  3. Developing local engineering and support capabilities should be high priority in overseas expansion
  4. Certain partnerships could accelerate progress and increase probability of success
  5. Prioritize markets appropriately

Download our detailed analysis here.

Solar Photovoltaics: A High Tech Commodity

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A short while ago we interviewed about 20 utility- and commercial-scale solar developers and integrators in the U.S. and Europe and found little relationship between developers’ willingness to consider modules and the manufacturer’s home country. In fact, Suntech, a Chinese company, was #1 in consideration rate. Interviewees also generally saw solar panels as commodities, and we found that the distribution of returns in this industry is similar to commodity industries.

While there may be a few ways firms can differentiate themselves, these are likely to make a marginal difference and are best suited to firms with a particular (narrow) niche. Therefore, we conclude that driving down cost is the most important predictor of success.

Download our findings and recommendations here.

Again, Higher Returns for Less Integrated Wind Turbine Manufacturers

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In a follow up to our earlier on wind turbine manufacturers, we found that there has been a reversal of the previous trend toward vertical integration in turbine manufacturing.  We also found two of the least vertically integrated players—Goldwind and REPower—have the highest returns on capital.

During this work we also had the opportunity to identify best-in-class manufacturing practices among wind turbine manufacturers, and determined that fewer than half of them do best-in-class supply chain management activities comprehensively:

  • Lean and six sigma up the supply chain
  • Hands-on supplier quality management
  • Evaluate total cost (including cost of quality, working capital), not just landed cost or ex-works unit cost
  • Optimize collaboration with strategic suppliers
  • Use comprehensive IT tools for supplier evaluation and management

Download a detailed set of findings here.

Beyond the Blue Chip: Financing of Emerging Wind Turbines

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We recently talked to equity investors, debt investors, and wind farm developers the United States to determine the advantages and disadvantages of using non-blue chip wind turbines. We found mixed interest in financing projects with emerging turbines. This financing will be more costly and shift more risks to the project sponsor than financing for blue chip turbines. For emerging vendors, the first priority should be to establish the capability to deal with any issues that may arise over the long term. The second step should be to minimize risks to developers and financiers, perhaps by self-financing projects or subsidizing financing. Finally, we suggest there may be some wind farm developers more open to the idea of using emerging turbines.

Download a detailed summary here.

Lower Vertical Integration Means Higher Returns in Wind Turbine Manufacturing

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We recently examined the level of vertical integration of wind turbine firms and compared it with their return on invested capital. Generally, we found firms with lower vertical integration tended to have higher returns on capital. We also surveyed top 20 wind farm developers in the United States to get their impressions of wind turbine vendors. Their answers suggested four clear groups—the “blue chip” players like GE, Siemens, and Vestas, a respected second tier, a few firms that are respected but seen as potential competitors because of their integration into development, and some reputation-challenged players.

Download our analysis here.