In the years leading up to 2008, the utility-scale wind power industry grew rapidly. Globally, newly installed wind generating capacity expanded at an annual rate of 33% from 2004 to 2008. The market’s growth enticed existing players (many of which were European) to expand globally, especially in large, rapidly expanding markets such as the U.S. and China, and many new firms entered the business or announced their intention to do so. For example, the number of utility-scale wind turbine manufacturers with sales in the U.S. market increased from five in 2005 to ten in 2009, and 80 to 90 companies attempted to sell turbines in China.
The industry’s fortunes began to turn, however, with the global financial crisis of 2008. In 2010, new wind installations decreased about 50% in the United States, which had previously been the world’s largest market. U.S. market leader GE saw wind turbine revenue fall by more than 30%. Global market share leader Vestas announced the layoffs of 3,000 people, mostly in northern Europe, to realign capacity with expected demand. Although the Chinese market has continued to grow, large domestic suppliers now dominate there, dampening hopes of both foreign vendors and Chinese upstarts.
With a larger number of suppliers chasing a considerably less robust global market, it is reasonable to ask whether everyone now in the market can be successful. Equally important is how participants can optimize their chances of success and shareholder value. Through analysis of economic principles and comparisons with other industries, we attempt to answer these questions in this paper. In brief, our findings are as follows:
- The global wind turbine industry will grow at a much slower rate of 6% to 8% annually. The U.S. is unlikely to exceed the level of demand seen in 2009 for some time. The Chinese market will continue to see robust capacity growth, but the rate of increase will be much lower.
- The wind turbine industry shares several characteristics with other industries that are much more concentrated, such as gas turbines. Considering both this and the slower market growth, we believe there will fewer turbine suppliers a few years from now.
- Opportunities abound for OEMs to combine in ways that strengthen their chance of success. Leading firms can acquire manufacturing or technology assets; mid-size competitors can merge and eliminate duplicated resources; cross-border mergers could increase market access.
- The scale provided by their home market will give leading Chinese turbine manufacturers a leg up in their quest for global competitiveness.
- Suppliers to wind turbine OEMs should evaluate how likely their current customers are to be among the industry’s long term survivors and work to diversify their customer base.