World Economy

Global Wind Turbine Makers Hit by Subsidy Squeeze

Global Wind Turbine Makers Hit by Subsidy SqueezeGlobal Wind Turbine Makers Hit by Subsidy Squeeze

Shares in rival wind turbine makers Siemens Gamesa and Vestas fell on Friday as a squeeze on prices caused by reduced state subsidies took its toll on quarterly profits.

The wind power industry is undergoing a period of painful readjustment as governments from Europe to Latin America rein in subsidies and turn to competitive tenders, putting pressure on prices throughout the supply chain, Reuters reported.

“It’s challenging across the board, it’s very competitive,” Vestas’ chief financial officer Marika Fredriksson told Reuters. Vestas’ operating profit for the January-March period of €126 million ($150.7 million) was a decline of 40% and also lagged analysts’ forecast of €137 million.

Majority owned by Germany’s Siemens following a merger of its wind power business with Spain’s Gamesa last year, Siemens Gamesa said adjusted operating earnings for the same period fell 40% to €189 million.

Shares in Denmark’s Vestas fell 4.4% in early trading while Siemens Gamesa traded down 3.4%. Vestas’ average selling price per megawatt came in at around 740,000 per megawatt, which was flat from the previous quarter.

However, both companies cautioned it was still too early to say if prices had stabilized after a double-digit decline seen last year. “It could appear so, but we still want to have more sustainable and long-term view on the stabilization of the market,” Vestas’ Fredriksson said.

That caution was echoed by Siemens Gamesa. “It’s the second quarter of stable average selling price of the order intake ... (but) we’re not able to determine if this is already a trend,” Siemens Gamesa CFO Miguel Angel Lopez, told a conference call.

Most recent rankings by consultancy firms GlobalData and MAKE, show Siemens Gamesa claiming the top spot in terms of sold turbine capacity last year, overtaking Vestas in a race to cater the competitive wind power sector.

Vestas is still a market leader in terms of total installed capacity, said Vestas citing MAKE.

Siemens Gamesa, which counts Spanish energy group Iberdrola among its key shareholders, kept its target for an EBIT margin of 7-8% this year. Vestas still targets an EBIT margin of 9-11% this year.

Siemens Gamesa in February unveiled €2 billion in cost cuts by 2020 to close a margin gap to Vestas, both facing margin pressure as government cuts support for renewables to force them into competition with conventional energy sources.

Siemens Gamesa more than doubled its quarterly order intake to 2.5 GW, while Vestas order intake came in at 1.6 GW.

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