The global wind power supply chain faces a future characterized by stagnating economic growth, low profit margins and waning government policy support. In the face of such headwinds, market consolidation and/or contraction in the industry becomes ever more important, according to a MAKE Consulting report.
According to MAKE, heightened global competition and reduced profitability among wind turbine and component original equipment manufacturers (OEMs) have resulted in a challenging market environment for investors, prompting a decline of market capitalization across many pure-play wind market participants.
Western and Chinese turbine vendors are experiencing profit pressure, with many posting negative profit margins in fiscal year 2011. As a consequence, MAKE says, the march to shed lower-value production assets is in full swing, with factory closures already materializing in China and the U.S.
MAKE reasons that the failure to evolve the supply-chain landscape will result in further industry setbacks, particularly if strong global competitors leave the market for lack of profitability or if strong multinational industrials stay out of the wind market. Therefore, realignment of the wind power supply chain is overdue.
Similarly, the evolution of mainstream turbine technology is reaching a point of diminishing return, and disruptive technologies that require significant supply-chain restructuring are imperative for achieving the next phase of industry maturation, MAKE says. However, restructuring requires investment, and substantial capital expenditures may be difficult to justify given the current market climate.
MAKE expects nacelle, blade and tower facilities to be hit the hardest in the downturn, due to their widespread production footprints. A shift toward increased outsourcing of blade manufacture by vertically integrated turbine OEMs may aid in keeping some facilities active, and seems a logical course of action as turbine OEMs seek to reduce overhead. Aftermarket services and raw-material innovation will be industry-wide focal points in the near term. Doing less with more is most readily achievable through the adoption of advanced materials, though the cost-benefit equation must strongly favor a reduction in overall cost of energy to be a viable course of action.
A prolonged market contraction, whereby turbine and component OEMs exit international markets and subsequently linger in smaller regional markets, would hamper the evolution of the industry and lessen its ability to finally go head-to-head with fossil-fueled generation, according to the research firm.