Shifting demand and oversupply of critical wind turbine components continue to challenge the global wind energy supply base, according to MAKE Consulting.
MAKE's Global Wind Turbine Supply Chain 2014 report reveals that the supply of blades, nacelles and gearboxes is approximately 50%, 80% and 90% in excess of global demand, respectively.
The report says that although the supply-demand gap has closed over the last 12 months – brought about by volatile demand and intense price competition – persistent overcapacity continues to negatively impact pricing power and furthers the case for additional consolidation throughout the supply chain.
However, the report notes that the divestment of non-core production assets and increased focus on higher-margin-yielding operations and maintenance business has allowed several turbine original equipment manufacturers (OEMs) to return to profitability in 2013. Turbine OEM profit margins have been highest for tier-one Chinese OEMs, which enjoyed double-digit margins compared to single figures posted by Western competitors. According to the report, Western turbine OEMs and subcomponent suppliers have been forced to adjust sourcing and production strategies to follow shifting global market dynamics.
Furthermore, the report says the allure of new growth markets is enticing, but meeting local-content rules remains a critical challenge. Several turbine OEMs have struggled to maintain profitability with multiple production facilities across the globe, driving some to concentrate production at centralized facilities in their home markets to benefit from increased economies of scale.
Still, the report says, diversified regional exposure is important to mitigate foreign exchange risks, address annual demand fluctuations and meet local-content rules in emerging markets such as Brazil. Other emerging local-content markets such as Russia, Ukraine and Saudi Arabia show promise; however, the report says those markets lack Brazil's upside, and MAKE does not expect substantial near-term investments by foreign suppliers in those regions.