Turbine — Strategic Conditions

Market Structure

Due to market uncertainty caused by the expiration of the Production Tax Credit (PTC) at the end of 2012, total new wind project capacity installed during 2013 dropped by 92% and many smaller turbine manufacturers were forced to reassess their position in the U.S. market. A series of market consolidations has taken place since then, including the significant 2016 merger of Nordex and Acciona Windpower, as well as the recent merger of Gamesa and Siemens (effective in April 2017).  Going forward, the industry will likely continue to be dominated by a few major turbine manufacturers. Table SC.1 summarizes the market shares of installed wind capacity by major manufacturer in 2017. Table SC.2 summarizes some of the major acquisition events that took place in the wind turbine manufacturing industry in recent years.

Table SC.1 Market Share of U.S. Wind Power Installed Capacity in 2017
Source: Figure 66 from AWEA 2017 U.S. Wind Industry Annual Report

Turbine Manufacturer	Capacity (MW)	Market Share
Vestas	2,481	35.4%
GE Renewable Energy	2,066	29.4%
Siemens Gamesa Renewable Energy	1,625	23.2%
Nordex USA	806	11.5%
Other	37	0.5%
Total	7,008	100.0%

Table SC.2 Recent Acquisition Events by Major Wind Turbine Manufacturer
Source: Compiled by authors

Turbine Manufacturer	Year of Merger Completion	Company Acquired	Service Expansion
Vestas	2015	UpWind Solutions	Wind service business
	2016	Availon	Wind service business
Nordex	2016	Acciona Windpower	OEM
GE Renewable Energy	2015	Alstom SA’s power business	Offshore wind business
	2015	Blade Dynamics	Modular Blade technology
	2017	LM Wind Power	In-house blade manufacturing
Siemens	2005 (ends in 2017)	Winergy Drivesystems	In-house nacelle manufacturing
	2017	Gamesa

Porter’s Five Forces

In this section, we begin by exploring Porter’s five forces in on-shore wind turbine manufacturing; specifically, these are: the threat of new entrants, the threat of established rivals, the threat of substitute products or services, the bargaining power of suppliers, and the bargaining power of customers. The framework is illustrated in Figure SC.1 below and characteristics of each of the forces will be discussed in detail subsequently in the context of on-shore wind turbine manufacturing.

Figure SC.1 Porter’s Five Forces

• Industry Rivalry:

Even though the wind turbine manufacturing market is dominated by few companies, the competitive level in this industry is still high and continuing to increase. Some companies focus on wind turbines only and some are part of large multinational companies, so they use different business strategies to position themselves in the market by their competitive advantage. Wind turbine manufacturers compete with each other on price (through alterations in manufacturing processes, distribution arrangements, etc.) and product quality. Companies that can provide effective differentiated technologies and wind turbine design generally attract more customers.

• Threat of New Entrants (Low and Steady):

The wind turbine manufacturing industry requires a large amount of capital in the form of plant and equipment. The turbine manufacturing industry is currently led by three major long-standing American and European manufacturers; as these companies have substantial expertise, knowledge, and research and development capacity, threat of new entrants in this industry is considered very low.

• Threat of Substitutes (High and increasing):

Potential substitutes for wind power include other renewable energy sources (e.g., utility-scale solar, hydro, geothermal, and biofuel) and traditional carbon-intensive fossil fuel options. Among renewable sources, wind energy faces competition from decreasing solar energy costs following government support, technological breakthrough, and returns to economies-of-scale in solar panel production. Wind energy also faces competition from fossil fuel generators. In recent years, low U.S. natural gas prices have contributed to an increase in natural gas power, which has displaced a great amount of coal-fired energy generation and may pose a competitive threat to wind power if its price remains low.

• Bargaining Power of Suppliers (Low and Increasing):

The bargaining power of suppliers decreases when an industry can control their suppliers either by acquiring them (vertical integration) or by negotiating long-term commitments. Vertical integration allows wind turbine manufacturers to control of the quality and delivery of raw material and components; however, vertical integration may pose a risk to manufacturers during economic downturns because it reduces their ability to adjust production capacity quickly. Given the recent market fluctuations due to policy uncertainties, some wind turbine manufacturers have restructured organizationally to purchase more components from external suppliers.

• Bargaining Power of Buyers (Medium and Increasing):

There are two type of buyers of wind turbines: 1) the owner of the wind power project, and 2) buyers of wind-generated electricity. Typically a wind power project is purchased by a utility company, local government, or investment company. They are constantly evaluating all the factors that will affect the profitability of the project. Transition to power auction also help lower the costs per unit of electricity generated by on-shore wind projects, which further squeeze down the profit that wind turbine manufacturers can make.

Overview of Geography

In 2017, there are over 500 wind-related manufacturing facilities spread across 41 states. The Great Lakes region has the highest concentration of wind-related manufacturing activity and Ohio is the leading state in terms of the number of wind manufacturing facilities if including subcomponent manufacturing (60 active plants). As many of the components in wind turbines are similar to those used in engines and other auto parts, this region is concentrated with wind industry suppliers due to its historic dominance of the auto sector. Additionally, industry manufacturers in this region are situated close to Canada, the industry’s largest export market, as well as the Great Plains region, representing 23% of the United States installed wind power capacity. Similarly, the Southeast region house a great number of wind-related manufacturing facilities, and the concentration of these industry suppliers has less to do with downstream demand than with the presence of active automobile industry activities in the region. In addition, the region has ready access to ports that supply components to fast-growing wind power markets overseas. Within the region, North Carolina has the highest number of wind subcomponent manufacturing facilities with about 26 active plants.