Winds of Change

Wind Turbine Manufacturers at the Tipping Point

Vestas’ announcement of its first quarter results came as another setback to the wind energy sector and mirrors the predicament of a number of wind turbine manufacturers, which is already suffering from turbine overcapacity, project delays and rising costs.

Vestas has been losing market shares in new installed wind turbine capacity since 2006, a stark contrast to its cost-competitive Chinese counterparts - Sinovel Wind Group and Xinjiang GoldWind Science & Technology in particular - whose market shares have been on a steady ascent in the past years. That these market positions might change in the future cannot be ignored, however. Both Sinovel and GoldWind’s net income fell in the first quarter of this year, owing from a decelerating Chinese wind power sector and an aggressive domestic price competition.  While one can argue that there are still technological discrepancies between Asian and Western turbine manufacturers, Vestas’ problems with its gearboxes on the V90-3.0 MW turbines did little to help its case. In the current situation of rising raw material prices, high turbine inventories and fierce price wars, it is in the interest of turbine manufacturers to keep their costs as low as possible to preserve their margins.

With a cumulative installed capacity of 3.5 GW, the offshore wind power market accounted for 1.5 per cent of the total wind power market in 2011. With large scale commercial offshore wind farms currently under construction and in the planning phase, offshore wind power capacity is expected to reach 52.1 GW in 2020 by growing at a compound annual growth rate (CAGR) of 35.1 per cent from 2011, and will contribute 7.1 per cent of the total wind power market by 2020.

Whilst wind turbine companies could seek refuge from the prospects in the offshore wind power sector, growth in this market is tempered by poor market conditions, lack of an offshore grid and difficulties in accessing credit. Uncertainties in the regulatory and economic climate are the prime reasons why both Nordex and Doosan Power Systems pulled the plug from its offshore wind power business. This sentiment is also echoed by Gamesa who with its partner Newport News Shipbuilding, halted plans to install its 5MW prototype turbine in the US.

In addition, there is stiff competition from incumbent players who are armed with sufficient financial and operational muscle to invest in Research & Development (R&D), as proven technology is increasingly becoming an important selling proposition to thrive in the offshore wind power business. Mitsubishi Power Systems Europe, Samsung Heavy Industries and Ming Yang are a few of those companies who are investing in its offshore wind power technology development.

Whether the Production Tax Credit (PTC), a 30 per cent investment tax credit available to a number of renewable energy plants in the US, will be extended is another hurdle for offshore wind turbine manufacturers. If indeed this is not renewed at the end of this year, Vestas for instance would need to cut a chunk of its US workforce that will hamper its ability to turnaround its performance and bring back investor confidence. In a similar vein, US offshore wind plant developers will likely find it difficult to find financing for its projects if the PTC is not extended.

Jennifer Santos is GlobalData’s Head of Energy Consulting Services.

Photograph: Getty Images

Jennifer Santos is GlobalData’s Head of Energy Consulting Services.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.