Sunday 22 October 2017

Siemens' €1.5bn deal proves wind will always be big business

Global Wind Energy Capacity
Global Wind Energy Capacity

Alex Webb

Wind is big business. Earlier this month, Siemens won a €1.5bn contract for a Dutch offshore wind park that will also give Europe's largest engineering company its biggest-ever energy service contract.

The order for the Gemini wind park, 85 kilometres offshore from Groningen, Netherlands, comprises 150 wind turbines with a capacity of four megawatts apiece, the Munich-based company said.

"We have considerably improved our service approach for this wind park," said Markus Tacke, the head of the wind-power division at Siemens. The provision of equipment accounted for about half of the contract's value, he said.

Siemens has tempered its willingness to bid for big-ticket work since Joe Kaeser became chief executive officer in August. Delays to projects connecting windfarms to the grid have led to charges topping €1.1bn since 2011, prompting Mr Kaeser to promise investors the company would be more circumspect in future contract tenders.

The company signed a power transmission contract last month with TenneT Holding under more lenient conditions, intended to avoid a repeat of such charges, which have also burdened earnings at Zurich-based competitor ABB.

Siemens is also building a £160m wind turbine factory in northern England to improve its ability to serve the North Sea offshore wind market. Britain's 3,689 megawatts of installed offshore wind capacity represent more than half of the 6,930-megawatts global total, according to Bloomberg New Energy Finance.

Mr Tacke expects Siemens wind power operations as a whole – including onshore turbines – to increase revenue by 5pc to 6pc annually in the next two to three years. Siemens has set the division, with sales of €5.2bn last year, a profit margin target of 5pc to 8pc of revenue. That compares with a 6pc margin last year, when charges for faulty onshore turbines held back profitability.

Still, offshore wind projects have been cancelled as developers better understand the costs of the projects.

Utilities have negated as much as 5,760 megawatts of planned capacity since November 26, when German energy giant RWE dropped its 1,200-megawatt Atlantic Array.

German offshore wind costs may fall as much as 39pc by 2023, the Stiftung Offshore-Windenergie lobby group estimated in August. The cost at that time was 13 cents to 14 cents per kilowatt-hour.

The service element of the Siemens deal will last 15 years and includes a ship and helicopter. The Gemini wind park is due to start operations in early 2017.

Investment in the Dutch offshore windfarm, in which Siemens's financing arm holds a 20pc stake, will total almost €3bn.

Canada's Northland Power Inc owns 60pc of the group, with Dutch offshore engineering specialist Van Oord NV holding 10pc and Dutch public authorities the remaining shares. (© Bloomberg)

Irish Independent

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