It lags in the global wind power race—except in the fast-growing nautical niche
Brande, Denmark - German engineering giant Siemens (SI) looks like an also-ran in wind turbines. It's in sixth place globally, with 7% of the market, well behind leaders Vestas and General Electric (GE). Yet the headquarters of Siemens Wind Power has plenty of bustle. Under the overcast skies of Denmark's Jutland peninsula, workers are putting the final touches on a vast parts warehouse. In a slate-gray factory, others are building an assembly line that will churn out 2.3-megawatt turbines the size of buses. Nearby, temporary offices house many of the 1,000-plus new hires since early 2008. "When we started to talk about wind, people looked at us a little strangely," says Siemens Wind Power CEO Andreas Nauen. "Now we're a grown-up member of the Siemens family."
The Siemens unit is thriving thanks to a niche strategy: It focuses on sales of turbines and related gear for use offshore, rather than on land. In that growing market, Siemens is No. 1, with more than half of all sales in 2009. In the past year, Siemens has won huge orders for offshore projects, including a $4 billion deal to provide 500 turbines to Denmark's DONG Energy for the North Sea. "We had been constructing wind parks one by one. Now we are trying to industrialize production," and Siemens was the only supplier able to provide so many machines, says Anders Eldrup, DONG's chief executive.
Offshore projects let the Munich conglomerate exploit its close ties with utility companies. Long a force in electricity generation and transmission, Siemens has years of experience working with European power companies such as DONG and Germany's e.on, which dominate the offshore market. Onshore projects, by contrast, are less complex and tend to be built by newcomers to the power business, so Siemens doesn't have a built-in advantage. "They understand the issues utilities have," says Eduard Sala de Vedruna, an analyst at Emerging Energy Research in Barcelona.
Those offshore orders helped push Siemens' renewable energy sales up by 55% in the nine months through June, to $3.4 billion, while profit nearly doubled, to $450 million. Siemens' wind business has grown nearly sevenfold since the company entered the market in 2004 via its acquisition of Brande-based turbine maker Bonus Energy, an offshore specialist.
Rivals are starting to follow Siemens' lead. GE has focused almost exclusively on the land-based market in the U.S., but in September it bought Norway's ScanWind. The $18.5 million deal gives GE access to "direct drive" technology, which eliminates many moving parts. That's important offshore because it reduces the chance of a breakdown, saving the cost of dispatching workers by boat to make repairs. "Offshore, reliability is critical," says Vic Abate, a vice-president at GE Energy, which sold $6.7 billion worth of renewables-related equipment and services last year.
Siemens knows it must broaden its focus to reach its goal of becoming the No. 3 producer of wind turbines globally by 2012. While offshore capacity may grow tenfold in the next decade, it's still a scant 1.5 gigawatts globally—a sliver of the 120 GW installed on land, where costs are about half of those offshore. So Siemens is expanding its turbine-making capacity in the U.S., where almost all new wind farms are on land.
Siemens hopes to guard its dominance at sea with new technologies such as a floating platform for use in deeper waters. The company also is testing its own direct-drive system. But the best sales argument Siemens can offer risk-averse utilities may be its track record offshore. Says Siemens wind boss Nauen: "We have a time and knowledge advantage."