Vestas Gains on Mitsubishi Heavy Deal for Offshore Wind

Vestas Wind Systems A/S (VWS), the Danish turbine maker that’s been unprofitable for two years, agreed to form a venture to develop offshore wind energy with Mitsubishi Heavy Industries Ltd. (7011) Vestas’s shares surged.

The venture will start in March 2014 and be equally owned by each company. It will design, procure, build and sell offshore wind power plants, Mitsubishi Heavy said in a statement to the Tokyo Stock Exchange today. Mitsubishi has an option to expand its share to 51 percent in April 2016.

The Japanese company will inject 100 million euros ($134 million) into the venture and provide another 200 million euros if milestones are met. That will help Vestas bring the technology to market even as it works to lower fixed costs by 400 million euros and return to profit.

“Vestas has essentially sold its offshore business to this new joint venture that will come to be controlled by Mitsubishi,” Justin Wu, Bloomberg New Energy Finance’s head of wind analysis, said in an e-mail. “Vestas keeps its core business intact, offloads a potentially significant financial burden, but receives no cash in return.”

The venture will take over development of the Vestas 8-megawatt sea-based turbine, the V164, along with orders for its V112 offshore machine. Vestas shares jumped as much as 12 percent to the highest since June 2011 in Copenhagen trading.

‘New Chapter’

“Today marks the beginning of a new chapter in offshore wind, a market segment with significant growth potential,” Marika Fredriksson, Vestas’s chief financial officer, said at a press conference in Tokyo today.

The pace of offshore wind installations has slowed this year, with the industry struggling to make grid connection in Germany and tap government support in China. Bloomberg New Energy Finance forecasts 1.7 gigawatts of turbines at sea will be installed this year, compared to 1.9 gigawatts in 2012. The market may grow to about 8 gigawatts in 2020.

The partnership bolsters Vestas’s ability to compete with Siemens AG (SIE) of Germany, the largest manufacturer of offshore turbines by capacity installed last year, said Kasper Larsen, a credit analyst at Danske Bank A/S (DANSKE) in Copenhagen.

“From a strategic point of view, this JV is becoming more capable of competing with Siemens in the offshore wind turbine market,” Larsen said. “You can now address utilities in a different manner than Vestas was able to do before.”

Partner Sought

The agreement completes 13 months of discussions between the two companies. Vestas sought a partner for its biggest-ever turbine and to tap the offshore wind market to relieve the strain of developing the machines and tap new sales channels.

“We made the right decision to pick Vestas as a joint venture partner because the company is a pioneer in offshore wind and has excellent technology and a track record,” Masafumi Wani, an executive vice president and head of power systems at Mitsubishi Heavy, said at the press conference. “Together, we aim to become a global leader in offshore wind by combining the two companies’ ability and experience.”

The venture will explore ways to incorporate Mitsubishi Heavy’s hydraulic drivetrain technology in a new turbine instead of mechanical gears, Wani said. The hydraulic unit is based on technology developed by U.K.-based Artemis Intelligent Power, a company Mitsubishi Heavy bought in 2010.

Mitsubishi Heavy may consider later whether to buy shares in the company, according to Wani. The venture was set up based on predicted growth in the offshore wind sector around 2016 in Europe. “At the moment, nothing has been decided,” he said.

Foreign Trade

Vestas’s new chief executive officer, Anders Runevad, pledged last month to expand the company’s foreign business and to continue to invest in offshore technology.

“The challenge is very clearly profitability,” Runevad said at the time. “Vestas has geographical spread and market leadership strengths, which is something to leverage on and continue to build on the international presence.”

The former Ericsson AB executive took over at Vestas on Sept. 1 after Ditlev Engel was fired.

Vestas said it doesn’t expect the transaction to have any effect on its annual accounts this year, and only a “marginal” impact on next year’s revenues. The company will book as a special item a gain of 40 million euros when the transaction closes.

The March 2011 Fukushima nuclear power plant disaster in Japan has prompted a surge in investments in clean energy such as wind and solar.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Alex Morales in London at amorales2@bloomberg.net

To contact the editors responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Jason Rogers at jrogers73@bloomberg.net

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