Wind Turbine Makers Become Top Stock Performers as Growth Surges

Vestas Wind Systems A/S Turbine Production
Workers prepare a wind turbine tower, manufactured by Vestas Wind Systems A/S, in Esbjerg, Denmark. Photographer: Freya Ingrid Morales/Bloomberg

Europe’s wind turbine makers are becoming top performers in the stock market as orders surge and the industry enjoys the fruits of cost cutting in years past.

Vestas Wind Systems A/S, the biggest manufacturer of the machines, on Wednesday detailed record first-half orders as profits exceeded analyst forecasts. That followed record production at German rival Nordex SE and a doubling of profits at Spain’s Gamesa Corp. Tecnologica SA.

From U.S. President Barack Obama’s Clean Power Plan to his Chinese counterpart Xi Jinping’s goal to halt rising greenhouse gases by 2030, leaders are rolling out policies as part of a United Nations drive to reach a global deal on climate change this year. Vestas and its rivals slashed costs and jobs in years past to pare back overcapacity that gutted margins and now are benefiting from increasing demand.

“The market is definitely strong this year, and it’s a combination of policies and political will to tackle climate change and to increase the share of renewables,” Vestas Chief Executive Officer Anders Runevad said in a phone interview.

Obama aims for the U.S. to get 28 percent of its power from renewables by 2030, up from 5.5 percent now. The European Union’s renewable energy target for the same year is 27 percent and China aims to get 20 percent of energy from renewables and nuclear power.

Installations Boom

Wind power is among the cheapest forms of renewable energy. Global installations will jump by a quarter in 2015 to a record 60 gigawatts, according to Bloomberg New Energy Finance forecasts.

The targets have helped Vestas shares surge about 70 percent this year. Nordex is up almost 80 percent, and Gamesa leads the pack with a 90-percent rise, the best performer in the Stoxx Europe 600 index.

Vestas raised its full-year guidance in May. Gamesa did so in June. Nordex Chief Executive Officer Lars Bondo Krogsgaard said in July he expects to “substantially exceed” full-year forecasts.

“The near-term project pipeline is stock full, and developers are busy executing them,” said David Hostert, a wind industry analyst at Bloomberg New Energy Finance.

A 50-percent drop in the price of oil in the past year hasn’t hurt the wind industry, which typically competes with coal- and gas-fired plants. The lifetime cost of building and operating a new wind power plant is now comparable with that for traditional technologies in about 30 countries, Runevad said, without naming them.

‘Demand Story’

“It’s a demand story for now, but it’s also a question of all the efficiency measures that have been put in place over the past few years,” Jacob Pedersen, an analyst at Sydbank A/S said Tuesday in a phone interview.

After being hit by the global economic crisis, Vestas was forced to cut almost a third of its workforce and close a dozen factories. Gamesa shed more than a quarter of employees.

The past woes are a reminder of how volatile the industry can be, dependent as it is on government policies and subsidies. The U.K. this year said it will end a subsidy program for onshore wind a year earlier than planned.

BNEF’s Hostert pointed to Germany, Poland and France, which are moving towards more competitive auction systems for wind projects that may reduce demand in coming years.

In the U.S., developers have until the end of next year to complete projects and qualify for an industry tax credit. In the absence of its renewal, BNEF forecasts U.S. installation to plummet to about 1.3 gigawatts in 2017 from more than 10 gigawatts in 2016 and about 9 gigawatts this year.

“Just because the champagne corks are popping now, doesn’t mean that everything’s dandy,” said Hostert.

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