2015 has seen a notable uptick in merger and acquisition (M&A) activity in the wind energy industry, which mirrors activity in broader global markets in general. Thomson Reuters reported a 36% increase in M&A activity and values reaching $3.5 trillion for 2015 (both globally and across all industries), the biggest yearly total since records of this data were kept in the 1980s. The largest news in the wind energy industry is General Electric’s (GE’s) takeover of Alstom’s power generation business. Additionally, Germany’s wind turbine vendor Nordex will take over Spanish turbine vendor Acciona’s wind assets for €785 million ($880 million).
To say this is fully a trend, however, may be an overstatement for the wind energy industry. The merger of the GE and Alstom wind businesses was a happy byproduct of the much larger acquisition by GE of Alstom’s power generation business. The GE-Alstom joint venture should ultimately be good for the offshore market by introducing another major conglomerate-backed offshore vendor to counterbalance Siemens’ approximately 60% market share of operational offshore wind capacity, followed by MHI-Vestas with around 14%.
The Nordex-Acciona deal is more strategic. According to Navigant Research’s report World Wind Energy Market Update 2015, Nordex installed 1,489 MW globally in 2014 and Acciona installed 345 MW. Nordex will improve its access to large markets like Brazil and the broader Latin American market, as well as its footing in the United States and Canada, where both companies have maintained a small footprint. Acciona will get a share and partnership with a company known for good technology and forward-looking R&D efforts that will allow Acciona to reduce its costs. The changing pace of technology in the wind business has been relentless, and the associated R&D commitments—while significant—are not likely a major priority for Acciona, as its core business is focused on construction activities.
Signs of the Future?
Does this suggest that other M&A are on the way? Perhaps. There could be more deals, but the wind industry (excluding China) is mature, so there are few M&A opportunities, and other acquisitions would have to be large. The ownership structures of other players are also somewhat protected. Germany’s Enercon is protected from takeover since a controlling interest in its shares were transferred to the Alloys Wobben Foundation, a trust formed specifically by its founder to protect Enercon from acquisition. Suzlon has a large controlling interest by its founding family. Gamesa has a major shareholder position by Iberdrola, which has a strategic interest in maintaining turbine supply agreements with the company. Germany’s Senvion, on the other hand, is likely to be sold by Centerbridge Partners (a hedge fund) at some point in the next 5 years. Private equity is not likely to have an appetite for the risk and expenditure required to stay competitive in the offshore market.
Consolidation among the Chinese vendors is likely given the slowing growth of the Chinese economy and the losses and lack of confidence in its stock market. A slowing of China’s annual wind market build cycle is inevitable. Wind projects built in China before adequate grid connection is ensured may be similar to the country’s overbuilding of ghost cities—unoccupied housing complexes built before enough consumer demand was in place. Last year, 23.3 GW of wind was installed in China with almost all of that capacity coming from 22 Chinese wind turbine vendors. M&A activity and one or more outright exits are inevitable among Chinese vendors, as there are too many occupying the market—even if build rates do continue to grow.