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Leo Berthier

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Dr. Steffen Hundt is the owner of the chair of Corporate Sustainability &amp; Resource Management at the University of Freiberg, Saxony. He is also CEO of the renewable energy advisory firm Think RE GmbH, specialized on direct investments in renewables and Power Purchase Agreements (PPAs).

Dr. Steffen Hundt

Dr. Mario Richter ist Director Corporate Development &amp; Strategy bei Nordex SE. Er ist außerdem Dozent für Wirtschaftswissenschaften an der Hochschule Fresenius Business School in Hamburg.

Dr. Mario Richter

1. IntroductionGlobal wind energy had an all-time record year in 2020 with 93 gigawatts (GW) of new capacity installed. With an approximate average rated power of 3.5 megawatts (MW) per newly installed turbine, this means approximately 50.000 wind turbines have been installed globally since the beginning of 2020. These are record numbers for the wind industry, achieved despite difficulties caused by the corona pandemic, especially in the first half of 2020.At the same time, many wind turbine manufacturers struggle financially, and the industry has been in and still is in a consolidation phase. Many turbine manufacturers have left the market in the past ten years either by being merged into another turbine manufacturer or due to bankruptcy. At least two of the remaining companies are currently in severe economic situations. This is somewhat counterintuitive: record high installation numbers coupled with the positive political tailwind enjoyed by renewable energies would indicate a boom phase for the companies in the market, yet the turbine manufacturers face tough times, and the consolidation is not over.Corporate M&amp;A activity has played an important role in the consolidation process; however, the topic has been investigated very little so far. Thus, the aim of this article is to analyse corporate M&amp;A activity in the global wind energy market by reviewing past transactions, investigating key drivers, and framing the outlook. The scope of this analysis is focused on wind turbine manufacturing and operation and maintenance (O&amp;M) services, excluding M&amp;A activities in the project development space and among component suppliers.This article is structured as follows: Section 2 briefly puts wind energy in the context of the global energy transition, while section 3 summarizes the status of the wind energy market in particular. Section 4 specifically investigates M&amp;A in the global wind industry and analyses activity in wind turbine manufacturing and O&amp;M services. Section 5 summarizes the findings and concludes the outlook for the wind industry with regards to potential future M&amp;A activity.2. The global energy transition and the role of wind energyThe world sees unprecedented levels of consensus for a transition towards more sustainable ways of energy generation to reduce greenhouse gas emissions and mitigate the impacts of global warming. The United Nations Climate Change Conference, the Intergovernmental Panel on Climate Change, and popular grassroots movements like Fridays for Future have sounded a clarion call, generating awareness among politicians and a broader public audience.With the European Green Deal and U.S. Infrastructure Bill, tremendous funds are being mobilized towards decarbonizing energy infrastructure. While some countries already actively drive the transition, a review at the global scale provides the necessary perspective: the renewable energy transition is still dawning; wind energy, concomitantly, enjoys tremendous prospects along the road to a greener tomorrow.<img src="https://cms.manda.co/storage/ma-review/2022/02/A04-Abb01-2201.png">Today, global gross electricity production is comprised of 62.9% fossil fuels and 10.3% nuclear power. Hydroelectric plants contribute 16.0%, wind energy contributes 5.3%, and solar 2.6%. Biofuels and waste contribute 2.4%, geothermal energy, tidal energy, and other sources account for 0.5%. Among renewable energy sources, wind and solar PV are uniquely adoptable, adaptable, and scalable. Together they contribute 7.9% to gross electricity generation. In contrast, hydro energy is a traditional source of renewable electricity generation with limited options for expansion. Other technologies, such as biomass, biogas, geothermal energy, or concentrated solar power will also play a role, but remain limited in large-scale application. Analysts and key stakeholders alike agree that wind and solar PV are the two key technologies for the realization of the energy transition. In Blomberg New Energy Finance’s (BNEF) greenest scenario, they hold that 56% of global primary energy should come from wind and solar by 2050 compared to 29% from other renewables. According to the International Energy Association (IEA), Net Zero 2050 will entail 70% of global electricity generation stemming from wind and solar PV. Hence, there is tremendous potential to expand the use of wind energy around the world in the next decades.<img src="https://cms.manda.co/storage/ma-review/2022/02/A04-Abb02-2201.png">3. The global wind energy marketBy the end of 2020, total global installations of wind energy rose to 742 GW. Increasing from 24 GW in the year 2001, the development over the past twenty years shows the remarkable growth of the technology, now contributing 5.3% to global electricity production.<img src="https://cms.manda.co/storage/ma-review/2022/02/A04-Abb03-2201.png">However, while the overall installed base may be a good indicator for the state of the energy transition, it is more relevant to look at annual new installations, if we want to understand the dynamics in the wind industry. This is because the annual installations drive the revenues and subsequently the profits of the wind turbine manufacturers.The development of annual new installations highlights the dynamic development of the wind industry with significant boom phases, especially from the early 2000s until 2009, but also periods of declining market volumes like in 2013 and from 2015 until 2018. Periods of declining annual installations usually pressure OEMS to decrease prices to sell more and utilize their production capacities and thus loose profitability. 2020 was a record year for the industry with new installations of 93 GW globally. The two main reasons for the tremendous growth in 2020 was the expiry of feed-in-tariff in China and the Production Tax Credit (PTC) in the United States. China is by far the largest single global market for wind energy and accounted for approximately half of global new installations per year over the last year. Industry analysts and company representatives typically separate China and the rest of the world when they investigate the dynamics of the wind industry. This is because western players sell very little in China and Chinese players sell very few wind turbines outside of China. Consequently, this article will also follow this approach and excludes China from the analysis.4. M&amp;A in the global wind energy marketThe wind market has a history of consolidation in the form of market exits and M&amp;A activity. Many companies entered the wind market in the booming years between 2000 and 2009, attracted by high annual growth numbers and a positive long-term outlook. The consolidation mainly started around 2010 in the aftermath of the financial crisis, when overcapacities and financing issues led to fierce pressure on turbine prices. Since then, many companies have left the industry. Today, only a few large global players are left. To take a closer look at the M&amp;A activity and its underlying drivers, we separate the wind market into the wind turbine manufacturing segment and the O&amp;M service segment.4.1 M&amp;A in wind turbine manufacturing<img src="https://cms.manda.co/storage/ma-review/2022/02/A04-Abb04-2201.jpg">The global wind turbine manufacturers, also called Original Equipment Manufacturers (OEMs), comprise a group of manufacturing companies developing and manufacturing wind turbines. Looking into the OEM segment, one trend appears to be dominating: The segment is in a consolidation phase, roughly since 2010. Some OEMs were absorbed by other OEMs and basically lived on as part of another organization, but several firms also left the market through bankruptcies. These developments will be analysed in this section.While in 2010, the five largest players had a combined market share of 76%, the five largest OEMs accounted for a combined market share of 91% in 2020. Today, no significant player is left below the top five. Senvion went bankrupt in 2019. Suzlon saw sales declining and shrank to an insignificant market share of 0.39%. The remaining players are few and so small as to be basically invisible on the global market. Reviewing this consolidation trend among the OEMs through the M&amp;A lens, three types can be distinguished:• Market exit through bankruptcy• M&amp;A between OEMs• Acquisition and integration of suppliers into an OEMMarket exits through bankruptcySeveral wind turbine manufacturers had to leave the market over the past ten years due to lack of commercial success, folding under pressure from competitors and the shifting economic, technological, and policy landscapes. By far the largest and most widely noticed market exit was the recent insolvency of Senvion in 2019. Senvion’s service business and one blade factory were sold to SiemensGamesa for 200m EUR, the rest of the company is being closed. Reasons for the bankruptcy are complex with some root causes probably dating back to 2007, when Repower Systems (previous name of Senvion) was acquired by the Indian competitor Suzlon. In 2015, Suzlon sold Senvion to the US private equity firm Centerbridge.<img src="https://cms.manda.co/storage/ma-review/2022/02/A04-Abb05-2201.jpg">While the Senvion market exit was a very prominent case due to its size and dramatic fall, previous market exits were numerous, but exclusively comprised smaller players. The main reason for these market exits could be summarized as follows: the OEMs found that they were too small to compete in the global market and failed to find a sustainable niche for themselves. While a few small players are still around in the market, the experience of the recent years shows that they will face tremendous challenges in maintaining an economically sustainable niche. Thus, it can be expected that further smaller OEMs will ultimately also exit the market. Given their small size in the global market, this will most likely not entail any disruptions in the market.M&amp;A between wind turbine manufacturersAll the remaining top 5 global players have engaged in M&amp;A activities over the past ten years. Some of them like SiemensGamesa owe their current shape to M&amp;A activity to a large extent: Siemens Wind Power was created through the takeover of Bonus Energy A.S. by Siemens in 2004. In 2016, Siemens Wind Power was merged with Gamesa into SiemensGamesa in its present form. Shortly thereafter, SiemensGamesa integrated Adwen Offshore (the former Joint Venture between Gamesa and Areva). In 2020, SiemensGamesa expanded its Service business with the acquisition of Senvion’s Service business.Although SiemensGamesa may be the most recognizable product of M&amp;A deals in the wind energy market, it is not unique in this respect. Figure 5 includes several exemplary deals that contributed to industry consolidation. Eight previously stand-alone OEMs mentioned in the list above no longer exist in their original form but have been integrated into other OEMs. This includes: Ecotecnia, Alstom Wind, Scanwind, Multibrid Offshore, Acciona Windpower, Gamesa, Kenersys, and Adwen Offshore. The technology and employees of these companies have been merged into larger players. However, ultimately, these companies have left the market as independent players.Strategic acquisitionsThe large wind turbine manufacturers have also engaged in M&amp;A to strengthen their strategic positioning in selected fields.Among the major wind OEMs, Vestas in particular has been active in pursuing strategic acquisitions of smaller companies. With five deals across just five years, they supplemented operational competencies in project development as well as analytics and digital solutions while also enhancing their service footprint in North America and Europe. In addition, Vestas has launched a corporate venture unit called Vestas Ventures in 2020 to invest into external companies with innovative products or processes. The other OEMs have also acquired and integrated companies, but more selectively.<img src="https://cms.manda.co/storage/ma-review/2022/02/A04-Abb06-2201.jpg">M&amp;A outlook for the OEM segment: The market has already consolidated significantly over the past ten years. Though there is limited potential for further mergers and acquisitions remaining at the OEM level, this consolidation phase does not seem to be over yet. The economic pressure on OEMs continues to be immense, which drives the need to further build scale and try to establish some sort of competitive advantage. Further smaller OEMs might still have to exit the market, as their ability to compete outside of ever-dwindling niches continues to erode. Two of the globally known OEMs Suzlon and Enercon particularly face severe crisis and are seen as potential next candidates for some sort of consolidation. For example, in 2019 it became public that Vestas offered to acquire a majority stake in Suzlon for 1bn EUR. The parties ultimately did not agree on the deal. Moreover, Chinese OEMs are increasingly looking to markets outside of China and may be interested in improving market access via M&amp;A. In addition, the trend to integrate strategic acquisitions will most likely continue. With Vestas establishing Vestas Ventures in 2020, the market leader indicates that M&amp;A remains part of the corporate strategy to develop the business.4.2 M&amp;A in wind turbine Operation and Maintenance (O&amp;M) serviceThe wind turbine operation and maintenance segment is practically a separate market from the turbine sales business. The service segment has gained increasing attention from all sides in recent years. Firstly, because the market size is growing as a function of the installed fleet, service has become increasingly relevant for OEMs and asset owners. The industry analysts from Wood Mackenzie estimate that service revenues will surpass the investments in capital expenditures for new turbines in 2025. Secondly, the service segment is seen as more profitable than the actual turbine business: The publicly listed OEMs report EBIT margins of between 16.7 and 24.8% for their service business, whereas the same companies reported overall EBIT margins between -0.2% and 3.2% in the third quarter of 2021.The market is largely dominated by OEMs as they service 65% of the installed fleet. Asset owners conduct in-house O&amp;M services on about 27% of the global fleet. The remaining 8% is serviced by Independent Service Providers (ISPs). It must be highlighted that the ISP segment of the market is highly fragmented and comprises a high number of smaller players.A review of deals in the O&amp;M service segment, as detailed in Figure 7, points to two notable trends: One is the strategy of large OEMs to acquire additional know-how to service turbines of other manufacturers (usually referred to as “Multibrand Strategy” or “Third Party Service”). This trend was initiated with the Vestas acquisitions of Upwind and Availon in 2015 and 2016, respectively. SiemensGamesa reacted to this by securing the Service Business of Senvion in 2020. The second trend is exemplified by ISP Deutsche Windtechnik trying to build scale in the ISP segment fast through acquisitions. As in the turbine business, scale is important in the Service business to enhance profitability.<img src="https://cms.manda.co/storage/ma-review/2022/02/A04-Abb07-2201.jpg">M&amp;A outlook for the O&amp;M Service segment: The O&amp;M Service market might become a dynamic field for M&amp;A in the coming years. With increasing levels of competition, growing market volume, and higher margins than the turbine business, this segment garners significant attention. OEMs continue to focus on the service segment to enhance their strategic positions and profitability. As the field of ISPs is very fragmented, this could be an area for further consolidation through M&amp;A: Either through larger players buying smaller ones, mergers between ISPs seeking to gain scale, or even purchases by financial investors who aim for buy-and-build models.5. Summary and OutlookThe global wind industry has been in a phase of consolidation for the past ten years and still this process remains ongoing. At least 16 wind turbine manufacturers have left the market in these years, either by being acquired and integrated into another OEM or due to bankruptcy. Even despite unprecedented societal and political consensus for climate change mitigation and record-high new installations of wind capacities in 2020 and 2021, the pressure for consolidation remains strong in the wind industry.The main drivers of consolidation at the OEM level are business globalization, extreme price pressure stemming from overcapacities and political attempts to reduce costs for electricity from wind energy. Smaller players have disappeared mainly because they were too small to compete on the global scale and failed to find a sustainable niche in the market. The larger players have aggressively increased market shares primarily through competitive pricing of turbines and M&amp;A. The large OEMs have also selectively acquired companies to add to their capacities and competencies.The O&amp;M service segment has received increased attention in recent years. On the one hand, this is due to its growing in size and thus economic relevance. On the other hand, it reflects how low profitability of the turbine business has guided attention to segments with higher margins. The main drivers of M&amp;A activity in the O&amp;M service segment are the Multibrand Service strategies of the larger OEMs and the race for scale in the ISP segment.Looking into the future, this analysis suggests expecting further consolidation activities even on the OEM level and even more so in the O&amp;M service segment. The drivers of M&amp;A activity in the past years have not fundamentally changed, and some of the players are in severe economic crises. Competition in the O&amp;M service segment continues to increase, while current strategies like expanding Multibrand offerings and building scale at the OEM and ISP level might lead to further M&amp;A activity. Overall, there are no indications why the consolidation should come to an end anytime soon. Thus, the industry is likely to remain an interesting field from a corporate M&amp;A perspective.

In their article, Dr Mario Richter from Nordex and Dr Steffen Hundt from the University of Freiberg explain how the development of M&A transactions in the wind energy sector is progressing and recognise a growing consolidation in the market.

Consolidation continues – M&A in the global wind industry

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