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Gamesa is a Spanish wind manufacturer that was originally a more diversified renewable energy company, however in 2008 the company sold off its solar arm, allowing it to focus exclusively on developing wind technology. Gamesa's market share of 11% makes the company one of the world's largest developers of wind technology; in the last 18 months, the company built four production plants in the U.S., three in China, and two in Spain, increasing its exposure to several high-growth wind markets. Notably in 2007 Gamesa entered into an agreement to supply at least 3,168 towers a year to another Spanish company, Windar Renovables, S.L., through 2019.^[1]

At $800 per kilowatt, the installation cost of large wind farms rivals those of traditional gas and coal plants. Because of this, the wind market has gained a cost advantage over other renewables. To take advantage of this, in 2009 Gamesa introduced the world's first 4.5 MW turbine that can be transported and assembled with the same means as those used for a 2 MW wind turbine.^[2]

Despite the economic viability of wind energy, however, it cannot hold up in the face of coal, which is available for continuous power generation, while wind is only available 20-30% of the time^[3] . For this reason, Gamesa's expansion in the U.S. and China may yield limited results: both are among the top three coal exporters and consumers in the world. Currently, however, public opinion is on Gamesa's side, and legislative mandates for increased renewable energy use have led to subsidies that give wind an economic advantage. Gamesa competes with other wind developers like Vestas, Suzlon, General Electric, Enercon, and Siemens.

Business and Financials

Gamesa produces mainly small-to-medium sized turbines with capacities between 850 kW and 2 MW. The smaller turbines are ideal for high-wind regions, while the mid-size turbines can generate even from weak gusts. In 2009 the company released the world's first 4.5MW turbine that took the same amount of transportation and assembly as a 2MW turbine. The company also builds wind farms with its turbines. In 2007, Gamesa's sold contracts for wind generators and farms totaling around 8,000 MW - twice the firm's entire production capacity. At the end of 2008 Gamesa's production capacity in the US exceeded 900 MW, 500 MW in China and over 2,200 MW in Europe and total capacity reached 4,500 MW. Worldwide installations reached 27,056 MW up 35% a compared to 2007.^[4]

2008 Revenue by Geography^[5]

As of the second half of 2009 sales were down by 3% to €1.6 billion, while net profit remained steady at €80 million, as compared to the second half of 2008.^[6]

In 2008 sales reached €3.8 billion up 20% from 2007. Total megawatts (MW) of energy sold was 3,684 up 11% from 2007. Sales were affected by reductions in sales in Spain, down by over 50%, and rising raw material costs, but were supported by expansions in production which increased the ability to leverage demand from government supported markets in the U.S. and China.^[7]

In 2007, 44% of Gamesa's turbine sales came from Spain, 23% came from the U.S., 15% came from China, 13% came from the rest of the world, and 5% came from the rest of the world. 42% of the company's 2007 wind farm installations occurred in Spain, 25% occurred in the U.S., 17% occurred in Germany, 12% occurred in Italy, and 4% occurred in France and Portugal. Notably in 2007 Gamesa entered into an agreement to supply at least 3,168 towers a year to another Spanish company, Windar Renovables, S.L., through 2019.^[8]

Business Segments

Manufacturing (89% of 2008 Revenue)^[10]

Manufacturing is the largest business unit and includes wind generators and wind components. In 2008 total revenue from Manufacturing was €3.65 billion and net profit was €157 million.^[10] In the same year in-house production of nacelles increased by 12% and blades by 25% with respect to 2007. This growth in production allowed deliveries in 2008 to reach 3,300 MW.^[11]

Generation (11% of 2008 Revenue)^[10]

The Generation segment involved the development, promotion and sale of wind farms. It also included a solar power unit until its sale near the beginning of 2008. For 2008 total revenue from Generation was €445 million and net profit was €165 million due mainly to the sale of its solar power unit.^[10]

Divestitures

In February of 2008, Gamesa sold its solar segment to First Reserve Corporation for €261 million, allowing the company to get rid of €53 million in debt. Though the solar segment brought in 5% of the company's 2007 EBITDA, by selling it Gamesa can turn its R&D efforts away from effectively competing in a fast-growing, highly competitive market to developing within a market in which it is already entrenched: wind.

Trends and Forces

Gamesa is Focusing its Expansion on Three Growing Markets: Europe, China, and the U.S.

In the last year-and-a-half, Gamesa has started nine new production facilities: four in the U.S., three in China, two in Spain^[12]. Of the 20,073 MW of wind generators installed worldwide in 2007, 26% was installed in the U.S., 17.5% was installed in Spain, and 17.2% was installed in China^[13]; three countries made up 61% of the company's revenue. Gamesa hopes to expand its production in these three regions, where wind growth has taken off. There are, however, pros and cons to all three:

• The United States: The U.S. saw the highest growth in wind turbine installations in 2007, due to legislative support for renewable energy in twenty-six states. The U.S. is, however, one of the three largest coal exporters and consumers in the world, and is home to three of the six oil majors. With fossil fuels so firmly entrenched in the American economic and political sphere, it will be difficult for wind to gain long-term support from the federal government or, for that matter, any of the coal states.
• Spain: Spain receives 9% of its electricity from wind energy, with room to grow^[14]. Furthermore, Gamesa supplies over half of Spain's installed capacity^[15]. Spain's energy use is dwarfed by countries like the U.S. and China, however, making it far less lucrative, though producing in Spain gives the company the ability to sell throughout Europe.
• China: Though China's growing energy demand as well as its large share of the wind market in 2007 make it appear to be an ideal location for growth, a number of smaller wind companies have emerged out of the country's woodwork to steal market share from the industry's big boys. One in particular, China High Speed Transmission Equipment, is publicly traded in Hong Kong and has 90% of the Chinese market for wind power transmissions^[16]. Furthermore, China is among the top three coal exporters and producers, and, unlike the U.S., has very weak environmental regulations. This drops the installation cost of a coal plant to $1000 per kilowatt^[17]; when considering that the Chinese state supports the use of internal resources over those financed internationally, Gamesa's expansion in the country seems much riskier.

Wind Energy is the Most Economically Competitive Form of Renewable Energy

As one of the top turbine manufacturers, Gamesa is well-positioned to take advantage of wind's economic strengths. Wind turbines have the lowest installation costs of any of the renewables, especially with large wind installations, which take advantage of economies of scale to reach lows of $800 per kilowatt installed^[18]. Small wind farms and individual turbines can cost up to $3,500 per KW installed^[19], which is a bit higher than the average geothermal plant, at $2500 per kilowatt installed^[20], but still less expensive than the $8,000 per kilowatt installed^[21] associated with photovoltaics. Wind farms also have the capacity to generate much more electricity than geothermal or solar installations. Wind rivals natural gas ($1200 - $1600 per kilowatt installed^[22]) and is much less expensive than a coal plant that has all the emissions retrofittings ($2,200 - $3,700 per kilowatt installed^[23], though gas and coal plants generally take up much less land than wind farms with equivalent capacities, and are available continuously, while wind is only available 20-30% of the time.^[24]

Gamesa's Smaller Turbine Sizes Make it Less Likely to Supply for Large Wind Farms

The cost difference between a large wind farm and a small one can be up to $2,700 per kilowatt hour installed^[25]. This is because larger farms tend to use larger turbines, which have economies of scale: for example, moving from a 150kW turbine to a 600kW turbine (4x increase) makes the price triple, rather than quadruple. Gamesa's largest turbine is 2 MW. Compared to competitors like Vestas Wind Systems and Enercon, who both produce 4.5 MW turbines, Gamesa's turbines will be less appealing to electric utilities and other energy companies trying to build large-scale, cost-efficient wind farms. If Gamesa itself is contracted to build the wind farm, however, the company will be able to cut down on value-added and transportation costs, making its turbines more appealing.

Renewable Energy Legislation Gives Wind Companies like Gamesa a Strong Cost Advantage

The U.S. has relied heavily on tax subsidies and direct government support to move the wind energy forward. Historically, wind energy has benefited from an investment tax credit, especially in California which saw a host of installations of wind turbines in the 1980's. Unfortunately, these turbines never needed to actually generate power in order to receive the credit. The second round of tax subsidies for wind focused on the Production Tax Credit (PTC), currently at 1.9 cents per kwh produced. The American Recovery and Reinvestment Act of 2009 included a 30% tax credit on new purchases of small wind energy systems across the United States with capacity of up to 100kW.^[26] Tax credits have been very beneficial for wind production, encouraging new investment and fulfillment of power production expectations.

Aside from a production tax credit on renewable energy sources (including wind), and the Renewable Portfolio Standards that have been adopted by 26 states, the U.S. government is coming out in vocal and financial support of wind energy. On May 23rd, 2008, the U.S. Department of Energy released a report titled "20% Wind Energy by 2030" stating that, even with contemporary wind technology, it will be possible for the U.S. to generate 20% of its electricity through wind farms by the year 2030, a move which would reduce natural gas consumption by 11% and coal consumption by 18%. China is planning on having 100 GW of wind energy installed by 2020.^[27] Even oil maverick T. Boon Pickens is getting into wind, investing over $2 billion in a Texas wind farm in May, 2008.^[28]

Since the passing of the American Recovery and Reinvestment Act, by May of 2009 $118 million has been announced to support the wind industry. Notably, in April of 2009, through the Department of Energy (DOE), $93 million was allocated to support further development of wind energy in the U.S. This strong support will move the industry forward through expanding domestic capabilities. It will allow for advancements such as the ability to test blades longer than 50 meters, which currently can only be done in Europe. It will also increase the cost competitiveness of wind energy, speed the next generation of turbines and the creation of large-scale offshore facilities.^[29]

At the end of June 2009 the Obama administration announced that it had issued five offshore exploration leases for wind energy production. The leases included areas 6-18 miles off of the coasts of New Jersey and Delaware. The leases were granted to: Bluewater Wind New Jersey Energy, Fishermen’s Energy of New Jersey, Deepwater Wind, and Bluewater Wind Delaware.^[30] There are other proposed leases off the coast of Northern California, Florida and Georgia.^[31]

The exploratory leases will allow for the creation of meteorological towers to collect data on wind speed, intensity and direction. The leases will cost about $17,000 per year and the data collected from them will be used to support future renewable energy projects and to assist coastal states in meeting renewable energy requirements. It has been proposed that offshore wind energy could account for nearly one-fifth of the U.S. wind capacity by 2030.^[30]

Gamesa's Sale of its Solar Unit Reduces its Exposure to a Highly Competitive Market

On February 28th, 2008, Gamesa agreed to accept €261 million from First Reserve Corporation, a private equity firm, for its solar power division, Gamesa Solar. Though Gamesa Solar was the largest solar company in the highly competitive Spanish solar market^[32], the recent, explosive growth of entrants into the solar market means that Gamesa's international expansion would have been difficult. With companies like SunPower reaching record high efficiencies and First Solar reaching record low costs, while Chinese market entrants like Suntech, Solarfun, and JA Solar use cheap labor and a low-regulation environment to boost margins, Gamesa would have to spend large amounts of money on research and development in order to effectively compete. The solar segment had margins of 9%, stronger than the company's turbines section but weaker than its wind farm segment; however, its earnings made up only 5% of Gamesa's EBITDA, making it a relatively inefficient investment. Meanwhile, the company is already well established in the wind market; its sale of its solar segment simply allows it to cut down debt and focus on gaining market share in its primary market.

Competition

Gamesa's turbines make up over half of Spain's installed wind capacity, and the company itself held 11% of the world wind market in 2008.^[33]

• Suzlon Energy Limited - By acquiring REpower and taking advantage of global wind opportunities, India's strongest wind entrant has captured a global market share of 7% in 2008.^[34][33]
• Vestas - Vestas is the largest wind turbine and system manufacturer in the world and held 19% of the global market share in 2008.^[33]
• General Electric Company (GE) - GE held 18% of the global market in 2008 and has installed over 10,000 wind turbines with a worldwide capacity of 15,000 MW.^[35][33]
• Siemens - Siemens Wind owned 7% of the international wind market in 2008, though the electronics company wants to expand its annual production to 4,500 MW (enough to give it 15%).^[36][33]
• Enercon - Enercon in 2008 held 9% of the world market share through installation of over 13,000 turbines in more than 30 countries.^[37][33]

Notes

1. ↑ Gamesa 2008 Annual Report
2. ↑ Gamesa Press Release July 29, 2009
3. ↑ Ocean Power Technologies Inc. Presentation to U.S. Senate, May 30th, 2001
4. ↑ ^{4.0 4.1} Gamesa 2008 Annual Report
5. ↑ Gamesa 2008 Annual Report Pg.30
6. ↑ Gamesa Half Year Results 2009
7. ↑ Gamesa 2008 Director's Report Pgs. 5-7
8. ↑ Gamesa 2008 Annual Report
9. ↑ Gamesa 2007 Results Presentation, Slide 5
10. ↑ ^{10.0 10.1 10.2 10.3} Gamesa Annual Report 2008 Pg. 27
11. ↑ Gamesa Annual Report 2008 Pg. 1
12. ↑ Gamesa News: "Gamesa ends 2007 with sales growth of 36% and net profit of €220 million"
13. ↑ Gamesa 2007 Results Presentation, Slide 9
14. ↑ "Energy companies make wind power a top investment"
15. ↑ HotStocked.com: "Wind Power and Gamesa Corporation: 2007 in Review, 2008 in Expectations"
16. ↑ Maria Energia: "Chinese Wind Power Company Plans IPO"
17. ↑ Gristmill Post by GreyFlcn, July 19th 2007
18. ↑ http://www.telosnet.com/wind/future.html
19. ↑ California Energy Commission: Economics of Owning and Operating DER Technologies"
20. ↑ U.S. Department of Energy, Energy Efficiency and Renewable Energy: Geothermal FAQ
21. ↑ http://www.wind-works.org/Solar/SolarPVCurrentInstalledPricesperkWinCaliforniaElsewhere.html
22. ↑ http://www.memagazine.org/mepower03/bbuster/bbuster.html
23. ↑ Gristmill Post by GreyFlcn, July 19th 2007
24. ↑ Ocean Power Technologies Inc. Presentation to U.S. Senate, May 30th, 2001
25. ↑ California Energy Commission: Economics of Owning and Operating DER Technologies"
26. ↑ Database of State Incentives for Renewables and Efficiency
27. ↑ SeekingAlpha: "Wind Power, Big and Small"
28. ↑ MarketWatch: "Department of Energy Says 20% Wind Power Achievable"
29. ↑ U.S. Department of Energy Energy Efficiency and Renewable Energy News, Recovery Act Announcement: Secretary Chu Announces $93 Million from Recovery Act to Support Wind Energy Projects, April 29, 2009
30. ↑ ^{30.0 30.1} Mouawad, Jad First Offshore Wind Leases Issued Green Inc. June 3, 2009
31. ↑ U.S. Department of the Interior- Offshore Energy Minerals & Management, accessed on July 6, 2009
32. ↑ Gamesa News: "Gamesa sells its solar unit to first reserve for 261 million euros"
33. ↑ ^{33.0 33.1 33.2 33.3 33.4 33.5} Environmental Leader: Wind Turbine Market Share Revealed
34. ↑ "FT: Suzlon Sizzling"
35. ↑ GE Energy
36. ↑ "Siemens AG's Siemens Wind Power to Set Up Wind Turbine Plant in China-DJ"
37. ↑ Google Finance: Enercon
38. ↑ Nordex Wind Turbines
39. ↑ Siemens Wind Turbines
40. ↑ Enercon Wind Turbines: Technical Specifications
41. ↑ Gamesa Products
42. ↑ GE Wind Turbines
43. ↑ Vestas Wind Turbines