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 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. Gamesa, however, may be forfeiting this advantage by not producing turbines with capacities above 2 MW, while competitors like Vestas and Enercon produce turbines over twice as large. 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[1] . 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. [edit] Business and FinancialsGamesa produces 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. 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. This backlog means that for the next 2.5 years, the company's production capacity is fully committed, though it has nine manufacturing facilities in construction to increase future capacity.
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.
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. [edit] Trends and Forces[edit] 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[3]. 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[4]; 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:
[edit] Wind Energy is the Most Economically Competitive Form of Renewable EnergyAs 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[9]. Small wind farms and individual turbines can cost up to $3,500 per KW installed[10], which is a bit higher than the average geothermal plant, at $2500 per kilowatt installed[11], but still less expensive than the $8,000 per kilowatt installed[12] 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[13]) and is much less expensive than a coal plant that has all the emissions retrofittings ($2,200 - $3,700 per kilowatt installed[14], 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.[15] [edit] Gamesa's Smaller Turbine Sizes Make it Less Likely to Supply for Large Wind FarmsThe cost difference between a large wind farm and a small one can be up to $2,700 per kilowatt hour installed[16]. 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. [edit] Renewable Energy Legislation Gives Wind Companies like Gamesa a Strong Cost AdvantageThus far, governments have been major drivers of the wind industry. There has been much legislation recently passed that supports wind development:
These renewable energy standards are all supported through tax breaks and subsidies, both for installers and buyers. In the U.S., for example, a subsidy worth 63% of the capital cost of renewables (like wind) is active through 2008, and is expected to be extended further[18]. With wind energy already far cheaper than alternatives like solar, a 63% subsidy would drop a large wind farm to $500 per kilowatt installed - nearly three times cheaper than a gas power plant. This cost advantage would give electric utilities a strong incentive to invest in wind turbines; companies like Xcel Energy have already started to enter the field. As one of the top five wind companies, Gamesa has seen and will continue to see benefits from legislative support of its technology. [edit] Gamesa's Sale of its Solar Unit Reduces its Exposure to a Highly Competitive MarketOn 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[19], 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. [edit] CompetitionGamesa's turbines make up over half of Spain's installed wind capacity, and the company itself holds 16% of the world wind market[20].
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